The finance ministry has turned down a petroleum ministry-backed proposal for reinforcing the proposed Indian Energy Insurance Pool (IEIP) with a R24,000-crore sovereign guarantee in order to to support oil imports from Iran.
The proposed IEIP, with an initial corpus of R2,000 crore, is a government initiative to insure Indian refineries that are denied re-insurance cover by foreign firms for import of Iranian crude oil following US and European sanctions.
The finance ministry's stand is despite the fact that rupee payment mechanism with Iran against crude imports is giving some support to the currency right now.
Official sources told FE that in a meeting on Monday convened by the Prime Minister's Office (PMO), the finance ministry categorically ruled out a sovereign guarantee for IEIP. Instead, the ministry said, if needed the government could permit the refineries to opt for foreign insurers or seek Iran's help.
To start with, the IEIP will consist of R1,000 crore from Oil Industry Development Board and a matching contribution from public sector general insurance companies. As the foreign insurance firms refused to give re-insurance cover, local insurers, too, subsequently declined to cover these refineries. Domestic insurance firms usually bank on major global reinsurers to reinsure the risks involved in such transactions or else they could suffer huge losses if they have to pay large claims.
The sources said refiners, including the public sector MRPL and the private company Essar Oil, which are the two largest Iranian crude importers backed by the petroleum ministry, had earlier sought a sovereign guarantee for R24,000 crore on the assumption that the overall maximum permissible loss liability for all the refineries utilising Iranian crude was around that much.