New Japan cabinet mulls sending Iran oil shipping insurance bill to Parliament: source
Tuesday, 05 June 2012 | 00:00
The Japanese government is considering whether to submit a bill to parliament to guarantee up to $7.6 billion of insurance cover per very large crude carrier for shipments of Iranian oil to make up for the potential loss of protection and indemnity cover when EU sanctions come into effect in July, a government source told Platts Monday.
The move could come after Prime Minister Yoshihiko Noda earlier Monday replaced Land, Infrastructure, Transport and Tourism Minister Takesih Maeda, who was censured in April by the House of Councilors, with Yuichiro Hata, the ruling Democratic Party's chief negotiator on parliamentary proceedings in the house, as part of his cabinet reshuffle.
The government now hopes to proceed with the bill as the replacement of the censured minister, as demanded by opposition parties, has cleared one of the obstacles that had prevented its submission, the source said.
Such a move would be part of a framework Tokyo is currently considering to guarantee the country's oil supplies from Iran beyond July 1, when EU-based P&I cover will no longer be available, the source added.
Tokyo has been pressing Brussels to allow P&I cover for shipments of Iranian oil to non-EU countries to continue beyond the end of June and is now closely watching developments as the sanctions deadline approaches, the source said.
The timing of Japan's actual submission of the bill will be determined, however, by political factors, including whether the current parliament session will be extended beyond June 21, or whether the EU's expected final resolution will allow the P&I cover for non-EU countries to remain beyond June 30 or not, the source said.
EU foreign ministers could still decide to extend P&I cover for non-EU shipments of Iranian oil beyond July 1, and they are scheduled to meet next on June 25.
Now Japanese buyers of Iranian oil are trying to decide on their July deliveries, and a nomination deadline is due June 5, industry sources said.
Industry sources said that some companies may nominate for their deliveries in late July to ensure they have sufficient time to exercise their rights to invoke force majeure because of sanctions if the EU does not agree to allow insurance cover to continue.
The National Iranian Oil Company has already agreed to additional force majeure clauses Japanese companies could invoke in the event of sanctions preventing or limiting execution of contracts. This would require notice of 30 days from the Japanese companies.
Currently, Japanese shipowners can obtain up to $7.6 billion in cover for eventualities ranging from an oil spill to wreck removals and fishery claims, according to an official with the Japan Ship Owners' Mutual Protection & Indemnity Association, also known as Japan P&I Club. Of the total, an oil spill carries a $1 billion cap.
But this $7.6 billion cover will drop to $8 million, the maximum the Japan P&I Club will be able to guarantee, when the EU ban takes effect, the official said.
The Japan P&I Club is a member of The International Group, a largely EU-based association of 13 member clubs that provide liability cover for close to 90% of the world's shipping tonnage.
As Japan has ratified the Civil Liability Convention for oil pollution damage, local shipowners and charters must have a minimum of $150 million of oil spill insurance coverage per VLCC for entering any ports in Japan, sources said earlier.