India, Iran discuss issues over payment in other currencies

India is targetting 11 MT crude oil from Iran in the current fiscal as compared to 13 MT in the previous fiscal

India is in discussions with Iran over the issue of making payments in Russian rouble, Japanese yen or Chinese yuan for oil imports after the Persian Gulf nation has refused to accept full payments in rupees.

India wants to buy 11 million tonne crude oil from Iran in the current fiscal, over 15% lower than 13.1 million tonne oil imported from Iran in 2012-13.

Oil Secretary Vivek Rae said that after the sanctions by western nations blocked all other payment routes, Iran had raised a few invoices for oil it sold to India in rupees but stopped doing so soon after.

It has reverted to the old system of taking only 45% of the payments due in rupees and for the rest is seeking payments in rouble, yen or yuan.

"Initially, we thought they (Iran) will be taking it (all payments) in rupees but there is some reluctance on their side particularly after change of government there," Rae told reporters here.

The Finance Ministry, he said, is looking into the issue, and officials may travel to Tehran to resolve the impasse. Alternately, Iranian officials may visit New Delhi.

Rae said India is targetting 11 million tonne of oil import from Iran in 2013-14 fiscal as compared to 13 million tonne in the previous.

Mangalore Refinery and Petrochemicals Ltd (MRPL) and Essar Oil Ltd (OIL) plan to import 4 million tonne each from Iran, as against about 5 million tonne each they imported in 2012-13, he said.

Indian Oil Corp (IOC), which imported 1.566 million tonne oil from Iran in 2012-13, has entered into a term contract for importing 1.2 million tonne crude oil from Iran this fiscal.

Since July 2011, India had paid in euros to clear 55% of its purchases of Iranian oil through Ankara-based Halkbank. The remaining 45% due amount was remitted in rupees in accounts Iranian oil company opened in Kolkata-based Uco Bank.

Payments in euro through Turkey ceased from February 6 this year but the rupee payments for 45% of the purchases continued through Uco Bank. Iran later agreed to take all of the payments in rupees.

Rae said India is keen that the system of full payments in rupee is resumed as it will help save on forex outflow.

Oil imports have been the biggest factor contributing to a record current account deficit.

According to Oil Minister M Veerappa Moily, India could save as much as $8.47 billion by importing oil from Iran.

However, it was felt that there is need to put in place a mechanism for utilisation of the accumulated rupee balances in the Iranian accounts with UCO Bank, which are of the order of Rs 20,000 crore at present.

This could be in the form of increasing exports to Iran, given that the bilateral trade between the two nations is overwhelmingly weighted in favour of the Gulf country, or having the Iranian Government invest in infrastructure projects in India.

Rae said Oil Ministry was neutral to the form of payment to Iran and it was for the Finance Ministry to decide on the mode.

However, Iran being permitted to open foreign currency accounts in India may attract US Sanctions, as eventually foreign currency accumulations would move out of the country for the purposes of Iran's trade.