Easy sail for foreign LNG carriers

Foreign shipping companies bringing in Liquefied Natural Gas (LNG) into India may not be required to have a mandatory 26 per cent Indian participation till 2008.

Keeping in mind the rising crude oil prices, the commerce ministry has proposed that the Directorate of Shipping guidelines that make the minimum Indian participation mandatory be deferred for three years.

This is because prohibiting foreign companies from bringing in LNG on their own vessels would lead to an 8-25 per cent increase in gas prices, the ministry said.

A draft Cabinet note on this issue has suggested that the import of LNG be allowed on the cost insurance and freight (CIF) basis and on the free-on-board (FOB) basis.

The shipping department had earlier proposed prohibiting imports on the CIF basis, whereby the seller or the foreign company itself made the shipping arrangements. This proposal is still pending with the commerce ministry.

Allowing only free-on-board (FOB) imports (where India will make the shipping arrangements), will ensure that shipping companies cannot circumvent the DG Shipping guidelines. This is because if the seller makes the shipping arrangement, the Indian guidelines would not apply.

In fact, Shell imported its first consignment of LNG from Australia for its Hazira plant on a CIF basis in April this year after the DG Shipping guidelines came into force.

The import norms for LNG are being considered in the backdrop of a demand by the European Union to allow companies like Shell to use its own vessels for exports to India. The matter was discussed at the last India-EU summit held at the Hague last year.

Shipping department officials said the main reason behind the prices shooting up with shipping LNG on Indian flag vessels was the tax structure domestic companies were subjected to. For instance, foreign shipping companies were not required to pay that dividend tax, officials pointed out.

The department feels that the present DG Shipping guidelines would allow Indian shipping industry to gain a foothold in the transportation of LNG. At present, LNG shipping is controlled by a cartel of few foreign shipping companies, officials said.

The commerce ministry officials said draft note would undergo a change after incorporating the views of the petroleum, shipping and power ministries. "We have to consider the views of the shipping industry as they need time to grow," an official said.

Representatives of the Indian National Shippers Association recently met Commerce Secretary S N Menon and sought prohibition of LNG imports on CIF basis to allow the domestic sector time to strengthen its presence.