In a setback for the government’s grand plan to cut down the current account deficit (CAD), through containing the outflow of dollars and saving around $8.47 billion on crude oil imports from Iran, the Persian Gulf country has turned down India’s request for accepting full rupee payment for oil imports.
Highly placed sources in the Oil and Natural Gas Ministry said that Iran’s Petroleum and Energy Minister Bijan Zangeneh has conveyed to the Indian government that they would not accept full rupee payment for crude oil imports, as agreed in July this year, and India would have to explore paying the rest of the amount through euro currency. In addition to this, Iran has also conveyed through Indian diplomats in Tehran that it was also withdrawing the offer of production sharing contract (PSC) for the development of Farzad-B gasfields to Oil and Natural Gas Corporation Videsh Limited (OVL)-led consortium as the present conditions were not acceptable to the new government.
Petroleum Minister Veerappa Moily had rolled out a plan for saving around $8.47 billion in crude oil imports by stepping up imports from Iran. “Iran has stopped issuing invoices for full rupee payment to oil companies for import of crude oil and now has reverted to the 45 per cent rupee payment system. It wants India to explore rest of the 55 per cent payment through the euro of some other currency mechanism. India will not come under strain on this account as Iraq has offered to fill in the gap for supply of crude oil but then outflow of dollars will happen. This development is totally unexpected for us,” a senior official of the Petroleum Ministry said.
Under the PSC, an operator gets a share of production or revenue in proportion to its investment. In the normal service contract that Iran offers, the OVL consortium would get a flat 15 per cent return on the investment for developing the field.
In fact, the Petroleum Ministry even moved a Cabinet note for the Cabinet Committee on Economic Affairs (CCEA) to float a new company to do oil and gas business in Iran, especially for the Farzad-B fields in the Farsi offshore block to avoid U.S. and EU sanctions on the existing oil companies. OVL is keen to develop the Farzad-B gas find in the Farsi offshore block in Iran. The field is estimated to hold in-place reserves of up to 21.68 trillion cubic feet (tcf), of which 12.8 tcf of gas and 212 million barrels of condensate may be recoverable.
Officials in the Petroleum Ministry said about two million tonnes had so far been imported from Iran. Import of an additional 11 million tonnes would help cut the foreign exchange outgo by $8.47 billion (given that crude rules at $105 a barrel). Because of the sanctions, India pays Iran in rupee through a UCO Bank branch in Kolkata. Since July 2011, India had been paying Iran through the Ankara-based Halkbank in euro for 55 per cent of its oil purchases. The rest was remitted in rupee in the accounts of the National Iranian Oil Company in UCO Bank. However, payments in euro ceased on February 6.
Iran was India’s second biggest oil supplier after Saudi Arabia in 2010-11. However, during 2012-13, it supplied only 13.1 million tonnes, lagging behind Saudi Arabia, Iraq, Venezuela, Kuwait and the United Arab Emirates. In 2011-12, Iran stood third with 18.1 million tonnes, against 32.5 million tonnes from Saudi Arabia and 24.1 million tonnes from Iraq.
In 2009-10, it supplied 21.2 million tonnes; in 2012-13, supplies accounted for 7.2 per cent of oil imports, down from 10.5 per cent during 2011-12.
Correction:
The second paragraph of this article has been changed to reflect the following correction:
It is Farzad-B gasfields. It was misspelled as Frazad-B in the second paragraph of a report “Iran rejects India’s plea for full rupee payment for oil import.” (September 30, 2013).
