MRPL and Chennai Petroleum Corporation are facing a crisis situation with reinsurers stating that their coverage will not be available to any company processing Iranian crude. While both these refiners process Iranian crude oil, Chennai Petroleum Corporation is worse affected as the Iranian oil companies have a 15% stake.
Until now crude companies thought that the international sanctions would pose a problem only to covering Iranian crude imports. Companies have worked their way around this issue by offering cover up to $50 million out of their own net worth. However, international reinsurers have informed the General Insurance Corporation that the sanctions against Iran would also apply to any facility that is processing crude imported by Iran. This means that if there is any loss in any of these facilities reinsures, despite accepting the premium, will refuse to pay the claim based on the sanctions clause.
Indian insurance companies say that it is not possible for them to take the risk on their own books. “The maximum cover that we can provide is in the region of $60 million. The amount at risk in a refinery is much higher and can only be covered with the help of reinsurance support”.
Insurers say that the refinery and crude oil are both Indian assets. However, the reinsurers have said that going by the sanctions even companies that deal with Iranian crude will be out of the ambit of cover. Financial services firms have been extra cautious on Iran related dealings after US regulators imposed stiff penalties on leading international institutions such as Stanchart and Deutsche Borse for violating sanctions against Iran that were imposed in 2008.
One of the ways of addressing the issue, Indian insurers say would be to carve out the portion of liability based on the extent of non-Iranian crude that is processed and offer it to international reinsurers for cover. Domestic insurers would then try to cover the balance portion to the best of their ability.
http://timesofindia.indiatimes.com/business/india-business/Refineries-denied-insurance-over-Iran-crude/articleshow/18360047.cms
