Iran terminates free oil shipping to India

Source: The Dollar Business Bureau

Iran has reportedly terminated free shipping of crude oil to India and has asked the Indian oil refiners to clear its old dues. It has also discontinued the three-year old practice of receiving payments in half of the total crude oil dues, while exhorting that it would like to be paid in Euros for the oil it sells to India in future.

The Persian Gulf nation wants Indian refiners including Mangalore Refinery and Petrochemicals Ltd (MPRL) and Essar Oil to pay about $6.5 billion of dues, which the companies have reportedly promised to pay in six equal installments.

Before the Western sanctions were lifted, Iran, in November 2013, had offered free delivery of crude oil to the Indian refiners and hence didn’t charge any fee for transportation.  Now, Iran’s National Iranian Oil Company (NIOC) has informed the Indian oil firms that it will no longer be shipping crude oil for free. NIOC has already begun to generate invoices for crude oil shipped to the Indian refiners in Euros.

Since 2013, Indian oil companies paid 45% of oil shipped bill in rupees to NIOC’s UCO Bank account, while the remaining 55% had been kept in abeyyance until the finalisation of a payment framework.

The company said it will continue to ship crude oil in tankers to the Indian companies but at a discounted price, which will be less than half of what it takes to ferry oil from Iran, for now. In future this 50% transportation discount, too, may be abolished.

After sanctions were fully lifted in January this year, the Iranian authorities had conveyed to India that the three-year old framework, of getting paid 45% of oil shipped bill in rupees and keeping the remaining 55% for payment channels to clear, stood terminated.

MRPL owes about $3 billion, and could be the first one to be asked to clear its dues, followed by Indian Oil Corp (IOC), with over $580 million dues, HPCL-Mittal Energy Ltd (HMEL) and Hindustan Petroleum Corp., with a relatively smaller amount, and Essar Oil, which owes close to $3 billion.

Iran currently imports steel and various other commodities from India. The Gulf nation could use the amount received from the Indian refiners to pay back dues for the materials imported from India.

The reiteration comes at the heels of Petroleum Minister Dharmendra Pradhan’s two-day visit to Iran, where he expressed India’s commitment to bolster energy engagements with the energy-rich country.

A 20-billion agreement was also announced for the strategic Chabahar Port complex and for setting up oil fields, petrochemical and fertiliser plants.

“In this regard, he requested Iran to allocate appropriate and adequate land in the SEZ. He also requested the Iranian side for favourable treatment in the pricing of gas for India and supply of rich gas at competitive price on long-term basis for the life of joint venture projects Indian companies are interested in setting up,” an official statement said.

The two energy partners also agreed to develop the “Farzad B” gas project during Pradhan’s meeting with his Iranian counterpart Iran Bijan Namdar Zanganch. The contract is expected to be awarded to a New Delhi-based ONGC Videsh-led consortium by October this year.