NEW DELHI (Reuters) – India has abolished import tax on very low sulphur fuel oil (VLSFO) used by ships, according to federal budget documents for 2020/21, to reduce costs for local shipping companies.

International Maritime Organization (IMO) rules that took effect on Jan. 1 require ships to use fuels with sulphur content of no more than 0.5%, down from 3.5%, unless they are equipped with exhaust-cleaning systems known as scrubbers.

Some local refiners including Indian Oil Corp and Hindustan Petroleum Corp have started making VLSFO to meet demand. The fuel, however, is not available at all Indian ports, necessitating imports.

Rahul Bhargava, executive director at Essar Shipping, said the tax cut would help cope with demand. “There is a shortage of fuel for coastal movement of vessels,” he said.

A trade source said foreign vessels normally do their fuel bunkering at Fujirah and Singapore. “Tax exemption will reduce the cost and mostly help the local shipping companies”.