India’s biggest refiner expects Iran to invest in a refinery expansion project at one of its subsidiaries after New Delhi decided to facilitate the repayment of about $1.5 billion in outstanding debt to Tehran.
Indian Oil Corp Ltd plans to invest up to 356.98 billion rupees ($5.1 billion) at the Nagapattinam refinery run by its subsidiary Chennai Petroleum Corp Ltd in which Naftiran Intertrade holds a 15.4 percent stake.
Doubts have been raised about Iran’s participation after India cut back its Iranian crude oil imports following US sanctions but India’s decision to exempt rupee payments to Iran for crude oil imports from taxes may have encouraged Tehran.
On Wednesday, Indian Oil chairman Sanjiv Singh was quoted as saying that Iran has not ruled out participating in the expansion of the 20,000 barrels per day (bpd) refinery in Southern Tamil Nadu state.
Chennai Petroleum plans to boost capacity at the Nagapattinam facility by nine-fold to 180,000 bpd at a cost of the 27,500 crore rupees and its Managing Director S.N. Pandey expects Naftiran to commit 1,500 crore rupees.
Naftiran Intertrade is a trading arm of state-owned National Iranian Oil Company (NIOC) based in Switzerland. Its presence in India is focused on surging fuel demand that has turned the country into a prized market for global oil producers.
Iran has been a reliable source of crude for India which got an exemption from US sanctions in November to continue imports.
India has come up with a scheme to buffer Iran’s oil money against US sanctions after securing a waiver from Washington to continue oil imports from the Islamic Republic.
However, the sanctions have led to a debt buildup, with the Iranian oil money being kept in India’s government-owned UCO Bank in the Indian currency.
Making the matters worse, the income deposited in an Indian bank is subject to a withholding tax of 40 percent plus other levies which render Iran’s oil sales to India ridiculously cheap.
With the payments frozen by the refiners, the Indian government has reportedly intervened and exempted rupee payments to Iran from the steep tax.
An Indian Oil official was quoted on Monday as saying that the company would start making payments to Iran from January.
According to Reuters, India’s overall imports from Iran totaled about $11 billion in April-November 2018, with oil accounting for about 90 percent of the imports.
Iran can now use its rupee funds to import goods from India, pay the costs of its diplomatic missions or make direct investment in Indian projects because it cannot repatriate the money.
Pandey said that Chennai Petroleum is also building a petrochemicals plant of about 475,000 tons per annum capacity.
One Indian government official explained that in the previous round of sanctions Iran was allowed to use funds for imports from India “but this time, we have expanded the scope for use of funds to benefit both nations.”