Indian Oil Corp.`s planned $5.10 billion expansion of its unit Chennai Petroleum, partly owned by Iran, is not expected to be hit by U.S. sanctions against Tehran, Chairman Sanjiv Singh said on Monday.
Chennai Petroleum plans to invest up to 356.98 billion rupees to replace its 20,000 barrel per day (bpd) Nagapattinam refinery in Southern Tamil Nadu state with a 180,000 bpd plant, it informed stock exchanges last year.
Naftiran Intertrade, the Swiss subsidiary of National Iranian Oil Company, holds a 15.4 per cent stake in Chennai Petroleum, while IOC has about a 52 percent share.
"We won`t stop because of that (the sanctions). This is an investment and investment has to be done by shareholders and we are the largest equity holder so we will do that," Singh told reporters.
The United States, which withdrew from the 2015 Iran nuclear deal in May, has renewed some sanctions on Tehran from Aug. 6, while others, most notably on the petroleum sector, will be implemented from Nov 4.
Iran is keen to remain invested in Chennai Petroleum, Singh said, adding that a final investment approval on expansion will be made during the first quarter of 2019.
"I am sure we will be able to work out something because we are buying Iran crude, we want Iran to invest money," he said.
IOC, the country`s top refiner, has emerged as Iran`s biggest Indian oil client in the fiscal year beginning April 2018 and was hoping to buy as much as 180,000 bpd Iranian oil, including 40,000 bpd for Chennai Petroleum.
Singh said his firm would like to continue buying Iranian oil beyond November because of better incentives offered by Tehran in terms of credit period and freight.
The company is buying Iranian oil on a delivered basis, with vessels and cargo insurance arranged by Tehran.
However for supplies from November India needs to set up a payment mechanism involving local and foreign banks, he said.
In the previous round of sanctions India had significantly reduced imports from Iran to win a waiver from the United States. Also, the South Asian nation had devised a barter-like mechanism to keep Iranian oil flowing.
IOC is already in talks with traditional suppliers to meet any shortfall in Iranian oil imports from November, and has boosted purchases from the United States.
The company is scouting for a long-term deal for assured supply of U.S. crude, pricing of which is giving tough competition to other grades despite the distances involved, Singh said
"We have a back-up plan," he said. "Even our other term contracts have some flexible quantity which can be utilised. We are in touch with other suppliers also, they have shown interest also. I am sure that we will be able to take care of any shortfall."($1 = 70.0150 Indian rupees)