At a time when India is struggling to curb forex outflows and bridge the current account deficit (CAD), public sector bank UCO Bank has promised a big helping hand to the government by offering to facilitate rupee transactions between Indian oil refining and marketing PSUs and countries like Syria and Sudan that are facing sanctions from the US and the European Union.
It is a normal practice for rupee payments from oil retailers including Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum (HPCL) to be routed to oil exporters through Indian banks. UCO Bank is counting on the experience it gained while managing bank accounts for making similar payments to Iran, which like Syria and Sudan is also under western sanctions.
Since July 2011, Indian retailers have paid in euros through Ankara-based Halkbank to clear 55% of their outstanding dues for crude oil purchased from National Iranian Oil Company (NIOC). The remaining 45% is paid in rupees through NIOC accounts opened with Kolkata- based UCO Bank. Currently, UCO Bank holds an accumulated amount of around R20,000 crore that is due to NIOC from Indian oil marketing PSUs.
The public sector lender believes India can save a significant amount of foreign exchange by importing from countries like Syria and Sudan. ?There are requests coming from Syria and Sudan for oil imports. We have asked the government that if they are ready to import oil we will facilitate the transaction since we already do it for Iran,? said a UCO Bank official.
An oil ministry official explained that UCO Bank has made the proposal citing a rupee payment system devised by for Iran within the ambit of international sanctions. UCO bank has experience in handling trade with Iran and developed the capability of working around the US office of foreign assets control regulations dealing with sanctions.
Currently, India does not import oil and gas from either Syria or Sudan though oil major ONGC has oil blocks in both countries. ONGC holds oil blocks in Sudan but sells crude only locally and its blocks in Syria have closed down owing to the impasse between the government and rebel groups. ?Along the lines of Iran, UCO Bank has said, it can come up with rupee payment system for Syrian crude. The department of economic affairs will have to make the final decision,? the official added.
An HPCL official confirmed that the oil ministry has circulated a proposal from UCO Bank to all the oil retailers. ?The Syrian crude is similar to Arab light crude we already import. The distance is also favourable as Africa is not very far from India. In the past, Indian delegations received assurances of a discount from Syria. We are studying the economic feasibility of the proposal,? the official said.
The HPCL official expressed hope that relations between US and Syria will improve soon, with the latter now willing to give up its chemical weapons under a plan drawn up by Russia. Oil PSUs, however, feel that the biggest worry about buying crude from countries facing sanctions is getting insurance and arranging for vessels to transport the crude.
The government has set up a special pool to provide insurance cover to ships ferrying Iranian crude. The proposed pool will kick off with a R1,000-crore contribution from the Oil Industry Development Board. A similar amount will be jointly contributed by state-run general insurers and GIC.
India imported 18.11 million tonnes from Iran in 2011-12, compared with 13.14 million tonnes in 2012-13. Until 2010-11, Iran was India?s second-largest supplier after Saudi Arabia. But now it has slipped to the sixth position.
The 20% depreciation of the rupee against the dollar since May 2013 has added to India?s woes, pushing its CAD to $21.8 billion, or 4.9% of its GDP in the first quarter. The government has proposed a rupee-centric approach to control the CAD by cutting down on dollar-denominated oil imports. Crude oil is the largest component in India?s import portfolio along with gold. This ran parallel to the government?s decision to rely more on rupee-based crude oil imports from countries like Iran, which is the only country that has offered partial rupee-denominated oil trade.
If India were to import 13 million tonnes of crude oil imports from Iran this financial year, the same quantum as in 2012-2013, it would save around $8.5 billion in the existing 100% rupee payment mechanism. Factoring this into account, India approached Iran to continue this 100% rupee-denominated deal. However, the proposal has been turned down by Iran under the newly-elected President Hassan Rouhani, who seeks to revert to the original 45-55% ratio.
