Iran payment row: Govt sure about finding solution

More than six months after a Reserve Bank of India order threw out a mechanism to pay for Iranian oil, Oil Minister S Jaipal Reddy on Tuesday said India is trying to ensure uninterrupted supplies of crude from the Persian Gulf nation.

"There is a problem (about payments through an alternate mechanism)," Reddy told reporters in New Delhi. "We are sorting it out. We are optimistic about finding a solution and ensuring uninterrupted supplies."

Iran's Fars news agency had on Sunday quoted National Iranian Oil Co managing director Ahmad Ghalebani as saying that Tehran had "seriously warned the Indian side of the possibility to halt oil exports if a solution is not found to clear its arrears".

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NIOC had on June 27 written to refiners like Mangalore Refinery and Petrochemicals Ltd and Essar Oil, who are the principal buyers of Iranian crude, demanding that a mechanism be put in place to pay for its oil supplies, failing which supplies will be stopped from August.

Reddy said alternate to a scrapped long-standing mechanism to payments for import from the Persian Gulf nation using a clearing house system run by regional central banks, was in the process of being worked out. He did not elaborate.

Officials in his ministry said alternate mechanism was "days away" from finalisation. The payments will be in Euro but needed approval of the finance ministry.

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Iran is, however, unlikely to carry out the threat of stopping supplies to India as the UN sanctioned regime led by President Mahmoud Ahmadinejad can ill-afford to lose its second-biggest crude buyer after China, accounting for about 20 per cent of its exports.

Without India, Iran will be left with just China and Korea as buyers, officials said.

Iran is supplying some 400,000 barrels per day (bpd) of crude to India on credit since late December 2010 when RBI scrapped the Asian Clearing Union (ACU).

Outstanding payments have now topped $6 billion.

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Iran is India's second largest oil supplier, accounting for 12 per cent of its needs.

Officials said the only option left with India was to pay in its own currency, rupee.

Korea and China use their own currency to pay for Iranian imports. Iran buys cars and several other commodities, including heavy equipment, from the two nations from the payments it earns from oil sales, leaving almost nothing by way of actual currency transfer.

MRPL, a unit of state explorer Oil and Natural Gas Corp, is the largest buyer of Iranian crude at 142,000 bpd. Essar imports 110,000 bpd, state-owned Hindustan Petroleum Corp Ltd 65,000 bpd and Indian Oil Corp 50,000 bpd.