* India to provide 10 bln rupees as sovereign guarantee
* GIC, oil companies to contribute 5 bln rupees each
* Move aimed at boosting oil imports from Iran
* Higher imports from Iran seen helping rupee
By Rajesh Kumar Singh and Manoj Kumar
NEW DELHI, Sept 18 (Reuters) - India will provide a 10
billion rupee ($158 million) sovereign guarantee to back local
insurance for refineries using Iranian oil, two government
sources said, as it tries to boost imports paid for in local
currency to ease pressure on the rupee.
India's crude imports from Iran slumped 75 percent in July
from June to just 35,500 barrels per day (bpd) because of
problems over insurance for crude from Iran caused by western
sanctions which aim to curb its nuclear ambitions.
But with oil imports in dollars swelling India's current
account deficit to a record in 2012/13, the government is trying
to maximise purchases from Iran, which is now accepting rupees
as its hard currency options are curtailed.
The rupee sank to a record low against the dollar last month
and is now languishing around 63 to the dollar, swelling the
import bill, pushing up inflation and straining public finances.
"It was finalised yesterday in a meeting with the petroleum
secretary. An energy pool will be set up with a sovereign
guarantee," one of the sources, both of whom have direct
knowledge of the matter, said.
India had originally been considering a sovereign guarantee
of 20 billion rupees to back the local insurance. It was not
immediately clear why the government had decided to halve the
amount or whether it would be sufficient for insurers.
The maximum claim that has arisen so far in the Indian
refining sector is 5 billion rupees.
"The issue has been resolved. GIC (local reinsurer General
Insurance Corp) will manage the pool. In case there is any
mishap or something, then they will pay," the second source
The sources said apart from the 10 billion rupees sovereign
backing, GIC and oil companies will provide 5 billion rupees
each to the pool.
MORE IMPORTS FROM IRAN?
The government is taking a range of measures to cut its
import bill including raising duty on gold shipments to a record
10 percent and making airline passengers pay duty on imports of
flat-screen televisions, but oil is still about 34 percent of
the total import bill.
India's oil minister Veerappa Moily is targeting raising
imports from Iran to around 260,000 bpd, aiming to save about
$8.5 billion from the oil bill which totalled $144 billion last
year. In total, Moily wants to save $22 billion this year.
That level of imports from Iran would be only about 6,000
bpd lower than the average for fiscal 2012/2013 and would
virtually wipe out cuts by India that won it a waiver from
"We pay Iran in rupees, so the more we import from Iran the
better it is," the first source said.
India, together with Iran's other major clients China, Japan
and South Korea, had won a waiver from U.S. sanctions after
cutting back on its imports, which fell 46 percent in the first
seven months of the year to about 185,700 bpd.
Indian refiner Mangalore Refinery and Petrochemicals Ltd
resumed imports from Iran in August after it secured
local reinsurance for claims up to 5 billion rupees. MRPL, once
Iran's biggest Indian client, halted imports in April due to
lack of insurance cover.
The sovereign guarantee "will essentially provide comfort to
the insurance companies to the extent that they will provide
cover without going to reinsurers abroad," MRPL's managing
director P.P. Upadhya told Reuters.
"There will be no change in our strategy to buy Iranian
oil," he added.
India had been depending on European markets to hedge its
risk but European reinsurers have added a clause in contracts
with Indian firms that meant claims arising during processing of
Iranian oil would not be met, because of sanctions.
With the start of this re-insurance cover local insurers
will delete the sanctions clause from the existing annual policy
of Indian refiners processing Iranian oil, two oil industry
sources told Reuters.
($1 = 63.2300 Indian rupees)
(Additional reporting by Nidhi Verma, editing by William Hardy)