Government rules for FOB against CIF

Vol 4, PW 20 (08 Nov 00) People & Policy

It's not widely known yet but the government has made a policy decision that is sending shivers down the spine of at least two LNG importers to this country.

It has decided to make the import of LNG to India compulsory on a 'Free on Board' basis, not a 'Cost, Insurance, Freight' (CIF) or 'Ex-Ship' basis. This critical policy directive emerged from a meeting of the 'Commitee of Secretaries' on 11th October.

For those of you that don't know, the 'Committee of Secretaries' is a powerful body of senior officials that meets periodically to formulate policy. Only in exceptional circumstances is a decision by the committee overturned by cabinet.

On this day the committee included secretaries from five ministries with an interest in LNG: power, surface transport, petroleum, fertilisers and finance. A source tells Petrowatch there was unanimity to make FOB compulsory "to protect the interests of Indian shipping liners." Interestingly, the meeting admitted that FOB would increase the cost of LNG projects, but that this was outweighed by having Indian shipping liners in the chain.

Two LNG importers have reason to be worried: Enron and the Dakshin Bharat Energy Consortium. In July 1999, Metgas, an Enron affiliate, signed a Confirmation of Intent (COI) with Malaysia LNG Tiga (60% owned by Petronas) for the import of 2.6m t/y of LNG to Dabhol.

On August 3rd Dakshin signed a Heads of Agreement with RasGas to import 2.6m t/y of LNG to Ennore.Both are CIF agreements.