India’s goodwill gesture: agrees to Iran’s demand
India has agreed to pay a 1.5% interest on $6.5 billion it owes to Iran in oil dues, as a 'goodwill gesture'. Iran supplied oil to refiners like Mangalore Refinery and Petrochemicals Limited (MRPL) and Essar Oil. During Oil Minister Dharmendra Pradhan's Tehran visit, Iran demanded an interest rate of LIBOR-plus 75 basis points on the dues to compensate for the foreign exchange losses.
Since July 2011, India had been paying in euros for 55% of Iranian oil purchases through Ankara-based Halkbank. The rest 45% was paid in rupees through UCO bank.
As US blocked payment channels to Iran due to Tehran-nuclear programme since 6 February 2013, the euro payments ceased; but the major oil refiners of India continued the rupee payments for purchase of crude oil from Iran. Remaining payments accumulated due to pending decisions regarding finalization of payment routes and mechanism. Essar Oil owes $3.34billion, MRPL $2.49billion, IOC $581million, HMEL $97million and HPCL $29million.
Indian refiners cleared dues of $1.65billion in 3 equal installment of $550million each on June 26, July 8 and July 24, 2014. Subsequently, Iran and U.S, Russia, China, France, Germany and U.K agreed to extend a six month interim accord until 24 November 2014 to end their nuclear dispute. India then paid $1.3billion in installments paid on October 21, November 5 and November 20.
Expressing concerns for India as immediate payment might hit India's forex reserves, Iran had proposed that a part of the due-corpus be invested in Indian projects in Iran. Hopeful for a settlement through delegation-level visits and discussions on the issue, Iran conveyed that there isn't any "emergency" or "urgency" to clear the dues. Iranian ambassador, Gholamreza Ansari stated that the two countries are "good-partners".
India is the second largest importer of oil from Iran after China!
Finance Secretary of India, Rajiv Mehrishi ratified that India will clear $6.5billion oil-dues to Iran in tranches. The first installment is likely to go out as early as a week as stated by him. His official statement said, "What is due to them, must be paid to them... they also want it in some kind of tranches. So we are working out with Iran,"
Iran has asked India to pay oil dues of $6.5bn within two months, partly in rupees and rest in U.S dollars or euro. The payment will be made in atleast 3 installments and the procedure is being worked out. About 45% of the oil import bill is paid in rupees through a non-interest bearing UCO bank account and the rest has accumulated since 2013.
An official stated that the oil-refiners will clear the dues either through Reserve Bank of India (RBI) or through a gateway notified by the government. Iran will also open a new interest-bearing account with one of the Indian banks, different from the UCO account for receipt of the rupee payment. Iran plans to use the account to settle bills for goods imported from India.
Iran summoned Indian refiners like Mangalore Refinery and Petrochemicals Ltd (MRPL) and Essar Oil to pay-up its prior oil dues of almost $6 billion within 6 months in Euros. Iran also announced it was ending India's prior deal of paying "45% of oil import bill in rupees and keeping the remaining 55% pending for payment channels to clear", now that sanctions have been lifted.