Iran-India $2.5 bln steel deal totters as end of sanctions looms (updated)

State Trading of India

15/01/2016 13:05

* $2.5 billion, three-year export deal agreed in 2014 
    * Iran has complained shipments irregular, below terms of 
contract 
    * No exports since Iran stopped paying in September - source 
    * UN nuclear watchdog poised to pave way for lifting of 
sanctions 
    * End of sanctions will allow Iran to strike alternative 
deals 
 
 (Add comments from Essar) 
    By Nidhi Verma 
    NEW DELHI, Jan 15 (Reuters) - India's largest-ever steel 
export deal, struck with Iran in 2014 to allow it to buy the 
metal without violating Western sanctions that are now set to 
end, has become mired in a dispute that has seen no payments 
made or shipments delivered since last fall.     
    The impasse underlines how Tehran is taking a more assertive 
posture in its dealings with trading partners as options open up 
for business and it looks to strike better deals.  urn:newsml:reuters.com:*:nL3N0Y53T8 
    Iranian Gas Engineering & Development Company (IGEDC) has 
written to Indian state-trader STC India Ltd  STCI.NS  
complaining that steel shipments have been irregular and far 
below terms set out in the $2.5 billion contract, according to a 
letter seen by Reuters.  
    It also said in the letter, dated late last month, that it 
would like to deal directly with Essar Steel India Ltd, which 
was supplying the steel to STC for export, if the state trader 
did not restart regular shipments soon.  
    "We strongly urge STC to either be more flexible to enable 
regular and faster shipments or allow the contract to be dealt 
directly between IGEDC and the manufacturer," it wrote. 
    The complex arrangement was put in place to allow steel 
exports without violating sanctions that prevented private 
Indian companies from dealing directly with Iran. 
    That is set to change, with Western sanctions expected to be 
lifted under a historic nuclear deal struck in July between 
Tehran, the United States, Britain, France, Germany, Russia and 
China, giving Iran far more flexibility to pursue deals. 
 urn:newsml:reuters.com:*:nL8N14X2UP 
    A source familiar with the matter said steel exports had 
been halted since Iran stopped making payments in September. 
    IGEDC's managing director's office did not return calls 
seeking comment. 
    STC did not have any immediate comment.  
    "The contract between Essar and STC is valid and is being 
performed," Essar said in an email reply. 
     
    STEEL DEAL 
    Under sanctions, India has been one of the few countries 
willing to do business with Tehran.      
    "When this steel export deal was done, Iran had virtually no 
choice than to accept it, as sanctions isolated it from the 
world financial system," said Robin Mills, chief executive of 
Dubai-based Qamar Energy. 
    Mills said the end of sanctions would open a wider circle of 
trade partners for Iran, such as those from Europe and China.  
    "So Iran would like to diversify and buy steel from other 
players instead of having a huge contract with India," he said. 
    Iran expects the U.N. nuclear watchdog to confirm on Friday 
it has curtailed its nuclear programme, paving the way for the 
unfreezing of billions of dollars of assets and an end to bans 
that have crippled its oil exports.  urn:newsml:reuters.com:*:nL8N14X2UP  urn:newsml:reuters.com:*:nL8N14X0F7 
    India is the top oil client of Iran after China, and Essar 
Oil, an affiliate of Essar Steel, is a key customer of the 
National Iranian Oil Co (NIOC).  
    The three-year steel contract was struck in June 2014, after 
the Indian government, worried about its trade balance with Iran 
and looking to boost exports, directed trading firms STC and 
MMTC Ltd to help facilitate business for Indian companies. 
    Indian refiners have been paying 45 percent of their oil 
dues to Iran in rupees. These rupee-funds are used by Tehran for 
importing goods, including steel, from New Delhi. 
     
    BLAME GAME 
    The steel deal ran into trouble in September, when Tehran 
failed to clear dues of about 4.5 billion rupees ($66.7 million) 
for steel exported to it by STC, the source familiar with the 
matter said.  
    STC was supposed to supply 1 million tonnes of steel in the 
first year of the contract, which is for a total of 2.5 million 
tonnes of steel plate and coil over the three-year span.  
    By September of last year, however, STC had supplied only 
about 450,000 tonnes of steel. 
    In its Dec. 22 letter, IGEDC told STC that it needed to 
expedite supplies and make them regular.  
    "Not only have the deliveries been irregular, we have not 
even received" the minimum quantity of 50,000 tonnes per month 
in most months, IGEDC wrote. 
    The source said STC supplied the steel to Iran based on 
availability and demand from Tehran, which was why the shipments 
were far below the expected levels.  
    STC has been regularly writing to IGEDC asking for payments 
and would restart supplies if Iran resumed them, the source 
said. 
 ($1 = 67.4345 Indian rupees) 
 
 (Reporting by Nidhi Verma; Editing by Alex Richardson and 
Elaine Hardcastle) 
 ((nidhi.verma@thomsonreuters.com; +91 11 4178 1018; Reuters 
Messaging: nidhi.verma.thomsonreuters.com@reuters.net)) 
 
Keywords: INDIA IRAN/STEEL