Fearing a run on the rupee in the event of having to pay nearly USD 6 billion in past dues to Iran, the government has asked oil refiners to gradually buy dollars/euros and be ready to clear all dues by the year end.
Since February 2013, Indian refiners like Essar Oil and Mangalore Refinery and Petrochemicals (MRPL) have been paying in rupees to UCO Bank 45 per cent of their payment due on purchase of crude oil from Iran. The remaining has been accumulating, pending finalisation of a payment mechanism.
They had last year paid nearly USD 3 billion in six installments through a limited payment channel following start of nuclear talks between the West and Iran. The outstanding has since climbed to nearly USD 6 billion.
A top official said the government expects that payment channels will open in the next 3-4 months following progress in talks between Iran and US-plus five world powers.
The Finance Ministry, after RBI's advice, feels that the rupee will come under severe pressure if Iran, upon easing of sanctions, asks refiners to clear the dues in a short span.
Sudden dollar buying of up to USD 6 billion would also lead to liquidity tightening, a situation the government wants to avoid at all costs.
The official said the refiners were earlier this month asked to gradually stock up dollars/euro in overseas nostro accounts to avoid a run on the rupee at the time of paying back Iran for crude oil purchases.
Refiners like MRPL have already starting stocking foreign currency in anticipation of having to clear its past dues.
The government, the official said, feels that an agreement is likely between P5+1 (a group of six world powers) and Iran shortly, and Tehran will then seek repatriation of its outstanding dues latest by the year end.
Iran and the United States, China, France, Germany, the UK and Russia have been in talks since last year to end the nuclear stalemate. The deadline for a resolution expires today, but is likely to be extended.
The official said refiners have been asked to approach their authorised banks to open nostro account (an account held in a foreign country denominated in the currency of that country) after clearance from RBI.
Since July 2011, India has been paying in euros for 55 per cent of its purchases of Iranian oil through Ankara-based Halkbank. The remaining 45 per cent was remitted in rupees through UCO Bank.
But in February 2013, when the US blocked all payment channels, Indian refiners paid Iran only the 45 per cent of oil bill in rupees through UCO Bank. The remaining 55 per cent in foreign currency has been held up with the refiners for lack of an approved payment channel.
In June/July 2014, refiners cleared USD 1.65 billion of past dues in three equal installments. Another USD 1.3 billion was paid in October/November in three installments.
