 "Shipping norms for PSU crude import may be relaxed")
Following the recommendations of the standing parliamentary committee on relaxation of procurement procedure of the crude oil, the ministry has suggested the shipping ministry to change the basic import methodology.
Accordingly, the procedure is likely to be changed from existing system of freight on board (FOB) to Cost and freight (CIF).
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According to officials, in FOB method, many participants will be involved in the entire logistics of import of crude and thus the cost will be spread out among all participants.
However the PSUs oil refiners follow "FOB shipping point" or "FOB origin" where the buyer or the PSU pays for shipping cost and takes responsibility for the goods when the goods leave the seller's premises.
Most of the private players follow "Cost and freight” procedure where the supplier of crude arranges for the carriage of goods by sea to a port of destination, and provides the buyer with the documents necessary to obtain the goods from the carrier.
According to officials close to the development, the crude oil procurement procedure is being reviewed for imparting more freedom to the PSU oil refiners in pricing of the import at par with their private peers. The major objective of this exercise is to bring down the risk and cost of importing crude into the country.
Officials explained that this has become necessary as oil subsidy is getting capped and under recoveries are becoming a constant problem for the PSU companies.
Lesser freedom in finalising oil import procedures especially pricing is further adding to higher outgo on account of crude imports. Therefore it is only timely that PSUs should be given operational freedom to negotiate crude prices and other transport procedures to save import bill on account of crude purchases.
The PSUs import 70-80% of their crude requirement under long term contracts and rest under spot purchases. While the long term contracts are entered into in the beginning of the financial year at fixed prices, spot purchases are contracted depending upon the price situation and demand and supply situation in the domestic market.
Explaining the move official said, the PSUs face a lot of procedural hurdles even in spot purchases which restrict their ability to negotiate prices and lower premiums charged by the crude sellers. Under the current guidelines, the PSU oil companies are not free to negotiate prices with crude sellers.
Even in conditions where price negotiation is profitable, the whole procedure has to be approved by the board, explained an official. By the time, the procedure gets approved, the price fluctuations become unfavorable for the PSU buyers.
In the process, the PSUs are paying exorbitant premium on their purchases as there is no scope of negotiating the prices of the derivatives which they enter for hedging the prices of crude purchases.
There fore one of the major objective of the review is to relax the procedures and impart more flexibility and freedom to the PSU oil refiners in negotiating the prices with the crude oil suppliers.