State-run Hindustan Petroleum (HPCL) has made its first payment for Iranian oil in rupees to partially settle its bill for a cargo imported in May, company officials said on Friday, a move that will help New Delhi fix its trade imbalance with Tehran.
Another state refiner, Mangalore Refinery and Petrochemicals Ltd, the biggest Indian buyer of Iranian oil, will make a rupee payment on Monday, a company official said.
India is Iran’s second-largest oil buyer, but has struggled to find ways to pay for the oil as Western sanctions curb international financial payments destined for Tehran. The two countries agreed in January to settle 45 percent of the oil trade in rupees.
The balance of HPCL’s payment, made on Friday, was through Turkey’s Halkbank and India’s UCO Bank.
“This is the first payment we have made since the gate was opened...we have paid 45 percent in rupees and 55 percent through Halkbank,” B. Mukherjee, head of finance at HPCL, told Reuters.
Since July 2011, refiners in India have been using Halkbank to pay their annual oil import bill of more than $10 billion, after a previous payment channel was blocked in December 2010.
Tehran and New Delhi reached the January agreement on using rupees to ensure payments continue should any problem arise with the Halkbank agreement, and to encourage more exports from India to Iran that could be settled in rupees.
India’s exports amounted to about $2 billion in April to December 2011, according to government data.
HPCL has paid 2.75 billion Indian rupees ($49.25 million) to Iran through UCO Bank and $60 million through Halkbank, a company source privy to the matter said.
Earlier, Bharat Petroleum Corp had used the rupee payment facility to settle its backlog of about $500 million with Iran as, unlike other refiners, it could not open an account with Halkbank.
The rupee is not freely traded so Iran’s ability to use the currency to buy anything other than Indian products is limited.
Indian refiners are expected to cut volumes from Iran under their term deals by more than 20 percent in the year that began in April, according to Reuters’ calculations, while the government says imports could drop by 11 percent from 2011/12 figures to about 310,000 bpd.
India has already won a waiver from tough new U.S. sanctions by cutting imports from Iran.
But insurance and shipping difficulties caused by European Union sanctions that started in July are hurting imports from Iran, forcing MRPL to buy only a fifth of planned shipments from Tehran during the month.
To skirt sanctions, India allowed state-run insurers to provide limited cover for Iranian shipments.
Indian insurers have agreed to provide cover of $50 million each against pollution and personal injury claims, also known as protection and indemnity (P&I) insurance, and for hull and machinery to protect ships against physical damage.
But the implementation of local cover has been delayed as the shippers want $100 million cover for hull and machinery to protect against physical damage for very large crude carriers, an oil ministry source said.
The government earlier this week said it will allow Indian refiners to use Iranian tankers and insurance for oil purchases on a case-by-case basis.
MRPL’s first August cargo from Iran is already on its way to Mangalore Port in southern India in the Iranian vessel Gardenia while HPCL is seeking the shipping ministry’s permission to lift a cargo from Tehran next week.