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Cheap crude, dear transport bill

Our Bureau

MUMBAI, March 30

WEDNESDAY'S decision of the Organisation of Petroleum Exporting Countries (OPEC) to enhance output limits thereby softening global crude oil prices, may hold a downside for Indian imports in the form of a stiff transport bill.

Ship chartering rates in the global tanker market, firming up in the recent past, are touching new highs in anticipation of more crude oil to transport.

``Spot market rates are at 167-170 on the World Scale,'' a senior official of the Shipping Corporation of India Ltd (SCI), the nodal agency for crude transport, said. This is roughly 20-30 per cent higher than previously quoted levels.

In fact, not long ago, four Suezmax tankers owned by a private Indian company were pulled out of the Indian trade, for reasons ascribed by industry watchers to better earnings prospect from charter abroad.

The rise in charter rates comes at a time when crude oil transport to Indian refineries is caught in an argument between SCI and Indian Oil Corporation (IOC), over charter rates.

Following the scrapping of the `cost-plus' formula, crude oil transport cost had reverted to market rate. This market rate is in itself not a true reflection of global trends as it is arrived at by averaging rates over a large denominator. The indicative rate considered here is the `Afra.'

Provided by the London Tanker Brokers Association (LTBA) `Afra' is a monthly average of charter rates for various sectors across five different ship categories including the Aframax size.

For the purpose of calculating the new `market rate' the average Afra over three months is taken, This makes the so-called market rate depressed from start. While the current sharp increase in spot market rates is happening at handsome premia to the Afra , the rise is sharper still for Indian crude oil transport as the base is anyway rendered low by the three month-average.

It is understood that IOC has insisted, it will pay only according to the three-month average Afra. On the other hand, given the steep rise in charter rates, SCI is finding it difficult to bridge the shortfall in tankers for the Indian trade through spot charters. `` We can charter only if they pay us,'' the SCI official said.