Payment problems due to US sanctions cause import dip

The pressure of US sanctions on Iran is evident with Indian refiners shifting attention to other crude oil producing nations. Though India has been maintaining that it is not reducing imports from Iran, the import numbers for 2011-12 tell a different story.

Supplies from Iraq and Kuwait have seen a significant increase, even as Saudi Arabia maintained its position as the largest supplier. Till now, Iran was India's second-biggest crude oil supplier after Saudi Arabia, meeting about 12 per cent of the country's needs, but the position has been taken over by Iraq.

Domestic refiners such as Hindustan Petroleum Corporation, Mangalore Refinery and Petrochemicals Ltd and Essar Oil are expected to cut sourcing from Iran by at least 10 per cent. Bharat Petroleum Corporation has already stopped sourcing.

According to industry observers, Iraq has emerged as the next major supplier as two big domestic refiners — Indian Oil Corporation and Reliance Industries — source their crude oil from there.

Sourcing from Iran may see a further drop after June, unless there is a diplomatic intervention. India is hosting the US Secretary of State, Ms Hillary Clinton, starting Sunday (in Kolkata) followed by two days in New Delhi, sources said.

Indian refiners imported 171.41 million tonnes of crude oil in 2011-12. Of this, 32.63 mt came from Saudi Arabia, 24.51 million tonnes from Iraq, 17.67 mt from Kuwait, and 15.79 mt from UAE (14.706 mt in 2010-11).

Payment woes

The sanctions also made payments for supplies from Iran difficult. A third-country payment mechanism was worked out. Indian refiners paid for their Iranian oil imports through Turkey's Halkbank. But, there is a fear that this system may collapse because of the new US sanctions.

A method was also worked out wherein National Iranian Oil Company would accept a share of the payments in rupees in an account opened in UCO Bank. However, the 40 per cent withholding tax component made the mechanism a non-starter. Domestic refiners had refused to shoulder the additional tax burden, which made sourcing from Iran very expensive.

Tax exemption

In the Budget for 2012-13, the Government stepped in to exempt tax on payment received by a foreign company in Indian currency on account of sale of crude oil to any person in India.

However, certain conditions would have to be met before benefiting from the tax exemption.

richam@thehindu.co.in

(This article was published on May 6, 2012)
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