* India plans to pay $1.65 bln Iran oil dues via UAE central
bank - sources
* Mechanism reflects a U.S. insistence that transfers can be
* Includes a step in which funds would be routed through the
U.S. Federal Reserve
* UAE c.bank to remit dirhams to Iran's central bank
(Adds detail on payment mechanism)
By Nidhi Verma
NEW DELHI, June 18 India plans to clear some
pending oil payments to Iran through the United Arab Emirates
central bank, three sources with knowledge of the matter said,
under a new payment system that would allow Washington to track
the flow of funds closely.
The payment of $1.65 billion under the revised mechanism
includes a step in which funds would be routed through the U.S.
An interim nuclear deal has allowed Tehran access to $4.2
billion in blocked funds globally. The payments are to reward
Tehran for cooperating in nuclear talks that, if successful,
would pave the way for Iran to return to the international fold
after decades of isolation.
Despite some signs of improving relations between Washington
and Tehran, mostly recently over how to respond to an Islamist
militant insurgency in northern Iraq, a full deal over Iran's
nuclear activity remains elusive.
Iran and six world powers re-launched talks on Tuesday to
try to salvage a deal on Tehran's nuclear activity by a July 20
Iran's earlier request to repatriate $1.65 billion in Omani
Rials through Bank Muscat proved not to be workable. It was not
known why that channel was not utilized.
Asian buyers such as Japan and South Korea have cleared some
of their oil dues as per a payment schedule approved by world
powers in a breakthrough deal with Iran in November.
The payment is spread over eight instalments, ranging from
$450 to $650 million each, from February to July. India is
slated to take up the last three tranches of $550 million each.
The payments are linked to Iran making continuous cuts in its
Under the proposed new arrangement, the Reserve Bank of
India would buy the dollars from authorised currency dealers,
instead of the Indian oil buyers tapping the currency market,
the sources said.
As part of a complex chain of transactions, the RBI would
instruct the Federal Reserve to transfer dollars to the UAE
central bank's account there, after confirmation that Iran had
received a final payment in dirhams from Abu Dhabi.
The UAE central bank and the U.S. Treasury department's
Office of Foreign Assets Control did not immediately respond to
requests for comment. No comment was available from the RBI.
The sanctions slapped on Iran in 2012 closed banking
channels for the transfer of oil payments to the OPEC member
country, choking off its revenues, crippling the economy and
ultimately bringing it to the negotiating table.
The Office of Foreign Assets Control (OFAC) of the U.S.
Department of the Treasury has informed India that Iran would
like to receive $1.65 billion in three equal installments
through the UAE central bank, the sources said.
"It is indeed a complex mechanism but it has been devised to
bring in transparency in the money transfer to Iran," said one
of the sources, all of which declined to be identified as they
were not authorised to speak to media.
In a first step, India's petroleum ministry would instruct
oil refiners to remit funds in rupees to the account of an
Iranian bank with India's state-run UCO Bank.
UCO would then transfer the sum to the RBI for crediting to
a new rupee account held by the UAE central bank.
Once this step is completed, the UAE central bank would make
a payment in dhirams to the Iranian central bank. On receipt of
payment confirmation, the RBI would credit the UAE account at
the Fed with an equivalent sum in dollars.
Simultaneously, the RBI would settle its dollar purchases
with the funds on the UAE rupee account at the Indian central
Indian refiners Essar Oil, Mangalore Refinery and
Petrochemicals Ltd, Indian Oil Corp.,
Hindustan Petroleum Corp and HPCL-Mittal Energy Ltd.
together owe about $4 billion to National Iranian Oil Co, an
MRPL executive said last month.
In the first two installments, MRPL would pay about $238
million, Essar $232 million, IOC $57 million, HPCL about $8 and
HPCL-Mittal about $15 million.
"The respective payments by the five refiners will be the
same for the first two installments. Numbers for the third
installment are yet to be worked out," said one of the sources.
India has been settling 45 percent of Iranian oil payments
by transferring rupees into Iran's account with UCO Bank, while
the refiners hold the remainder. Tehran is using the funds in
UCO Bank to import goods from India.
India had used Turkey's Halkbank to clear part of
its Iranian oil dues, but that route was closed in February 2013
as sanctions prevented Iran from repatriating cash it earned
from oil sales.
India, which imports a total of 4 million barrels per day of
oil, has been steadily reducing its dependence on Iran, whose
share in its overall oil imports has fallen by two-thirds over
the last five years to 5.7 percent in 2013/14.
(Reporting by Nidhi Verma; Editing by Douglas Busvine and Ed