Indian Oil Corporation Incurs $64 Million Loss in Jaipur Oil Depot Fire Outbreak

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Researched by Industrial Info Resources (Sugar Land, Texas)--The devastating fire at the Jaipur depot of state-owned Indian Oil Corporation Limited (BSE:530965) (IOC) (Mumbai), which began on October 29, is estimated to have resulted in a financial loss of more than $64 million prior to any insurance coverage being effective. The Sanganer terminal of IOC is housed in the Sitapur industrial area at Jaipur in Rajasthan, and the fire engulfed all 11 storage tanks owned by the company. About $34 million in fuel has been lost.

The depot had 24 million liters of diesel, 7 million liters of petrol, and 1 million liters of kerosene. The fire injured more than 150 people and proved to be fatal for 11. More than 500,000 people have been evacuated from the surrounding area for protection from health hazards caused by the fumes. The magnitude of the fire was so huge that the company had no option but to let it die down on its own while taking precautions to save and protect the surroundings. A neighboring agro center, an electronic manufacturing unit, and a power grid also have been damaged extensively.

The company has obligatory public liability insurance coverage worth about $11 million and a separate product insurance coverage worth $49 million. The public liability insurance is umbrella insurance worth about $21 million, and covers the four public-sector oil companies of India with a capital worth about $11 million per accident. However, the company will have to wait for a few months before insurance companies settle the claim. IOC also will have to satisfy the claims of third parties that have been adversely affected by the fire. The company's insurance reserve is a corpus that will be used to fund third-party claims. The claims will be handled by the consortium of IOC's insurers. The company already has extended a payment of $11 million to the state government of Rajasthan as a goodwill gesture.

The cause of the fire has not been ascertained so far, although it is believed to have been caused by either a leaky valve in one of the tanks or a leak in a pipeline. A high-level committee comprising five members has been set up to investigate the cause of the fire. M B Lal, former Chairman of integrated oil refining and marketing company Hindustan Petroleum Corporation Limited (BSE:500104) (HPCL) (Mumbai), will be heading the committee, which will submit findings after 60 days. Globally, most fires at oil depots are caused by human error when the company has not followed safety protocol, such as routine equipment checks, or has failed to address signs of flaws.

According to IOC officials, the depot has been completely damaged, and it will take up to a year to rebuild and resume operations. The Jaipur depot had been meeting the daily fuel demands of Jaipur as well as the districts of Churu, Dausa, Jhunjunu, Karauli, Sikar, Sawaimadhopur, and certain parts of Bundi. IOC already has made arrangements for continuing fuel supplies by transporting petrol, diesel, and kerosene from its depots at Ajmer, Bharatpur, Chittorgarh, Hanumangarh and Salawas.

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