Iran Review

IOC ... one of Iran’s major debtors

IOC ... one of Iran’s major debtors

Indian refiners ready to pay $1.4bn Iran oil dues

The Indian payments are likely to be conducted using a mechanism based on a series of back-to-back transactions in different currencies that are initially channelled through the Reserve Bank of India, according to sources 

Indian refiners have got the green light to prepare to pay Iran $1.4 billion in oil dues, two sources with knowledge of the issue says, in one of the first signs that last month’s nuclear deal is helping Tehran unlock frozen funds.

The landmark nuclear deal between Iran and six major world powers was struck on July 14 and sanctions could begin to be removed later this year if UN inspectors confirm Tehran is complying with its provisions.

Finance Secretary Rajiv Mehrishi asked refiners to prepare to pay Tehran two installment of $700 million, part of the money owed for oil imports, says the sources, who declined to be identified due to the sensitivity of the issue.

Iran is desperate for funds and investment to help its economy, crippled by decades of sanction.

Mehrishi last month led a delegation of officials from the Reserve Bank of India and state-run UCO Bank to Tehran to discuss oil payments.

The exact timing of the payments is unclear since the finance ministry is seeking clearance from the Office of Foreign Assets Control (OFAC) of the US Department of treasury to go ahead, one of the sources say.

The office of India’s finance secretary did not immediately respond to a request for comment.

The US Treasury says it did not comment specifically on countries or institutions involved in payments.

But in a statement says "the US government has committed to render non-sanctionable the release in installments of certain Iranian restricted funds held overseas in an amount consistent with installments provided under previous JPOA relief periods."

JPOA, or Joint Plan of Action, refers to an interim nuclear pact.

The Indian payments are likely to be conducted using a mechanism based on a series of back-to-back transactions in different currencies that are initially channelled through the Reserve Bank of India, the sources say.

Iran would eventually get the payment in dirhams from the UAE’s central bank.

India is Iran’s biggest oil client after China, though New Delhi has reduced purchases under pressure from sanctions and Tehran has slipped to the seventh biggest supplier from the second before sanctions.

Indian refiners Mangalore Refinery and Petrochemicals Ltd, Essar Oil, Indian Oil Corp, Hindustan Petroleum Corp and HPCL-Mittal Energy Ltd (HMEL) together owe Iran more than $6.5 billion.

This represents just over half of the bill for crude bought since February 2013, when a route to pay for Iranian oil through Turkey’s Halkbank was stopped.

Under an interim nuclear deal in November 2013, some of Iran’s blocked funds were released by Asian buyers, including India.

Indian companies have deposited 45 per cent of their oil payments in a rupee-denominated account at an Indian state bank that Iran is allowed to use to buy goods not covered by sanctions such as food and medicines.

About Rs 17,000 crore ($2.62 billion) are in Iran’s account with UCO Bank.

Meanwhile, Iran has asked India to pay within two months $6.5 billion in past oil dues, partly in rupees and rest in dollars or euros, a top official says.

"The payment will be in at least three installments. The modalities of installments and the route are being worked out," he says.

The dues to Iran on crude oil that refiners buy have accumulated as Western sanctions blocked payment routes since 2013.

About 45 per cent of the oil import bill is paid in rupees in a Uco Bank branch and the rest has accumulated.

The official said the payment to Iran can be either through Reserve Bank of India (RBI) - in that case refiners will hand over the money to the central bank which will then do the onward transmission to Iran, or through a gateway notified by the government.

"Part of the payment in US dollar or euro and part in Indian rupees," he said adding Iran will open a new account with one of the Indian banks for receipt of the rupee payment.

Iran will use the rupee payments to settle bills for goods and commodities it imports from India.

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