Days after Reserve Bank of India stopped facilitating payments for Iranian crude imports, the central banks of India and Iran will meet in Mumbai tomorrow to discuss a new payment mechanism.
"We are working on an alternate settlement mechanism. It is being discussed at length with the ministry of finance and a solution will be found in the course of the next few days," Oil Secretary S Sundareshan told a news conference here.
RBI on December 23 said companies will be allowed to settle current account and trade transactions with Iran outside the Asian Clearing Union (ACU), a regional payment arrangement.
This dismantled a mechanism used to complete payments for oil. Participants in the ACU settle transactions in either US dollar or euro.
Iran has refused to sell oil under the new rules.
"Officials of RBI and Iranian central bank are meeting in Mumbai tomorrow (to discuss alternative payment mechanism)," Sundareshan said. "Alternate mechanism payments could be in any currency, Japanese yen or their local currency."
ACU, based in the Iranian capital Tehran, settles trade transactions from Bangladesh, Bhutan, India, Iran, Nepal, Pakistan, Maldives, Myanmar and Sri Lanka.
"The ACU mechanism which was for all commodity and business transactions, is under some stress and RBI wants to make changes in this mechanism," Sundareshan said.
Iran is India's second largest crude oil supplier behind Saudi Arabia and accounts for over 12 per cent of its oil needs.
In absence of a mutually acceptable payment mechanism, India may not be able to import 10 million barrels of crude oil contracted from Iran next month.
India imported 21.3 million tons of crude oil from Iran in 2009-10 and this year imports are expected to be around 18 million tons as Reliance Industries has totally stopped using crude oil from the Persian Gulf nation.
Mangalore Refinery and Petrochemicals Ltd (MRPL) is the biggest importer of Iranian crude oil with 7.1 million tons of contracted quantity.
Mumbai-based Essar Oil imports roughly 3 million barrels per month (about 5 million tons a year), Indian Oil Corp (IOC) 3.5 million tons and Hindustan Petroleum Corp (HPCL) about 3 million tons.
Till 2008, payments under the ACU mechanism was done in US dollars but after United States imposed sanctions against Iran over its suspected nuclear programme, the currency shifted to Euro.
United Nations sanctions do not forbid buying Iranian oil and recently the European Central Bank (ECB) asked RBI to provide certificates that the Euro being used to import products are not on US sanctions list.
