Iran crisis: Credit profile of Indian oil cos ‘safe’

ICRA has the highest long-term rating of ‘LAAA’ with a stable outlook on bank lines of the Mangalore Refinery and Petrochemicals (MRPL),besides an ‘LAAA’ on long-term bonds programme of Indian Oil Corporation Ltd (IOC).

It also has an ‘A1+’ rating,suggesting low credit risk,outstanding on short-term debt and commercial paper programme of Chennai Petroleum Corporation Ltd (CPCL).

RBI on December 23 said oil and other import payments to Iran will have to be settled outside the existing Asian Clearing Union (ACU) mechanism,which involves the central banks of India,Bangladesh,Maldives,Myanmar,Iran,Pakistan,Bhutan,Nepal and Sri Lanka.

Under the ACU mechanism,imports by the nine nations are settled every two-months with every member paying for imports after netting out its exports among the union.

Till 2008,payments under the ACU mechanism were done in US dollars but after United States imposed sanctions against Iran over its suspected nuclear programme,the currency shifted to euro.

United Nations sanctions do not forbid buying Iranian oil and recently the European Central Bank (ECB) asked RBI and other central banks of ACU to provide certificates that the euro being used to import products are not on US sanctions list.

However,according to sources,RBI chose to scrap the entire system itself even though certification for crude oil imports was easy to provide and track.

“While the oil companies concerned are making efforts to find a way out,it is unclear at this juncture as to when will the issue be resolved,” ICRA said.

According to the ratings agency,the issue would have minimal impact for IOC and CPCL as Iran accounts for only 3-4 per cent of their oil sourcing.

“However,MRPL imports about 7.6 million tonne per annum from National Iranian Oil Company (NIOC),accounting for around 60 per cent of its annual crude oil requirements…MRPL has crude oil inventory of around one month (including in-transit and secured by existing payment mechanism),which should facilitate smooth operations of the company for January 2011,” it said.

However,according to it,if the issue remains unresolved beyond a month,MRPL’s refining throughput could be impacted.

“Besides,MRPL of late has been getting a credit period of 90 days for crude oil imported from Iran,which would be significantly lower at around 30 days from other suppliers and hence can result in increase in the working capital intensity of the company,” ICRA said.

In the absence of ACU,Iran and its crude supplier NIOC are jittery over sales without being backed by the sovereign guarantee of the central bank.

Also,oil firms will have to find an alternative European bank which can accept payments on behalf of NIOC.

Top RBI officials had last week met their Iranian counterpart to work out an alternative.

Sources said the two-side are exploring new mechanism to circumvent the ACU framework so that the bilateral trade could continue.

India imported 21.3 million tons of crude oil from Iran in 2009-10 and this year imports are expected to be around 18 million tons as Reliance Industries has totally stopped using crude oil from the Persian Gulf nation.

Mangalore Refinery and Petrochemicals Ltd (MRPL) is the biggest importer of Iranian crude oil. Mumbai-based Essar Oil imports roughly 3 million barrels per month (5-5.5 million tons a year),Indian Oil Corp 3.5 million tons and Hindustan Petroleum Corp about 3 million tons.