KARACHI, Aug 25: A long drawn legal battle awaits Karachi Port Trust, Pakistan National Shipping Corporation, Pakistan Insurance Corporation and six Pakistani insurance companies that provided insurance cover of about Rs800 million to 67,500 tons of crude oil cargo aboard ill fated Tasman Spirit now lying aground and half broken for almost a month near the Karachi Port.

International surveyors of the six Pakistani insurance companies and their international reinsurers are making a day-to-day report of the oil recovery operations from Tasman Spirit. A Pakistani surveyor — a retired merchant shipman — representing the international insurance company that reportedly provided about $5 million insurance cover to the 24-year old oil tanker ship is also preparing a report of the mishap.

According to local insurance circles, the claims payment of more than Rs2 billion on loss of oil cargo as well as on loss of ship, individual liabilities and damage to coastal marine life, will not be “simple, easy and quick”. To quote a senior executive of an insurance company, it will be a long drawn and cumbersome legal battle for which unfortunately Pakistan does not have a competent lawyer well versed with the international insurance business.

The Pakistani surveyor of the foreign insurance company is said to be an experienced shipman who is well versed with port affairs of Pakistan and foreign countries. He will prepare his report with the help of legal experts of the foreign insurance company. It may take another few weeks when a report on the causes of oil tanker damage will be prepared.

Total oil spill into sea from Tasman Spirit is now being estimated at 22,500 tons. It may go up to 27,000 tons in next few days if an oil tanker from Dubai is not called and deployed in next few days. Navy tanker has been found too small to carry out lighterage operation at the required pace.

Insurance circles fear that loss on account oil spill will go beyond Rs550 million. Of this, a minimum of Rs75 million will have to be passed on to Pakistan Insurance Corporation. Under the law, local private insurance companies have to pass on their 15 per cent of their business to PIC. The insurance company is allowed to retain only 10 per cent of the total insurance business. Of the remaining, the company is given the option to offer 35 per cent of the business to PIC. The rest goes to international reinsurers. Overall PIC has option to retain 42 per cent of the total insurance business.

In such an event, the six Pakistan insurance companies and PIC stand to lose more than Rs240 million, while international reinsurers will suffer a loss of more than Rs210 million.

The six Pakistani insurance companies that provided insurance cover to Rs800 million oil cargo aboard Tasman Spirit are Central Insurance 23.5 per, Eastern Federal Insurance 21 per cent, Adamjee Insurance 20 per cent, New Jubilee Insurance 17 per cent, Habib Insurance 11 per cent and New Hampshire 5 per cent.

Pakistani insurance companies now fear that international reinsurers will offer more harsh conditions for entering into reinsurance treaties with them. These international reinsurers have been demanding high premium rates from Pakistani companies since September 11, 2001 event. Every incident of terrorism in Pakistan has led these international reinsurers to be more tough.

“We fear far tough conditions when we go next January for renewing our insurance treaties with our international reinsurers,” a senior executive of one of the six companies said.

Since September 11, 2001, two prominent international reinsurers — Munich Re and Swiss Re — have narrowed down considerably their business relations with Pakistani companies. This has brought many Japanese and other international reinsurance companies into business. Now these companies are also expected to become hostile and harsh.

The Securities and Exchange Commission of Pakistan (SECP) is now the regulator of insurance sector in Pakistan. It took up the operational regulatory job of the insurance business hardly two years ago from the Ministry of Commerce. Insurance remained an obligation of the ministry for the last more than 50 years. Under a capital market reforms loan from the Asian Development Bank and the World Bank, a new insurance ordinance was framed and enforced last year.