KOLKATA (miningweekly.com) - A successful resolution of India’s $6-billion outstanding debt to Iran, to be discussed during bilateral parleys later this week, holds the key to India securing the Farzad-B gas fields in the Persian Gulf nation.

A series of ministerial level meetings over two to three days, would be tackling the contentious issue of India’s outstanding debt to Iran and although not officially linked, it was widely acknowledged that clearing the debt on mutually agreeable terms would almost clinch India’s bid for the gas assets.

Officials here conceded that the $6-billion debt built up largely on account of crude oil purchases from Iran in days of economic sanctions against the Persian Gulf nation was a "thorny diplomatic issue which needed immediate resolution, if the large planned bilateral economic relations on energy" were to move ahead.

At a time when banking channels had been shut down during sanctions, India and Iran had worked out a rupee-denominated trade agreement to circumvent sanctions and facilitate payments in the Indian currency.

However, with the lifting of sanctions the repayment of outstanding debt had turned into a diplomatic imbroglio with India insisting on repaying in rupee while Iran claimed that the rupee agreement had lapsed and India had to clear 45% of the debt in rupee and 55% in euros, the official said.

However, to date, Indian crude importing refining companies have stayed away from depositing their outstanding payments into euro-designated bank accounts activated by Iran soon after lifting of sanctions.

Details of outlines of possible debt resolution measures that the Indian ministerial delegation would carry to Tehran were not known, but officials said that there was a "lot of optimism" that the repayment issue would be resolved over the first few days of the visit and a possibility of signing a deal over Farzad-B was also a “distinct possibility”.

Last year, a consortium of Indian oil, gas, and exploration and production (E&P) companies submitted a $10-billion investment plan to develop the estimated 12.8-trillion cubic feet offshore gas block in the Persian Gulf.

While a formal deal had been hanging fire on differences over contract terms, officials conceded that the pace of negotiating a deal had slowed largely owing to India’s outstanding debt and terms of repayment.

The Iranian government had been seeking a contract with the Indian consortium acting as a pure-play developer-operator, while the Indian E&P major had made its investments conditional to ownership rights of the gas block.

But ahead of the ministerial meeting, diplomatic channels in both countries had been engaged in preparatory work in working out a combination of both production sharing as well as contract services, and a deal was on the cards, but only subject to first resolving the Indian debt, officials said.

Farzad-B had been first awarded to India for development in 2010 at the peak of economic sanctions against Iran. But subsequently, Iran pulled the plug and took back the asset planning to put it up for fresh bidding.