India’s $2.5-bn steel export deal hangs fire as Iran sanctions near end

16 Jan 2016


A $2.5 billion steel export deal that India struck with Iran in 2014 that allowed Iran to buy the metal skirting western sanctions is in jeopardy after Iran's options for doing business opened up with the sanctions almost coming to an end.

The deal is simply stuck with no payments made or shipments delivered since last fall and has instead become mired in a dispute.

In fact, reports said, Iranian Gas Engineering and Development Company (IGEDC) has written to state-run trader STC India Ltd stating that steel shipments have been irregular and far below terms set out in the $2.5 billion contract.

The steel deal ran into trouble in September, when Tehran failed to clear dues of about Rs450 crore ($66.7 million) for steel exported to it by STC.

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 22 December 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

The letter, IGEDC had also stated 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 cannot make regular shipments.

''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.

As the end of sanctions nears and prospects of better business deals improve, Tehran is taking a more assertive posture in dealing with its trading partners. This also explains the impasse in the steel import deal.

As things stand, Indian companies have problem dealing directly with Iran as payments often fail to come through. Reports also said, STC halted shipments after Iran stopped making payments in September.

STC was involved in order to allow steel exports without violating sanctions that prevented private Indian companies from dealing directly with Iran.

Now, with Western sanctions expected to be lifted under the nuclear deal struck in July between Tehran, the United States, Britain, France, Germany, Russia and China, Iran can have far more freedom in striking trade deals.

India has been one of the few countries willing to do business with Tehran under the Sanctions regime and Iran had no choice then than to strike deal with India for the metal.

The end of sanctions means more trade partners for Iran, such as those from Europe and China. Also, Iran would then have a wider choice of supply sources.

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). However, China can still have an upper hand in striking a deal with Iran.

India struck the three-year steel supply contract with Iran in June 2014, after its trade balance with Iran ballooned and to help facilitate business for Indian companies.

Also, Indian refiners have been paying 45 per cent of their oil dues to Iran in rupees, which Tehran could use only for importing goods, including steel, from India.

The forthcoming visit of Chinese prime minister Wen Jiabao will further complicate the process of doing businesss with Tehran for India.

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