Singapore (Platts)--28May2013/130 am EDT/530 GMT

Iran Monday urged India to boost its purchase of Iranian crude oil and also offered reinsurance cover to Indian refineries that process crude from the country.

The request was made during Iranian oil minister Rostam Ghasemi's three-day visit to New Delhi where he met his Indian counterpart M. Veerappa Moily.

The two sides discussed various issues aimed at bolstering their energy ties. The visit comes at a time when payment, shipping and insurance hurdles are making it increasingly difficult for Indian refiners to import Iranian oil.

"The Indian side explained [to the Iranians] that it would encourage companies to maintain their engagement in terms of crude oil purchase -- taking into account their requirements -- based on commercial and international considerations," a statement issued late Monday by the Indian oil ministry said.

India's crude oil imports from Iran plunged by more than 26.5% in fiscal 2012-2013 (April-March) as US and European sanctions on Tehran combined to make it difficult for Indian refiners to ship Iranian oil.

Imports of Iranian crude fell to 13.3 million mt, or close to 267,100 b/d, in 2012-2013 from 18.1 million mt, or around 362,500 b/d, in 2011-2012, the Press Trust of India reported last month, citing official sources.

The agency, quoting sources, said Iran had slipped to sixth place among India's top crude suppliers in the year to March 31 from second place behind OPEC kingpin Saudi Arabia in the previous financial year.

OFFERS REINSURANCE COVER FOR REFINERIES

The latest threat to India's procurement of oil from Iran comes from a lack of reinsurance cover for Indian refineries that process Iranian crude, but Ghasemi Monday offered to provide that, PTI said in a report Monday citing unnamed sources.

The report did not give details on how such a mechanism would work, but said that the Indian side was skeptical about the offer.

Indian oil companies Mangalore Refinery and Petrochemicals Ltd. and Hindustan Petroleum Corp. Ltd. last month said that they have been forced to delay placing orders for Iranian crude because of concerns that their plants will not be properly insured if they process Iranian oil.

Refinery sources have said that the only solution is to halt imports from Iran if the insurance impasse is not resolved.

Meanwhile, to circumvent the issues surrounding the payment for Iranian crude oil amid current sanctions, India has asked Iran to consider sourcing more goods from India to rectify the trade balance, the oil ministry statement said.

Payment for Iranian crude became an issue after paying through Turkish HalkBank was halted in February this year on stricter sanctions. Indian refiners currently pay for all Iranian oil in Indian rupees.

UCO Bank, a domestic bank headquartered in Kolkata, has been chosen to make rupee payments to Iran and a waiver on tax payments for these transactions was cleared last year.

According to the PTI report, around $1 billion equivalent is paid into the UCO bank every month and Iran needs to step up imports from India to utilize all these funds.

GAS PIPELINE FROM PAKISTAN AND UPSTREAM DEALS

During the minister's visit, the two sides also agreed to discuss outstanding issues related to the development of the Farzad B gas field, the ministry's statement said.

Iran and India in 2002 announced a memorandum of understanding on developing the Farsi block, which contains the Binaloud oil field and the large Farzad B gas field, Platts reported earlier. ONGC, however, never signed a contract with Tehran for the proposed $5 billion oil and gas development.

In February 2012, Iran issued an ultimatum to ONGC to decide whether it would develop Farzad B, after the company missed the November 2010 deadline that had been set for the investment decision.

Farzad B's reserves are estimated at 12.5 Tcf of natural gas and 212 million barrels of condensate. The first development phase of the project is expected to yield 1.1 Bcf/d of gas output.

The PTI report Monday said that Iran has offered ONGC a production sharing contract for the Farzad B field, a deviation from the traditional service contract that Tehran offers foreign companies.

Iran also offered to re-route a gas pipeline, that was originally the Iran-Pakistan-India pipeline, through an under-sea route in order to avoid it running through Pakistan, the PTI reported, citing official source.

India was persuaded by the US to back out of the decades old project.

Pakistan and Iran in March this year broke ground on the 1,931-km (1,197-mile) pipeline to carry 750,000 Mcf/d of Iranian gas to Pakistan.

--Mriganka Jaipuriyar, mriganka.jaipuriyar@platts.com

--Edited by E Shailaja Nair, shailaja.nair@platts.com

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