India, Iran to discuss rupee payment for oil

Payment in Indian currency for Iranian crude will feature in discussions during Prime Minister Manmohan Singh's visit to Iran as the two countries have failed to agree on a cut-off date for rupee accrual.

While India wants May 2011 to be considered as the start of rupee payments, Iran insists on June 2012 as the first payments came in only after the Finance Ministry issued a notification that month exempting rupee earnings by the National Iranian Oil Co from a withholding tax of 40 per cent.

The cut-off date has been left open in the MoU agreed between the Department of Economic Affairs and Iran's central bank, Bank Markazi Jomhouri Islami, officials in the External Affairs Ministry said.

Though the rupee payments started last June, there is a backlog of nearly Rs 2,000 crore. Iran agreed to take 20 per cent of its crude oil payments in rupees in May 2011 and in January, it raised the rupee component to 45 per cent.

Iran says that in case the cut-off date is set for May 2011, India should pay a commercial interest rate on the outstanding amount. New Delhi differs, saying it cannot pay interest as the money would have been parked in a current account held by Bank Markazi Jomhouri Islami in UCO Bank, chosen because it has no US or European exposure and its overseas presence is limited to Hong Kong, Singapore and China.

UCO has account relationships with four Iranian banks — Parsian Bank, Pasargad Bank, Eghtesad-e-Novin Bank and Saman Bank of Iran.

Rupee payments decrease trade expenses as charges on opening letter of credit are lower. It also provides exporters the comfort of a natural hedge when there is high volatility in foreign currencies.

Since July 2011, refiners in India have been using Halkbank to pay their annual oil import bill of more than $11 billion, after a previous payment channel was blocked in December 2010. India's exports to Iran were about $2 billion in April to December 2011, according to government data.

ALSO READ

Pawar to seek special package for state

Railway bribery case: Nephew rose from obscurity, worked behind the scenes

For AMU students, wearing sherwani no issue

Polls today, Cong pins hope on BSY