India on Wednesday will pay Iran USD 700 million to clear one-tenth of oil dues, the first payment this year ahead of easing of international sanctions against the Persian Gulf country. Mangalore Refinery and Petrochemicals (MRPL) will pay USD 300 million while Essar Oil will clear a little over USD 300 million in dues on September 30, top sources said. HPCL-Mittal Energy (HMEL) and Hindustan Petroleum Corp (HPCL) will be the other refiners which will clear part of their outstanding on Wednesday.
The refiners may pay another instalment of USD 70 million next month, they said. Western sanctions against Iran, which had crippled its oil revenues, are widely expected to end in 2016 if Tehran complies with terms of the deal agreed on July 14. As part of the deal, the US Treasury's Office of Foreign Assets Control (OFAC) had approved the banking mechanism for payment of USD 1.4 billion by Indian refiners in two equal instalments to Tehran.
Sources said the refiners will deposit rupee equivalent of USD 700 million in Kolkata-based UCO Bank which will then transmit the money to the Reserve Bank of India (RBI). RBI will make arrangements for its onward remittance to Iran. Indian refiners owe over USD 6.5 billion in past oil dues to Iran and payments are being made in a calibrated manner so that there is no pressure on exchange rate, the sources said.
No modalities of the second instalment of USD 700 million have yet been worked out, the source said. The remaining USD 4 billion will be cleared in tranches after payment channels are okayed. The payments are being made after the July nuclear deal that Tehran has struck with western powers, allowing for suspension and eventual termination of sanctions.
Sanctions will be lifted after the International Atomic Energy Agency verifies that Iran has implemented its commitments to cease its nuclear programme. Until then, the interim sanctions relief format of November 2013 will continue. The dues to Iran on crude oil that refiners buy have accumulated as Western sanctions blocked payment routes since 2013.
About 45 percent of the oil import bill is paid in rupees in a UCO Bank branch and the rest has added up. Since February 2013, refiners like MRPL and Essar Oil have been paying 45 percent of dues on purchase of crude oil from Iran in rupees through UCO Bank, Kolkata. The remaining has been accumulating, pending finalisation of a payment route and mechanism.
They had last year paid nearly USD 3 billion in six instalments through a limited payment channel following start of nuclear talks between the West and Iran. Essar Oil owes USD 3.34 billion, MRPL (USD 2.49 billion) and Indian Oil Corp (USD 581 million) to Iran. HMEL owes USD 97 million and HPCL another USD 29 million.
Besides, about Rs 17,000 crore was lying in Iranian account with UCO Bank.
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