India's ONGC sees more delay in Iran South Pars deal

NEW DELHI, Jan 12 (Reuters) - Difficulties in securing funding will delay India's Oil and Natural Gas Corp (ONGC) finalizing a deal to take a 40 percent stake in Iran's South Pars Phase 12 gas project, a source at the state-run oil explorer said on Wednesday.

Banks are unwilling to fund the gas project as the Middle East country faces U.S. and UN economic sanctions, the source said.

This comes after an Indian central bank clampdown on funding for payment of oil imports from Iran threatened to disrupt supplies of crude.

With Western firms wary of investing in the Islamic state due to its nuclear row with the United States, Tehran has increasingly been looking towards energy-hungry Asian countries for investment to help exploit its vast gas and oil reserves.

India, which imports about four-fifths of its crude oil needs, is scouting for oil and gas assets abroad to meets its growing fuel demand and to expand its refining capacity.

"We signed the MoU in December 2009. Thereafter, we have been in dialogue. We have to take care any initiative from us has to be in conformity with government policy," R.S. Sharma, chairman of ONGC, said separately on the sideline of an industry conference.

Last year, the managing director of Petropars, the Iranian company that manages the gas project, said Indian firms had until December to finalise the deal and hoped it would be signed by the end of March 2011. He said development of the project is expected to cost $7.5 billion.

"It is not that it is a closed chapter. It is very much on our table but we have to see to the funding issue," the source told reporters on condition of anonymity.

He said the company needs to transfer funds to Iran for sharing the cost of the gas field development.

"We have to spend money without violating sanctions... It is not easy."

The source said internal funding was not suitable.

"We can not fund it through ONGC's balance sheet as we keep scouting for attractive assets. We need to have banks involved for transferring and to partly fund our share of development costs to Iran which is done in dollars," he said.