India will pay Iran $700 million in the next few days to clear more than one-tenth of the outstanding oil dues, ahead of the expected lifting of sanctions against Tehran.
"The Reserve Bank of India will make payments of $6.5 billion in past oil dues to Iran in a calibrated manner so that there is no pressure on exchange rate," a senior finance ministry official said on Monday, reported PTI.
"The first tranche will go out sometime this month," he said.
Another official said the first tranche of $700 million will go out in next few days. Modalities are being worked out and it will be paid in next few days, he said.
US Treasury's Office of Foreign Assets Control last month approved Indian refineries' paying $1.4 billion out of the $6.5 billion in past oil dues to Iran.
No modalities of the second installment of $700 million have yet been worked out, the official said. The remaining $4 billion would be cleared in tranches after payment channels are cleared.
The payments are being made after the July nuclear deal that Tehran struck with Western powers, allowing for termination of sanctions.
The dues to Iran on crude oil that refiners buy have accumulated as Western sanctions blocked payment routes since 2013.
About 45 percent of the oil import bill is paid in rupees in a UCO Bank branch and the rest has accumulated. The official said refiners will deposit $700 million with RBI which will transmit the money to Iran.
Since February 2013, refiners such as Mangalore Refinery and Petrochemicals (MRPL) and Essar Oil have been paying 45 percent of dues on purchase of crude oil from Iran in rupees through UCO Bank, Kolkata.
The remaining has been accumulating, pending finalization of a payment route and mechanism.
Last year they had paid nearly $3 billion in six installments through a limited payment channel following start of nuclear talks between the West and Iran.
The outstanding has since climbed to over $6.5 billion. Essar Oil owes $3.34 billion, MRPL ($2.49 billion) and Indian Oil Corp ($581 million) to Iran.
HPCL-Mittal Energy Ltd. (HMEL) owes $97 million while Hindustan Petroleum Corp. Ltd. (HPCL) another $29 million. Besides, about Rs 17,000 crore was lying in Iranian account with UCO Bank.