14 hours ago
Global oil suppliers hesitant to pay in rupees, govt tells house panel
NEW DELHI: The petroleum and natural gas ministry has said crude oil suppliers remain hesitant to settle import bills in Indian rupees due to the country's trade imbalance.
The statement comes in response to concerns raised by the Standing Committee on Petroleum and Natural Gas over the slow adoption of rupee-denominated oil trade. The ministry said oil companies consistently engage with suppliers to negotiate crude oil settlements in Indian rupees (INR).
The committee has urged the ministry to coordinate with the finance ministry and the Reserve Bank of India (RBI) to remove bottlenecks in rupee settlement of crude oil imports and promote the practice more effectively.
Mint reported on 11 June that the rupee settlement mechanism, launched in 2022 to facilitate trade with sanction-hit Russia, has struggled to gain traction, with most transactions still conducted in UAE dirhams.
'Oil companies consistently engage with suppliers to negotiate crude oil settlements in Indian Rupees (INR). However, due to the imbalance in trade flows, where imports significantly outweigh exports, suppliers are hesitant to agree to settle crude oil bills in INR,' the ministry informed the parliamentary panel.
The ministry noted that the RBI and the Central Bank of UAE (CBUAE) had signed a memorandum of understanding on 15 July 2023 in Abu Dhabi to promote the use of local currencies—the Indian rupee (INR) and the UAE dirham (AED)—for cross-border transactions.
With RBI support, Indian Oil successfully made the first rupee payment for imported crude supplied by ADNOC on 14 August 2023. The invoice for one million barrels of crude was paid in a ratio of 80:10:10 in USD, INR, and AED, the ministry said.
The committee had previously highlighted that crude suppliers were concerned about repatriation of funds in their preferred currency, high transaction costs for currency conversion, and exchange rate risks. It recommended that the petroleum ministry engage the finance ministry and RBI to resolve these obstacles.
In its latest report, the panel headed by Sunil Dattatrey Tatkare, Lok Sabha member from Raigad, Maharashtra, said, 'The committee are not satisfied with the reply of the ministry as it does not describe the action taken by the ministry in taking up the issue with the ministry of finance and Reserve Bank of India in response to the recommendation of the committee to identify the bottlenecks in settlement of crude oil import bills in Indian rupee and devise an appropriate plan to make the scheme successful.'
The panel emphasized that promoting the Indian rupee in crude oil settlements is a government policy and that all relevant agencies must make concerted efforts to implement it successfully.
'Accordingly, the committee reiterate their earlier recommendation to the ministry of petroleum and natural gas to take up the issue with the ministry of finance and Reserve Bank of India for removing bottlenecks in settlement of crude oil import bills in Indian rupee and promote the same,' the report said.
India is a net importer of oil, which forms a significant portion of the country's import bill. In FY25, India's crude import bill rose 2.7% to $137.0 billion from $133.4 billion in FY24.
Rupee-denominated trade was expected to gain momentum in supplies from Russia, as India became a top buyer after the US and European countries curtailed Russian purchases in 2022. However, the mechanism has not gained traction, despite robust imports from Russia. Experts cite limited utility of the Indian currency in Russia as a key reason.
The panel also reiterated its recommendation that the petroleum ministry provide funds to state-run oil companies through Indian Strategic Petroleum Reserve Ltd (ISPRL) for storage caverns near refineries, and explore ways to expand strategic storage capacity to meet projected demand for petroleum products in 2040.
In its reply to the initial recommendation, the ministry noted that under Phase I of the Strategic Petroleum Reserve (SPR) program, ISPRL built SPR facilities with a total capacity of 5.33 million metric tons (MMT) at three locations: Visakhapatnam, Andhra Pradesh (1.33 MMT), Mangalore, Karnataka (1.5 MMT), and Padur, Karnataka (2.5 MMT).
The union cabinet has approved Phase II development of commercial cum strategic reserves at Chandikhol (4 MMT) and Padur (2.5 MMT) under public-private partnerships, with land acquisition for Padur in advanced stages. ISPRL continues to evaluate expansion of storage capacities based on technical and commercial feasibility, the ministry informed the panel.
