India -Interest on Iran oil dues

India will clear its dues worth $6.5 billion for oil imports from Iran in a phased manner by paying cash.

Ahead of Prime Minister Narendra Modi’s visit to Tehran in the third week of this month, officials are engaged in discussions to work out the exact amount payable to Iran, which has sought interest on the accumulated dues. The Persian Gulf nation has said the exchange rate volatility may erode its earnings if the interest is not thrown in.

Indian officials have agreed to the proposal in principle. They are also keen on working out a payment mechanism for the past dues and future transactions as the two sides have scrapped an interim system of payment in rupees following the lifting of western sanctions on Iran earlier this year.

 For the last three years, Indian refiners buying crude from Iran paid 45 per cent of their bill in rupees and the remaining 55 per cent accumulated in a notional account, pending finalisation of a payment mechanism. After the lifting of sanctions, Iran reconnected to the SWIFT international payment system, which means India can pay the remaining $6.5 billion through normal banking channels.

Petroleum minister Dharmendra Pradhan and external affairs minister Sushma Swaraj had visited Iran last month and said India wanted to significantly ramp up engagement in the oil and gas sector of that country.

The issue of the pending dues had also figured in the meetings. Swaraj had conveyed to the Iranian leadership that India was keen to invest in joint ventures in the oil and gas sector of Tehran where foreign investors are rushing in to get early footholds following the lifting of sanctions.

India is also finalising deals to develop the Chabahar port to link up with the central Asian states and Afghanistan. It has also built a 200-km road from the Nimroz province in Afghanistan to Chabahar as part of a trilateral pact on connectivity.

The central Asian nations and India hope to use the recently developed corridors to bolster trade and connectivity. New Delhi is keen to develop the Farzad-B gasfield in the Persian Gulf discovered by ONGC Videsh Ltd (OVL).

A deal for the field was not signed during Pradhan’s visit as the Iranian parliament, Majlis, is yet to approve the new Iran Petroleum Contract under which the Farzad-B field is to be given to the OVL-led consortium.

Indian companies have so far shied away from investing in Iran for the fear of being sanctioned by the US and Europe. The same was deterring New Delhi from claiming rights to invest nearly $7 billion in the biggest gas discovery made by an Indian company abroad. However, India is now making a renewed pitch for rights to develop 12.8 trillion cubic feet of gas reserves OVL had found in 2008.