* Leak at new facility causes delay in start-up -source
* MRPL not yet clear on how to unload 1st one mln bbl spot cargo -source
* Oil ministry requests full insurance cover for facility
By Nidhi Verma
NEW DELHI, Jan 16 (Reuters) - Refiner MRPL, the biggest Indian buyer of Iranian crude oil, has delayed to end-January or later the start-up of a facility to handle larger cargoes due to technical and insurance problems, industry sources said.
The refiner has struggled to import all of its 100,000 barrels per day (bpd) in crude under annual contract as OPEC member Iran does not have enough small vessels to serve Mangalore port.
Western sanctions have also cut Tehran's access to other fleets.
MRPL - Mangalore Refinery and Petrochemicals Ltd - launched a trial run earlier this month of its new single point mooring (SPM) facility but had to abandon it after a leak was found, one of the industry sources said.
"The problem is being fixed and may take a few days," said a second industry source, but added the start-up could be prolonged further because Indian insurers don't want to give full cover for the facility if it handles Iranian crude.
MRPL has faced repeated delays in getting the SPM into use after initially hoping to have it operational by May 2012.
Indian insurers do not fall directly under the sanctions, but they depend on the Western reinsurance market to hedge their risk. Cover for ships is limited now to $50 million for hulls and another $50 million for personal injury and pollution claims.
"Insurance companies are extending cover for 2.5 billion rupees, equivalent to about $50 million, as reinsurance is a problem because of sanctions against Iran," this source said.
MRPL had been seeking cover of $100 million, the source said, adding full cover is available only if MRPL gives an undertaking it would not use the SPM for Iranian crude.
India's oil ministry has asked the finance ministry to consider extending full cover for the SPM to MRPL, a senior oil ministry official said.
This is not the first case where local insurers have cut cover for installations due to sanctions.
Chennai Petroleum Corp's insurance cover was cut as Iran's Naftiran Intertrade Co Ltd owns a 15.4 percent stake in the company.
MRPL's trial run used the suezmax Jag Laxmi and it has also received a suezmax, the Cape Bastia, from Trafigura containing Equatorial Guinea's Zafiro crude, but it is not yet clear how the company will unload the vessel, the second source said.
Mangalore Port Trust's website shows operational constraints for the Cape Bastia, which arrived on Monday and is still waiting at anchor.
MRPL operates a 300,000 bpd refinery in southern India. It has stepped up purchases from countries including Saudi Arabia and tested new grades to replace Iranian oil.
Western sanctions targeting Tehran's nuclear ambitions have cut Iran's crude exports in half. The clampdown on maritime insurance has further cut flows of Iranian oil to Asia.
Mangalore port, near MRPL's refinery, cannot handle ships larger than aframaxes with full loads, making it expensive and inefficient to take the suezmax vessels which Iran has in its fleet and can offer with its own insurance.
MRPL along with other domestic refiners have reduced imports from Iran and helped secure India a waiver from U.S. sanctions. Other major Asian clients of Iran including China and Japan have also been granted exceptions by Washington, which is now looking for further cuts.
The West's sanctions aim to cut Tehran's oil exports as it believes revenues are being used to build atomic weapons, while Tehran denies this.
(Reporting by Nidhi Verma; editing by Jo Winterbottom and Jason Neely)