UPDATE 2-India hopes to resolve Iran oil payment row this week

* In talks with Iran for quick resolution – oil secretary

* Iranian crude supplies on as oil companies give guarantees

* Oilmin to take decision on Cairn-Vedanta deal by early Feb

* Oil min seeks additional $2.2 bln for subsidy payments

(Adds more quotes, background)

NEW DELHI, Jan 10 (BestGrowthStock) – India will this week try to
end a payments dispute with Iran, which threatens to disrupt oil
supplies after New Delhi fell into line with U.S. and
international sanctions targeting Tehran’s nuclear ambitions.

The two nations have not been able to find a solution on how
New Delhi should pay for oil imports from Iran after India’s
central bank said last month that payments to Iran could no
longer be settled using a long-standing clearinghouse system run
by regional central banks.

The decision, taken weeks after U.S. President Barack Obama
visited India, was praised by Washington which said it would
reduce funds available to Tehran to support its nuclear
activity, which the U.S. believes is aimed at building an atomic
bomb.

“I am extremely hopeful of an amicable solution,” Oil
Secretary S. Sundareshan said on Monday, referring to a meeting
of Indian officials with The National Iranian Oil Co (NIOC)
later this week.

Iran has agreed to keep sales running through January, but
beyond that, the flow of 400,000 barrels per day of crude India
buys from its second-largest supplier hinges on finding a
permanent solution over payments.

“Oil imports from Iran are continuing on the basis of
guarantees which companies have given them (NIOC)….NIOC is
also equally keen to sell to us and will participate in the
solution,” Sundareshan said.

But he did not elaborate on the form of guarantees provided
by Indian oil companies, which are likely to come under intense
scrutiny, especially in the United States.

The minister confirmed that the country’s largest lender,
State Bank of India (SBI.BO: ), which oil companies normally use
to handle their trade payments, has stopped issuing letters of
credit in the absence of a payment mechanism for Iran.
[ID:nSGE70604E]

“We would require payments to be channeled through alternate
banks which will be suggested by NIOC. We have on the
table some banks which have been suggested. We will work through
them.”

The payments problem is already driving Indian importers to
start diversifying their sources of supply.

India’S Mangalore Refinery and Petrochemical Ltd (MRPL.BO: )
has sought as much as 2.6 million barrels from the spot market,
in the face of any possible supply disruption. [ID:nL3E7C50J9]

Sundareshan also said the oil ministry has sought 100
billion rupees ($2.2 billion) of additional subsidy from the
finance ministry for state oil retailers as compensation.

Profitability at two of India’s top state-run oil firms is
being hit on rising global crude prices, as the government
delays increasing state-set fuel prices due to political
pressure amid high inflation. [ID:nSGE70505L]

CAIRN-VEDANTA DECISION

Separately, Sundareshan told reporters a decision on
Cairn-Vedanta deal would be taken by end-January or early
February.

Last month, Oil Minister Murli Deora said India would take a
decision by March, further delaying a key nod by a month citing
“too many complications”, on whether to allow U.K. explorer
Cairn Energy’s (CNE.L: ) plan to sell majority stake in its local
unit to Vedanta Resources (VED.L: ). [ID:nSGE6BC03X]

Whether the transaction goes ahead is being seen as a test of
whether foreign investors in India are able to dispose of their
holdings without government interference.

On Monday, the Economic Times reported Prime Minister
Manmohan Singh had directed the oil ministry to decide on
whether to approve or reject the Cairn-Vedanta deal within this
month, citing a PMO official who did not wish to be identified.

Last August, Cairn Energy agreed to sell a stake of 40 to 51
percent in its Indian arm Cairn India (CAIL.BO: ) to Vedanta in a
deal worth up to $9.6 billion. [ID:nSGE6AP02S]
($1=45.4 Indian rupees)
(Reporting by Nidhi Verma; Editing by Samia Nakhoul)