With nuclear talks between Iran and P5+1 (the US, Britain, France, China, Russia and Germany) going slow, Tehran has approached New Delhi for allowing third country exports of humanitarian goods for drawing down the $3.6 billion accumulated balance on account of Indias oil imports.
Last week, the Reserve Bank of India agreed that payments for third country exports to Iran could be made from the 55 per cent euro component of oil payment due to National Iranian Oil Company (NIOC) with UCO Bank acting as the settlement bank.
UCO Bank would examine the letters of credit issued by Iranian banks for third country imports by Iranian firms and would advise the identified Indian oil importing refineries to remit the foreign exchange to its nostro account on a particular date which would then be remitted to the Iranian Bank.
The due diligence would involve UCO Bank securing certification from renowned inspection agencies of the goods being humanitarian in nature. If there is any suspicion or doubt on any consignment, then UCO Bank would be free not to release the money.
To trigger this mechanism, NIOC would have to enter into a tripartite agreement with UCO Bank and the Indian oil companies detailing all responsibilities and obligations. The payouts by each Indian refinery would be in proportion to their outstanding amount.
Once the payment is done, NIOC will deduct from the obligations the amount it receives from each company.
India is set to pay Iran $1.65 billion under an interim nuclear deal that eases sanctions on Tehran and gives it access to $4.2 billion in blocked funds. As long as Tehran complies with the terms of its preliminary pact with P5+1, Iran receives some of its funds abroad frozen with various buyers over six months.
Indian refiners Essar Oil, Bangalore Refinery and Petrochemicals Ltd, Hindustan Petroleum Corp and HPCL-Mittal Energy Ltd have been settling 45 per cent of payments in rupees, which Iran used for importing goods from India, while the refiners held the remainder.
Three days of negotiations in Vienna between Iran and the P5+1 ended May 17 with no sign of advance.
The Vienna round follows the conclusion of the interim pact under which Iran froze or rolled back key aspects of its nuclear program in return for sanctions relief.
If an agreement is not concluded by July 20, the talks can be extended for another six months.