New Delhi: Bharat Petroleum Corp (BPCL) has made its first payment for Iranian oil in rupees, two industry sources said on Tuesday, becoming the first refiner to use a payment channel that skirts tightening Western sanctions on Iran’s trade.
India is Iran’s second-largest oil buyer, but has struggled to find ways to pay for the oil as Western sanctions curb international financial payments destined for Tehran’s coffers.
Since December 2010, refiners in India have been using Turkey’s Halkbank to pay their annual oil import bill of more than $10 billion, after a previous payment channel was blocked.
Tehran and New Delhi agreed in January to settle 45% of the oil trade in rupees to ensure payments continue should any problem arise with the Halkbank agreement, and also as a way to encourage more exports from India to Iran that could be settled in rupees.
“BPCL made (its) first payment on Friday and the second on Saturday. It has settled a backlog of Rs27 billion (Rs2,700 crore) for last fiscal year’s imports,” said one of the source familiar with the development. The figure is equivalent to $482.19 million.
BPCL, unlike other refiners, could not open an account with Halkbank to pay for oil imports to the National Iranian Oil Co (NIOC). BPCL last received oil from Iran in January.
Not Freely Traded
The rupee is not freely traded so Iran’s ability to use the currency to buy anything other than Indian products is limited.
India last week lifted a hefty tax on the rupee payments, a move refiners had awaited before starting to make payments into the account.
A second source confirmed the payment in rupees but R.K. Singh, chairman of the refiner, and its finance head, S. Vardrajan, did not respond to phone calls seeking comment.
Other Indian refiners are expected to start using the new payment facility either later this week or early next week.
Indian refiners are expected to cut volumes under the term deals by more than 20% in the year that began in April, according to Reuters’ calculations, while the government says imports could drop by 11% from 2011-12 figures to about 310,000 bpd.
India’s oil ministry has requested the finance ministry to allow state-run refiners to lift crude from Iran on a CIF, or cost, insurance and freight basis.
India has already won a waiver from tough US new sanctions in lieu of cutting imports from Iran.
Iran plans to use the rupees received by Indian refiners to pay for imports from India.
With BPCL paying Iran in rupees, Indian exporters hope to boost their sales to Tehran, which has cut imports from the West due to the sanctions.
India is also keen to prop up sales to Iran of an array of products, from food and engineering goods, as its exports to the Islamic nation are worth only about $2.7 billion, while its oil imports from Tehran are more than $10 billion a year.
One official of an Indian engineering goods manufacturer said officials of an Iranian bank had notified him the rupee mechanism for trade with the Middle Eastern country was working.
“Parsian Bank has informed us that rupee mechanism is working fine and we have got a confirmation that we will get payment against one of our letters of credit on the 20th or 21st of June,” said Pankaj Bansal, a partner in TMA International.