Customs Targeting LNG Shortages in India

Indian authorities are imposing customs fines on LNG carriers for cargo shortages upon discharge at ports in Gujarat.

These fines take the form of a summons issued by Indian customs authorities. They allege a cargo shortage when a vessel does not discharge the entire quantity of LNG cargo detailed on the bill of lading. The authorities view this “shortage” as a means to reduce the amount in customs duty that would otherwise have been applicable for the full bill of lading quantity. Furthermore, allegations are being made by the same authorities that LNG vessels calling at ports in Gujarat are forcing cargo for propulsion in order to avoid the expense of burning bunkers during the sea passage.

Responding to and defending these allegations requires considerable time and effort by all parties involved. 

In accordance with Section 115 of the Indian Customs Act 1962, local agents must explain why the full bill of lading quantity has not been discharged. This includes providing documentation in support of the natural boil-off of the cargo validly used for propulsion during the voyage. These notifications date back to inbound LNG voyages from 2012, therefore potentially several hundred summonses could be issued.

The basis of these summonses is questionable. It is an established fact that the LNG quantity discharged is almost always less than that at completion of loading due to boil-off and heel requirements. North, through agents, local correspondents and lawyers have provided the Indian customs authorities with explanations on how LNG Carriers operate. We continue to wait to hear whether this explanation has been accepted. 

For LNG carriers equipped with re-liquefaction plants there may still be an issue regarding the retention of heel should charterers require the tanks to be cool for the arrival at the next load port.

There have been suggestions made by the Indian authorities that, regardless of the outcome of these hearings, a system could be introduced similar to current practices in Argentina and Turkey. This system provides that a separate set of bill of ladings will be produced for the agreed heel, boil-off gas used during the voyage and the quantity discharged ashore; effectively splitting the original bill of lading quantity into three sets.

Whilst North has not been made aware of any problems with this system so far, there are obviously concerns about the mechanisms of its operation. For example, the cargo quantity discharged ashore has to be carefully determined so that the set of bills of lading incorporating the discharged quantity is correctly issued. Similarly, there may be difficulties when determining the quantity of boil-off during the loaded voyage. Finally, there are the usual difficulties associated with collecting all copies of the originally issued bills of lading for cancellation in exchange for issuing three split sets as described above. Care must be taken when using the three bill of lading system.

Given the number of LNG carriers across all International Group P&I Clubs affected by this issue, we are working together to ensure a consistent approach. 

North has a designated LNG team that includes mariners and maritime lawyers experienced in LNG. We are here to help our Members on all LNG related matters. For more information contact Allistair Ridgley – Senior Executive (Claims).

Author: Michelle Foster
Senior Executive (Claims)