India to pay $700 million to Iran on Wednesday

Source: PTI

Indian refiners, including MRPL and Essar Oil, will pay Iran the first tranche of $700 million on Wednesday to clear nearly a tenth of outstanding oil dues. Mangalore Refinery and Petrochemicals Ltd (MRPL) will pay $300 million and a similar tranche may follow next month. Essar Oil will clear a little over $300 million in dues on September 30, top sources said. HPCL-Mittal Energy Ltd (HMEL) and Hindustan Petroleum Corp Ltd (HPCL) will be the other refiners to clear their part of the outstanding on Wednesday. Sources said the refiners will deposit rupee equivalent of $700 million in Kolkata-based UCO Bank which will then transmit the money to Reserve Bank of India (RBI). RBI will make arrangements for its onward remittance to Iran. Indian refiners owe over $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 source said. US Treasury's Office of Foreign Assets Control last month approved Indian refineries paying $1.4 billion out of the $6.5 billion in past oil dues to Iran. No modalities of the second installment of $700 million have yet been worked out, the source said. The remaining $4 billion would be cleared in tranches after payment channels are cleared. 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 nuclear programme. Until then, the interim sanctions relief format of November 2013 would continue. The dues to Iran on crude oil that refiners buy have accumulated as Western sanctions blocked payment routes since 2013. About 45% of the oil import bill is paid in rupees in a UCO Bank branch and the rest has accumulated. Since February 2013, refiners like MRPL and Essar Oil have been paying 45% 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 $3 billion in six installments through a limited payment channel following start of nuclear talks between the Western world and Iran. The outstanding has since climbed to over $6.5 billion. Essar Oil owes $3.34 billion, MRPL ($2.49 billion) and Indian Oil Corp ($581 million) to Iran. HMEL owes $97 million and HPCL another $29 million. Besides, about Rs.17,000 crore was lying in Iranian account with UCO Bank.