The duration of the IOC contract can be extended by another two years to a total of seven.

Country's top refiner Indian Oil Corporation is close to chartering a Panama-flagged ship rather than a domestic vessel in its first tender to hire an oil tanker with scrubbers that remove sulphur emissions, sources with knowledge of the matter said.

In December last year, state-owned IOC issued a global tender and offered shippers a first right of refusal as the nation seeks to boost its shipping industry. India, the world's third biggest oil importer, wants to promote the market share of its vessels in bringing in crude imports.

But it is the Panama-flagged very large crude carrier (VLCC) Bright Pioneer, owned by Nissen Kaiun Co Ltd, that has emerged as the likely winner for a daily rate of $30,000-$32,000, the sources said.

None of the companies could match the bid, they said. "Indian companies declined the first right of refusal," said one of the sources.

That will be a blow to the federal shipping ministry, which wants the state-refiners to sign five-year contracts with local shipping firms in a move designed to shift freight worth billions of dollars to flag carriers. They include Shipping Corp of India (SCI), Mercator Ltd, Great Eastern Shipping Co and Essar Shipping.

Companies, including SCI, Great Eastern and Seven Island Shipping participated in the IOC tender, the sources said.

The introduction of the scrubbers is important because the International Maritime Organization (IMO) is introducing the rules on marine fuels from the beginning of 2020, limiting the sulphur content to 0.5 per cent, down substantially from the current 3.5 per cent, to curb shipping pollution.

IOC will be using Bright Pioneer from January for at least five years, giving its Singapore-based operator Global United Shipping Company a period of six months to install the scrubbers.

IOC and Global United Shipping did not respond to Reuters emails seeking comments.

By stripping out sulphur emissions, scrubbers allow shippers to use dirtier fuel oil but still meet new global requirements for lower emissions.

The IMO says that when the new rules come into force it will ban ships that do not have scrubbers from carrying any fuel oil, making it easier to catch cheaters.

The duration of the IOC contract can be extended by another two years to a total of seven.