Iran had decided an interest rate of Libor-plus 75 basis points on the $6.5 billion Indian refiners owe it in past oil dues, to make up for the foreign exchange losses and India agreed to owe it in oil dues, as a 'goodwill gesture'.
"Although we believe there is no interest due, but as a goodwill gesture oil companies have agreed to pay the interest rate," a finance ministry official said. "Seven days US Libor plus 75 basis points equals to an interest rate of about 1.5 per cent."
Oil minister Dharmendra Pradhan met Iranian Central Bank met Governor Valiollah Seif in Tehran on April 9 and demanded for interest rate.
Iran wanted interest to be paid after differences appeared over foreign exchange rate.
Iran sold oil to refiners like Essar Oil and Mangalore Refinery and Petrochemicals Ltd (MRPL) in US dollar per barrel. Around 45 per cent of the oil bill was paid in rupees in a UCO Bank account while the rest 55 per cent was to be cleared whenever banking channels open.
Iran has presented its unpaid bill with lifting sanctions made. But Essar Oil and other refiners want to pay Iran at the exchange rate prevalent at the time of buying crude oil in the last three years.
Rupee to a US dollar was under 55 in February 2013 when the 45:55 payment systems became operational. Rupee to a US dollar is nearing 67 now.
"Iran believes it will lose about Rs 1,500 crore due to the exchange rate variation and this interest rate will help make up for it," he said.
The official said India is agreeable to paying interest rate even though the 'Bilateral Payment Agreement' entered into in August 2012 does not provide for payment of interest.
With India agreeing to Payment of interest, refiners will clear the past dues as per the exchange rate prevailing at the time of billing. This means refiners will pay the amount billed at the time of buying crude oil from Iran plus 1.5 per cent interest.
The official said Iranian Central Bank officials will shortly visit India to further discuss the modalities.