India setting up Rs2,000-cr reinsurance fund for Iranian oil refiners

The Indian government is setting up a fund with an initial capital of Rs2,000 crore to provide reinsurance cover to domestic refineries that process oil from Iraq.

The Indian Energy Insurance Pool, as the fund will be called, will provide insurance to domestic refineries that have been refused cover by global reinsurers due to Western sanctions on Iran over its alleged nuclear weapons programme.

The fund will be run by the state-run General Insurance Corporation of India and will get an annual contribution of up to Rs2,000 crore from Indian insurers and the oil ministry. The corpus will come from the premiums normally paid by insurers for reinsurance cover.

The government will also provide a guarantee for losses of up to Rs10,000 crore, according unconfirmed reports.

Insurance problems threatened to dry up India's crude oil purchases altogether as refiners could not get cover for installations processing the crude when policies came up for renewal.

India, which imports 80 per cent of the oil it consumes, has cut purchases from Iran, along with China, South Korea and Japan under the sanctions as well as because of the difficulty in clearing payments.

India is Iran's second-largest buyer, taking around a quarter of its oil exports - worth around $1 billion a month.

Insurers rely on European reinsurance markets to hedge their risk, but the US-led sanctions supported by the European Union have blocked these reinsurers from involvement in covering shipments of Iranian oil.

According to decisions taken at a meeting called by National Security Advisor Shivshankar Menon last month, the petroleum ministry and the Oil Industry Development Board (OIDB) would jointly commit Rs1,000 crore.

All the public sector general insurance companies will together provide a matching capacity of Rs1,000 crore. Private sector general insurance companies could voluntarily chip in with additional cover capacity, with matching commitment from the ministry and OIDB.

A task force has been set up under a member of the Insurance Regulatory Development Authority to organise the insurance pool and get it off the ground.

The pool would help all refineries importing crude oil from Iran, particularly Mangalore Refinery and Petrochemicals Ltd, whose current insurance cover comes to an end in May. MRPL has so far not found any insurer willing to hedge its risks.