Costs to ship owners carrying petroleum products to the US are rising sharply as a result of a Coast Guard requirement for higher limits on certificates of financial responsibility (CoFRs).

Chief financial officer with Bermuda-based ship owner London & Overseas Freighters (LOFS), Mr. Huw Spiers, said the new US regulation could represent extra costs of about $225,000 per vessel each year for ships making frequentc rude and fuel oil deliveries to the US.

The United States passed legislation in 1990 as a result of the 1988 Exxon Valdez disaster in Alaska, requiring CoFRs as a way of ensuring petroleum-carrying companies would be able to pay for the clean-up of any ecological disaster.

LOFS obtained CoFRs for its four tankers in time for a December 28 deadline set by the US Coast Guard under an insurance scheme called First Line, which is backed by the new Stockton Reinsurance Ltd.

One of the company's ships is what is known as "suezmax'' size, requiring coverage limits up to about $120 million. The other three ships are "panamaxes,'' requiring limits up to about $60 million.

The company also has two new double-hull 150,000dwt suezmax vessels being built, London Glory and London Splendour, one scheduled for delivery in May and the other expected in January 1996.

LOFS expects up-front costs of $34,000 for its 80,000 gross registered ton tanker and $18,500 for each of its 37,000-ton vessels.

They anticipate tacking on a voyage premium of $10,000 each time one of its smaller tankers and $17,000 each time its larger vessels sail to US ports in its first 20 trips.

Mr. Spiers said yesterday, "The industry needed these CoFRs. If you want to trade to the US then you have to follow the rules.

"You may not necessarily agree with the rules all the time. You may not even see that they provide much benefit.

"But if the rule is in place and you want to carry on trading there, you've got to do it.

The new rules under the Oil Pollution Act of 1990 gives the Coast Guard, in the event of an oil spill, authority to chase down protection and indemnity (P&I) clubs directly to pay for the clean up.

The P&I clubs, the ship owners' insurers, refused to take on the added risks, leading to the establishment in Bermuda of two independent companies, Shoreline and First Line. Some ship owning companies used their own resources to provide financial guaranties.

Mr. Spiers said, "There is a solution now, but it is an expensive solution.

You have to look at our $34,000 or $18,500 up-front costs for our vessels. We trade so frequently to the US, so that can get spread a bit more.

"But for someone who has a vessel that maybe will do one voyage to the US in a year, that's a fair chunk out of their income. The more you trade, the more you are spreading it.

"And certainly, if you do more than 20 visits a year then you are spreading it even further, because under the Shoreline scheme, you only pay to a maximum of 15 (trips) and under First Line, you pay to a maximum of 20.

"One of our vessels in 1993 went in (to a US port) 70 times. So on that basis, we pay for 20 and we get 50 for free.'' There is a school of thought that the premiums could be reduced over time as the insurers gain more experience with programmes and realise that the risks are minimal, according to an article in the Financial Times.

Already nearly 1,200 tankers have obtained Coast Guard approval, with a substantial number of them using insurance programmes through the two Bermuda companies Shoreline and First Line.