India will set up a special fund to provide insurance to public and private refineries to overcome obstacles from global re-insurers who are not providing cover to Indian oil companies because of sanctions against Iran.
The government is working on a proposal to set up an insurance pool account, which will be funded by both insurance and oil companies and they will share insurance risk, said two officials, working in different government departments, requesting anonymity.
Global re-insurers have recently stopped covering risks of Indian refineries processing Iranian crude oil, pressurizing them to stop crude import from Iran
Officials said finance and oil ministries are preparing the proposal, which will be finalized in consultation with the ministry of external affairs and the Prime Minister’s Office.
“The move will help all refineries importing crude oil from Iran, particularly, Mangalore Refinery & Petrochemicals. This cover will also be available to private company Essar.
After all it is also (an) Indian company,” one official with direct knowledge of the matter said.
Mangalore Refinery & Petrochemicals (MRPL) is the worst affected by the sanctions as it is the biggest buyer of Iranian crude oil. Recently, MRPL managing director PP Upadhya had reportedly said that the refinery would stop purchasing crude oil from Iran unless its risks are covered.
At present, Indian general insurers provide cover to oil firms and then reinsure the risk with global re-insurers. But under US and EU sanctions, the global insurers provide re-insurance with “sanction clause”, which limit the amount to be paid in case a claim arises.
“So, if we have a re-insurance of sayRs 1,000 crore, the amount paid under a claim can be as less as Rs 100 crore under the clauses, which leaves us no option but to introduce similar clause when we take on an insurance cover of an oil refinery,” explained the head of a general insurance firm.