Ahead of Prime Minister Narendra Modi’s maiden visit to Iran, Indian refiners have made first euro payments in four years to clear a part of the USD 6.4-billion in past oil dues. Mangalore Refinery and Petrochemicals Ltd (MRPL) has paid USD 500 million and Indian Oil Corp (IOC) USD 250 million over the past two days, sources with direct knowledge of the development said.
Private sector Essar Oil is to pay USD 500 million. The refiners cleared part of their outstanding towards crude oil they buy from Iran, through Union Bank of India which in turn transmitted the payment to National Iranian Oil Co (NIOC) through HalkBank of Turkey.
They bought US dollars and deposited with Union Bank which did an onward transmission in euros. This the first payment by Indian refiners in a foreign currency since lifting of sanctions against Iran in January this year. This also comes days ahead of Modi’s two-day visit to Tehran beginning Sunday during which reestablishing credible banking channels between the two nations is likely to figure prominently during talks.
Sources said the remaining outstanding will be cleared in installments to avoid a run on the rupee. RBI is coordinating the repayments, they said. With sanctions blocking banking channels, Indian refiners have since February 2013 paid nearly half of the oil import bill in rupees while keeping the remainder pending opening of payment routes.
The dues on the count now total to USD 6.4 billion. MRPL owed USD 2.6 billion, out of which it has now paid USD 500 million. After payment of USD 250 million, IOC is now left with an outstanding of USD 310 million. Essar Oil owes Iran about USD 2.6 billion while HPCL- Mittal Energy Ltd has to pay USD 60 million.
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The refiners had last paid USD 700 million to Iran in October using a limited window provided by the US to clear some of the outstanding using the dollar. At that time, Essar Oil had paid USD 338 million while MRPL had remitted USD 299 million.
IOC had paid another USD 60 million while Hindustan Petroleum Corp (HPCL) paid USD 3 million. That payments today come on top of USD 700 million the four refiners had cleared on September 30, 2015.
The dues to Iran on crude oil that refiners buy have accumulated as western sanctions blocked payment routes since 2013. Since February 2013, refiners like MRPL and Essar Oil have been paying 45 per cent 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 in 2014 paid nearly USD 3 billion in six installments through a limited payment channel following start of nuclear talks between the West and Iran. After the lifting of sanctions, Iran has scrapped the 45:55 payment mechanism and is since last month billing Indian refiners in euros.
Sanctions were imposed on Iran over its nuclear programme in 2011, blocking financial channels. This refiners routing payments to Iran in Euros through Turkey but the route also blocked in 2012 with tightening of sanctions. The payments made over the last couple of days are the first Euro payments in four years.