India was relieved when the earlier Government agreed to consider the Indian request for allowing full payment in rupees instead of the 45 per cent under the previous understanding. But the new administration in Iran reviewed the situation and rejected the formula to the big disappointment of the Indian petroleum ministry. Now talks have again started between the petroleum ministry officials of the two countries for expanding the percentage of rupee payment as also selecting other currencies through which the remaining non-rupee payment will be made.

Following the US and EU sanctions against Iran, payment routes were blocked for India. India managed to get Tehran to accept 100 per cent rupee payment mechanism but the change in government led to a new situation. Iran had raised a few invoices for oil it sold to India in rupees but stopped doing so soon after. Now, Iran is seeking payments in rouble, yen or yuan which is what is being worked out.

A team from India, consisting of officials from the Finance Ministry, Ministry of External Affairs, Petroleum Ministry and Reserve Bank of India (RBI) will be in Tehran soon to resolve the impasse.

India was targeting 13 million tonnes of oil import from Iran in 2013-14 fiscal. It had already imported around 2 MT and wanted to import another 11 MT in the rest of the fiscal. Petroleum Minister Veerappa Moily had proposed to Prime Minister Manmohan Singh that India could save $8.47 billion in forex by importing 11 MT of oil in the rest of fiscal from Iran.

According to Petroleum Ministry sources, Mangalore Refinery and Petrochemicals Ltd and Essar Oil Ltd plan to import 4 million tonnes each from Iran, as against about 5 million tonnes each they imported in 2012-13. State-run Indian Oil Corporation, which imported 1.566 million tonne oil from Iran in 2012-13, has entered into a term contract for importing 1.2 million tonne crude oil from Iran this fiscal. Since July 2011, India had paid in euros to clear 55 per cent of its purchases of Iranian oil through Ankara-based Halkbank. The remaining due amount was remitted in rupee form in accounts of Iranian National Oil Company in Kolkata-based UCO Bank. Payments in euro through Turkey ceased from February 6 this year but the rupee payments for 45 per cent of the purchases continued through the bank.

Talks are on for utilisation of the accumulated rupee balances in the Iranian accounts with the UCO Bank, which are of the order of Rs. 20,000 crore. This could be in the form of increased exports to Iran, given that the bilateral trade between the two nations is overwhelmingly weighted in favour of the Gulf country, or having the Iranian government invest in infrastructure projects in India.

However, Indian officials are working on other innovative ways to increase exports to Iran by beating sanctions.

Exporters will be able to mask their shipments to Iran as the government has asked state-run trading agencies MMTC and STC to act as a front for these exports as government shipments to evade Western sanctions on that country.

The move will particularly help automobile and pharmaceutical companies, which have trade links with the US and the European Union, and risk inviting sanctions of these countries if they deal with Iran. 70-80 companies have lined up to STC to use the facility and negotiations are on to firm up the detailed rules of engagement.

'We have recently offered services of MMTC and STC to those who do not want to directly deal with Iran, since they have business dealings with the West. This will encourage large enterprises to export to Iran without getting the country in their buyer's list', a commerce department official said.

The threat of sanctions against any entity that deals with Tehran has made it difficult for India to buy crude from Iran, as making payments for crude purchase and insuring the shipment has become difficult. The share of crude oil imports from Iran has fallen from 11 per cent in 2012 to 7 per cent.

The government has worked out a mechanism under which it will pay for crude in rupee that Iran can use to source goods from India. However, for the mechanism to work, India needs to step up exports to Iran. India-Iran trade stood at $15 billion in 2012-13, out of which Indian exports accounted for only about $2.5 billion.

Iran has showed interest in buying auto components and pharma from the country, but some exporters do not want Iran on their buyer's list.

MMTC is in talks with players in the engineering sector and steel. There is some hesitation at the moment, about being identified. There are exporters who have found buyers in Iran, but are not taking orders because of sanctions. MMTC is encouraging them to route it through us. Besides identification risks, companies are also worried about commercial risks, such as delay in deliveries and arbitration. (IPA Service)