In­dia pre­pares to pay Iran $1.4 bil­lion in oil dues


In­dian re­fin­ers have been told to pre­pare to pay Iran $1.4 bil­lion in oil dues, two sources with knowl­edge of the is­sue said, in one of the first signs that last month's nu­clear deal is help­ing Tehran un­lock frozen funds.

The land­mark nu­clear deal be­tween Iran and six ma­jor world pow­ers was struck on July 14 and sanc­tions could be­gin to be re­moved later this year if U.N. in­spec­tors con­firm Tehran is com­ply­ing with its pro­vi­sions.

In­dian Fi­nance Sec­re­tary Ra­jiv Mehrishi asked re­fin­ers this month to pre­pare to pay Tehran two in­stal­ments of $700 mil­lion, part of the money owed for oil im­ports, said the sources, who de­clined to be iden­ti­fied due to the sen­si­tiv­ity of the is­sue. Head of fi­nance at In­dian Oil Corp A.K. Sharma said the first in­stal­ment could be made this month although the fi­nance min­istry has yet to in­struct re­fin­ers on the spe­cific timeline for pay­ments.

"Some pay­ment may hap­pen this month. We are wait­ing for in­struc­tion (from the fi­nance min­istry)," Sharma told re­porters. He did not spec­ify the size of the first in­stal­ment but es­ti­mated his com­pany's share in the ini­tial tranche would be $60-$70 mil­lion, in pro­por­tion with IOC's share of more than $6.5 bil­lion in Ira­nian oil rev­enue stuck with lo­cal re­fin­ers. Iran is des­per­ate for funds and in­vest­ment to help its econ­omy, crip­pled by decades of sanc­tions.

Mehrishi last month led a del­e­ga­tion of of­fi­cials from the Re­serve Bank of In­dia and state-run UCO Bank to Tehran to dis­cuss oil pay­ments. The ex­act tim­ing of the pay­ments is un­clear since the fi­nance min­istry is seek­ing clear­ance from the Of­fice of For­eign As­sets Con­trol (OFAC) of the U.S. Depart­ment of trea­sury to go ahead, one of the sources said. The of­fice of In­dia's fi­nance sec­re­tary did not re­spond to a re­quest for com­ment.

The U.S. Trea­sury said it did not com­ment specif­i­cally on coun­tries or in­sti­tu­tions in­volved in pay­ments. But in a state­ment said: "the U.S. gov­ern­ment has com­mit­ted to ren­der non-sanc­tion­able the re­lease in in­stal­ments of cer­tain Ira­nian re­stricted funds held over­seas in an amount con­sis­tent with in­stal­ments pro­vided un­der pre­vi­ous JPOA re­lief pe­ri­ods."

JPOA, or Joint Plan of Ac­tion, refers to an in­terim nu­clear pact that has been ex­tended un­til Im­ple­men­ta­tion Day, when In­ter­na­tional Atomic Energy Agency ver­i­fies that Iran has com­plied with nu­clear re­lated mea­sures. The In­dian pay­ments are likely to be con­ducted us­ing a mech­a­nism based on a se­ries of back-to-back trans­ac­tions in dif­fer­ent cur­ren­cies that are ini­tially chan­nelled through the Re­serve Bank of In­dia, the sources said. Iran would even­tu­ally get the pay­ments in dirhams from the United Arab Emi­rates' cen­tral bank.

Sharma said In­dian re­fin­ers would make dol­lar pay­ments to the RBI, which will fur­ther trans­mit the funds.

In­dia is Iran's big­gest oil client af­ter China, though New Delhi has re­duced pur­chases un­der pres­sure from sanc­tions and Tehran has slipped to the sev­enth big­gest sup­plier from the sec­ond be­fore sanc­tions.

As on June 30, Es­sar Oil owes $3.34 bil­lion, Man­ga­lore Re­fin­ery and Petro­chem­i­cals Ltd $2.49 bil­lion, fol­lowed by $581 mil­lion owed by In­dian Oil Corp. HPCL-Mit­tal Energy Ltd (HMEL) owes $97 mil­lion and Hin­dus­tan Petroleum Corp has to pay $29 mil­lion.

In­dian re­fin­ers to­gether owe Iran over half of the bill for crude bought since Fe­bru­ary 2013, when a route to pay for Ira­nian oil through Tur­key's Halk­bank was stopped. Un­der an in­terim nu­clear deal in Novem­ber 2013, some of Iran's blocked funds were re­leased by Asian buy­ers, in­clud­ing In­dia.

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