Petroleum and Natural Gas Minister, Veerappa Moily’s grand plan to save outflow of $8.47 billion on account of increased imports of crude oil from Iran under the rupee payment mechanism has hit a roadblock due to inability of his Ministry to make the Rs. 2,000 crore Energy Insurance Pool fund operational.
Mr. Moily had submitted a master plan to Prime Minister, Manmohan Singh in September outlining urgent need to increase imports from Iran to around 13.2 million tonnes per annum this fiscal to save around $8.47 billion in foreign exchange. It was stated that under the rupee payment mechanism in force with Iran, New Delhi would end up saving critical foreign exchange if it increased its imports of oil from Iran which stand around 2 MT at this time around.
However, refiners have refused to import crude oil from Iran in the absence of any firm insurance cover due imposition of US-led sanctions against Tehran. The Petroleum and Finance Ministries had agreed to create a Rs. 2,000 crore Energy Insurance Pool fund headed by state-run GIC Insurance to provide cover for imports of crude from Iran. Oil Industry Development Board (OIDB) will provide Rs 1,000 crore for the insurance pool while an equal amount will come from the state insurers.
The Finance Ministry had last month also written to the Petroleum Ministry to work on fast track to make the fund operational but things have remained in limbo.
In the meantime, this is created problems for those who want to import crude oil from Iran including state-owned refiners. State-owned Hindustan Petroleum Corporation Limited (HPCL) said it had plans to import about 0.8 million tonne of crude oil from Iran if a fund to provide insurance cover for refineries processing oil from the sanction-hit nation is put in place. "We have not imported any oil from Iran this fiscal but we have contracts to buy oil from Iran. We expect the insurance fund to be operational by next month and if that happens, we will be able to import six ship laods of oil in four months,’’ HPCL Director (Refineries) B. K. Namdeo said in New Delhi.
Similarly, Mangalore Refinery and Petrochemicals Ltd (MRPL) and Essar Oil Ltd (OIL) plan to import 4 MT each from Iran, as against about 5 million tonne each they imported in 2012-13. State-owned Indian Oil Corporation (IOC), which imported 1.566 MT oil from Iran in 2012-13, has entered into a term contract for importing 1.2 million tonne crude oil from Iran this fiscal.
In fact, sources in the Petroleum Ministry said Iran has offered discounts on crude oil price and free shipping if India agrees to buy more of its oil. Last year, it bought 13.1 million tonne oil from Iran. Tehran has offered to give nominal discounts in price as well as free delivery of oil at Indian ports in its ships. It has not stated the kind of discount it will offer but has indicated it is willing to sell crude oil to Indian refiners at prices lower than internationally traded rates.
On other hand, talks between New Delhi and Tehran to resolve the issue of rupee payment mechanism has not made much headway. India had been in the last few months paying 100 per cent rupee payment to Iran for the crude oil purchases. However, recently Tehran reverted to the old system of taking only 45 percent of the payments due in rupees and for the rest is seeking payments in Rouble, Yen or Yuan.
Since July 2011, India had paid in Euros to clear 55 percent of its purchases of Iranian oil through Ankara-based Halkbank. The remaining 45 percent due amount was remitted in rupees in accounts Iranian oil company opened in Kolkata-based Uco Bank.
India is keen that the system of full payments in rupee is resumed as it will help save on forex outflow.