India to pay Iran 45% oil import bill in rupee
Feb 05 2012 , Mumbai
Iran’s central bank opens account with Uco Bank
Officials close to the development said an agreement has been reached between the Indian ministry of finance and the Iranian central bank (BMJI) for payment of around 45 per cent of oil imports from Iran in rupees. Arun Kaul, Uco Bank chairman confirmed the development to Financial Chronicle and said something of this nature is being worked out between the two governments but he declined to give further details.
“BMJI has opened an account with India’s Uco Bank and the account is expected to be operationalised in around two months. The rupee account will amount to around $5.4 billion on an annual basis assuming $12 billion of oil imports per annum.” India is one of the largest buyers of crude oil from Iran and one of Iran’s biggest export destinations for petroleum.
An inter-ministerial delegation from India to Iran helped pave the way for this arrangement that has some resemblance to the rupee-ruble trade agreement that India had with the erstwhile USSR and subsequently, with Russia. “The mechanism for the bilateral payment arrangement would be worked out in around two months’ time,” said officials familiar with the development.
The deal would give confidence to Indian companies to undertake exports to Iran as the credit risk would be taken care of because payments would be by way of debit to the trade surplus Iran has with India. Exports from Europe to Iran have been falling ever since US has exerted pressure on countries to suspend trade with Iran following economic sanctions on the country due to allegations of developing nuclear facilities for non-civilian uses.
On February 3, this paper reported that the Export Credit Guarantee (ECGC) plans to revisit its underwriting policy with regards to credit insurance covers for to Iran. Rohit Pandya, general manager-underwriting with ECGC told FC, “In case of Iran, we offer cover to those exporters who have availed of whole-turnover policies and where the exporter offers a fair spread of risk. Shipments invoiced in US dollar, euro and Japanese yen are not being covered. Also ECGC is not offering cover for letter of credit (LCs) opened by Iranian banks such as Bank Sepah and Bank Refah.”
The Indian government also plans to take a delegation of Indian engineering companies to Iran to exploit the emerging opportunities that would result from the operationalisation of the rupee payment arrangement. The Indian ministry of commerce has asked the Engineering Export Promotion Council of India (EEPC) to take a delegation to Iran for the purpose.
The exports can be in non-sanctioned categories only such as power, railways and infrastructure. Aman Chadha, chairperson of EEPC told Financial Chronicle,
“We intend to take the delegation to reap the benefits of the present situation and even beyond. We believe the opportunities of trade between the two countries are huge and it should not be limited to crude oil alone.”
India imports approximately 12 per cent (or around $12 billion) of oil from Iran.
Oil marketers and refiners in India have been struggling to pay for Iranian crude due to the US-imposed sanctions that ban any institution with a US presence from doing business with Iran.
Indian refineries have been making payments through Turkey’s Hallbank; a mechanism the officials believe will be cut off under a fresh set of US economic sanctions.
Prior to Turkey’s Hallbank arrangement, Indian companies would make settlements through the Asian Clearing Union, which was suspended later by RBI under the US pressure. “We have a track record of doubling the trade with the country that we take our delegation to in two years. Our delegations have a spiralling effect on other traders concerned and I am sure we will have a similar record with Iran too,” said Chadha.
For 2010-11, India’s total trade with Iran was equal to $13.67 billion, which included imports worth $10.92 billion and exports worth $2.74 billion.
The balance of trade is in favour of Iran and the total growth witnessed during the year was around 2.07 per cent, according to the India’s ministry of commerce and industry data. India’s exports to Iran include petroleum products, rice, machinery & instruments, manufactures of metals, primary and semi-finished iron & steel, drugs/pharmaceuticals & fine chemicals, processed minerals, man-made yarn & fabrics, tea, organic/inorganic/agro chemicals and rubber manufactured products.