Since economic sanctions on Iran were lifted in January, India has been eyeing deeper ties with West Asian country with $20-billion (Rs 1.33 lakh crore) worth of investment being lined up in oil and gas, petrochemical and fertiliser projects there.
But payment of dues by India, especially for oil imports, has been casting a shadow on the renewed efforts towards better relations.
So as a goodwill gesture ahead of Prime Minister Narendra Modi’s visit to the country, India has agreed to pay 1.5% interest on dues worth $6.5 billion (Rs 43,500 crore).
“India has agreed to pay interest at seven days US LIBOR plus 75 basis points which equals to 1.5%” explained a government official. LIBOR is the London Interbank Offer Rate (LIBOR).
Iran sold oil to refiners such as Essar Oil and Mangalore Refinery and Petrochemicals Ltd (MRPL) in US dollars. But due to the sanctions, 45% of the bill was paid in rupees through Iran’s account in UCO Bank. The remaining dues were to be paid once banking channels opened.
Indian refiners have insisted on paying the dues at the exchange rate prevalent in 2013, when the 45:55 payment agreement became operational, but Iran is claiming the dues at rates prevalent now. The average exchange rate of the dollar was around Rs 57 in 2013 compared to Rs 67 now.
“Paying the dues at current exchange rate will hit the oil marketing companies by Rs 1,500 crore,” explained an official in the finance ministry.
The Indian government has indicated that it will not interfere in the matter of the dues, saying that it is a business-to-business decision that should not hamper relations between two sovereigns
The official pointed out that interest payment was not a part of the bilateral agreement with Iran in 2012 but by agreeing to 1.5% interest on dues, the Indian refiners will insist on paying the dues at the 2013 exchange rate.
Iran was India’s sixth largest crude oil supplier in April-February 2015-16, exporting almost 11 million tonnes of the product.