Insurers refuse to cover 15% in Chennai Petroleum Corp on Iran concerns

State-run Chennai Petroleum Corp Ltd has to pay the price for having two directors from Iran on its board as Western re-insurers have refused to cover 15% of its assets, equivalent to the extent of Iranian equity in the company, because of US and European sanctions against Teheran for its nuclear programme.

The company, a subsidiary of Indian Oil Corp, has two refineries with combined processing capacity of 11.5 million tonnes a year.

“We had managed full insurance coverage of CPCL last year by paying a huge premium. But this year, coverage for over 15% is not available,” a government official said requesting anonymity.

Iranian firm Naftiran Intertrade Company Ltd has 15.4% ownership of CPCL, where Indian Oil Corp (IOC) holds 51.9% stake and balance is with financial institutions and the public.

“The replacement value of the two refineries could be around Rs 23,000 crore, but actual valuation could be much less because they are not new refineries,” a CPCL official said.

IOC, which is hopeful to find a solution, downplayed the Iran factor. “The Iran issue is not the only reason. Even insurance companies are facing problems,” a senior IOC official said, adding that the company was making efforts for the full coverage.

Under pressure from the US and European Union, the foreign reinsures have stopped giving insurance cover to ship carrying Iranian crude oil and now they are also reluctant to cover risks of those refineries that are processing Iranian crude, government and industry officials said.

Fearing sanctions, refineries of Mangalore Refinery & Petrochemicals Ltd (MRPL), Hindustan Petroleum and Essar Oil have substantially reduced imports of Iranian crude oil. Other Indian refineries have either stopped lifting Iranian crude oil or have negligible imports, they said.

“Imports of Iranian crude oil this year is expected to fall by more than half of what India used to import three-four years ago mainly due to transportation and payment issues,” a government official said. India used to import about 21.8 million tones of Iranian crude oil in 2008-09, which was 16.43% of country’s total crude oil imports.

Government officials said Indian insurance firms would try to provide maximum coverage to Indian refineries, but their combined exposure would not be adequate. “India does not follow the US or EU sanctions. It only follows the UN sanction. India will not ask oil firms to stop importing Iranian crude but, purchase of crude oil from Iran will be individual commercial decisions of refineries,” one official said.

India’s crude oil imports from Iran have seen a bumpy ride since the RBI barred a regional clearing houseto settle oil and gas transactions between the countries.

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