Rupee’s plunge prompts Mangalore Refinery to embrace Iran
India is increasing crude imports from Iran as it is the world’s only producer that accepts rupee payments for oil
First Published: Tue, Sep 03 2013. 10 24 AM IST
Policymakers are risking flouting US trade sanctions in their scramble to halt the slump in the rupee. Photo: Bloomberg
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New Delhi: India is increasing imports of crude
oil from Iran as policymakers risk flouting US trade sanctions in their
scramble to halt the slump in the rupee.
Mangalore Refinery and Petrochemicals Ltd,
India’s biggest buyer of Iranian crude, plans to buy five cargoes of
85,000 tonnes each this month, compared with three in August, Managing
Director P.P. Upadhya
said in an interview. Shipments from the world’s only producer that
accepts rupee payments for oil are estimated to rise to 4 million tonnes
in the year ending 31 March, versus 3.9 million tonnes in the previous
12 months.
India is among a few countries eligible for a waiver of a
US law that imposes financial sanctions unless they can show they have
significantly reduced purchases from the Persian Gulf country. Prime
Minister Manmohan Singh
is seeking options to revive the $1.8 trillion economy, which relies on
imports to meet 80% of its energy needs, as he struggles to stem
capital outflows that have weakened the rupee by 17% this year against
the dollar.
“Importing crude oil from Iran is crucial as it helps in
curbing dollar outgo in a big way,” Upadhya said by phone from
Mangalore. “We can make part payment in rupees. That’s the arrangement.”
Atomic research
The US and European Union are seeking to curb trade in
Iranian oil, arguing the Persian Gulf state’s atomic research is aimed
at producing weapons. The government in Tehran says it is for civilian
purposes. Asian customers of Iran, including China, India and South
Korea, won waivers from the US allowing imports of Iranian crude as they
were able to show purchases had been curbed.
While India has abided by several rounds of UN sanctions
on Iran over the country’s nuclear programme, it has publicly criticized
unilateral American sanctions as an infringement on its sovereignty.
Finance Minister P. Chidambaram told reporters last month that India is considering stepping up imports without breaching UN rules.
Indian refiners buying Iranian crude deposit at least 45%
of their payments in rupees into a bank account, former junior oil
minister R.P.N. Singh
said in August last year. Iran in return paid for imports of
commodities including rice from India in rupees. The nations also
briefly traded in euros after the Reserve Bank of India (RBI) dismantled
a mechanism used to settle payments in dollars in December 2010.
Currency benefit
“Buying more crude from Iran is positive for Indian
refiners like Mangalore Refinery due to currency benefit and lower
freight cost,” said Kamlesh Kotak, head of research at Asian Markets
Securities Pvt. Ltd. “This would be a short-term benefit, and the
government needs a structured policy to handle the current-account
deficit better.”
South Korea imported 815,447 tonnes of Iranian crude in
July, 38% higher than a year earlier, Korea Customs Service said on its
website on 15 August. China’s imports in the month fell 13% to 1.69
million tonnes, according to data from General Administration of Customs
in Beijing.
Curbs on buyers have made Iran the sixth-biggest producer
in the Organization of Petroleum Exporting Countries (Opec), dropping
from the No. 2 position. The nation has the capacity to produce 3.5
million barrels per day, almost equivalent to India’s total import
requirement. Output rose 0.4% in August to 2.57 million barrels a day
from the previous month.
Halted purchases
Mangalore Refinery and Hindustan Petroleum Corp. Ltd
(HPCL), the nation’s third-biggest state refiner, and Chennai Petroleum
Corp. halted crude purchases from Iran in April after Indian insurers
declined coverage. India’s government is preparing a Rs.2,000 crore insurance fund for future purchases, financial services secretary Rajiv Takru said on 19 August.
“If the government wants us to import Iran crude, we can do so, since we have processed this crude in the past,” A.S. Basu, managing director at Chennai Petroleum, a unit of Indian Oil Corp. Ltd,
said in a 2 September phone interview. “How much volume we might
actually take this year will depend on what price is being offered.”
Iran’s Naftiran Intertrade Co. owns 15.4% of Chennai
Petroleum, making it the second-biggest holder, according to data
compiled by Bloomberg.
In the absence of Iranian oil, refiners would need to buy
crude from the spot market which is typically more expensive. Mangalore
Refinery reported a loss of Rs.450 crore in the three months ended 30 June, its third consecutive quarter of losses. Raw material costs rose 6.8% to Rs.14,410 crore compared with a year earlier.
Shares srop
Mangalore Refinery’s shares have dropped 49% this year,
heading for their worst annual performance since 2008. Chennai Petroleum
has slumped 57% and HPCL has slid 42%, compared with a 2.8% decline in
the benchmark BSE Sensex index.
Oil imports have contributed to India’s widening current
account deficit, which in turn is undermining efforts to revive economic
growth from its slowest pace in a decade. Gross domestic product (GDP)
rose 5% in the year to March 31, the smallest gain since 2003, while the
rupee plunged to an all-time low of 68.845 a dollar on 28 August.
India imported about 7.2% of its crude from Iran in the
past fiscal year, down from about 11% in the previous 12-month period,
according to the oil ministry.
“If India is able to adjust oil imports from Iran against
exports using the Indian currency, it will squeeze our dollar demand
significantly,” said Chokkalingam G., the chief investment officer at
Centrum Wealth Management Ltd in Mumbai, which manages the equivalent of
about $290 million in Indian stocks. “It will make a big difference to
India’s exchange rate management and at the same time push up export of
commodities.”
NAME-
SARVESH KUMAR SNGH
PGDM 1st SEM
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