RBI to facilitate oil payments of $6.5 bn to Iran

The RBI agreed to this after Finance Secretary Rajiv Mehrishi led a four member delegation to Tehran last month to discuss the modalities of clearing dues

The Reserve Bank of India (RBI) will assist Indian refiners to clear over $6.5 billion of past dues they owe to Iran for crude oil purchases, a senior official said today.

RBI agreed to help create payment channels to clear the past dues when Finance Secretary Rajiv Mehrishi led a four member delegation to Tehran last month to discuss the modalities of clearing dues.

The central bank, which had previously facilitated the payment of the oil import bill to Iran, agreed to explore options currently available, the official said.

After the US and western powers in 2011 blocked payment channels in a bid to bring Iran to the negotiating table over its controversial nuclear programme, the RBI had faciliated oil payments to Iran via Turkey.

The official said an RBI representative was part of the four-member delegation that visited Tehran on July 25 and 26.

Iran and six world powers last month sealed an accord to curb the Islamic republic's nuclear programme in return for ending sanctions. Lifting of sanctions would open up banking channels and Tehran is likely to seek past oil dues.

India is keen that the repayment of dues that have accumulated since February 2013, be done in a staggered manner so as to avoid a run on the rupee.

The official said the RBI will detail out the banking channels as well as payment schedule with its Iranian counterpart.

Since February 2013, Indian refiners like Essar Oil and Mangalore Refinery and Petrochemicals (MRPL) have been paying 45% of payment dues on purchase of crude oil from Iran in rupees through Uco Bank, Kolkata. The remaining has been accumulating, pending finalisation of a payment mechanism.

They had last year paid nearly $3 billion in six instalments through a limited payment channel following the start of nuclear talks between the West and Iran. The outstanding has since climbed to over $6.5 billion.

Essar Oil owes $3.34 billion, MRPL $2.49 billion and IOC $581 million to Iran. HPCL-Mittal Energy Ltd (HMEL) owes $97 million and Hindustan Petroleum Corp Ltd (HPCL) another $29 million.

Besides, about Rs 17,000 crore was lying in Iranian account with Uco Bank.

India is keen that Iran continues to give Indian refiners favourable terms, like insurance and shipping as well as 90-day credit period, on oil it sells to India, its second biggest customer after China.

Under US pressure, New Delhi has restricted import of Iranian oil at 11 million tonnes in the past two fiscals. But with easing of sanctions, it will look to increase imports provided Tehran continues to extend the fiscal terms, the official said.