Japan says no decision yet on Iran oil import cuts

TOKYO (Reuters) - Japan's trade and foreign ministers said on Tuesday they have not yet reached an agreement with Washington on how much Tokyo will cut Iranian crude imports to win waivers from U.S. sanctions designed to starve Iran of oil revenue.

Japan is likely to reduce imports of crude oil from Iran by at least 11 percent per year, the Yomiuri newspaper reported, to earn an exemption from sanctions that could shut Japanese banks out of the United States.

The Yomiuri, citing unidentified sources, said Japan and the United States reached an agreement at talks last week, with a formal deal expected by the end of this month.

An agreement on lowering oil imports is essential to protect the Japanese financial sector's operations abroad, but it poses a risk to Japan's economy as reliance on energy imports has increased since last year's earthquake and tsunami triggered the Fukushima radiation crisis, leading to most of Japan's nuclear reactors being kept out of use.

"We are closely negotiating with the United States and are moving forward towards mutual understanding, but it is not the case that we have reached a conclusion," Trade Minister Yukio Edano told reporters.

The United States is pushing ahead with sanctions because it fears Iran might use its nuclear program to develop nuclear weapons.

The European Union has agreed to cooperate with the United States. In response, Iran ordered a halt of oil sales to Britain and France on Sunday in a move symbolic of Tehran's anger with the West.

Iran, the biggest producer in OPEC after Saudi Arabia, denies Western suspicions that its nuclear program has military goals, saying it is for purely peaceful purposes.

SPECIFIC DISCUSSIONS

The United States says it will punish financial institutions that deal with Iran's central bank, the main clearing house for oil revenues. A country can earn a waiver from the sanctions if it significantly reduces trade with Iran.

"Many countries have approached us to discuss their efforts to reduce purchases of Iranian crude which, by statute, could except them from sanctions," a senior official in U.S. President Barack Obama's administration said.

"We are discussing specific cases with specific countries. It would be premature to discuss any of them at this time."

Japan's Foreign Minister Koichiro Gemba also said no agreement has been reached yet. Japan is offering to continue cutting Iranian oil imports but talks are ongoing, a foreign ministry official said earlier.

Japan is the third-biggest customer for Iranian oil. It needs to import more oil to make up for declining use of nuclear power after the Fukushima disaster last March triggered the worst nuclear crisis since Chernobyl 25 years ago.

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For a graphic on Japan's energy sector, click on: http://link.reuters.com/mej23s

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Public safety fears have prevented the restart of reactors halted for routine checks, and only two of the nation's 54 reactors are still operating. The last of those is due to be shut down by late April.

Japan's imports of Iranian crude fell 11.7 percent last year to 313,000 barrels per day (bpd), accounting for 8.8 percent of total oil imports, and have declined by more than half from 683,000 bpd in 2003.

If Japan cut Iranian oil imports by 11 percent from last year's level, as the Yomiuri reported, that would amount to a reduction of 34,430 bpd.

Cosmo Oil Co has already lowered its Iran crude imports to a little below 30,000 bpd from about 40,000 bpd since January.

Other refiners' imports are seen steady so far this year, but imports are likely to be down further from April, when most annual contracts are renewed. The oil refiners have been awaiting instructions from the Japanese government before launching talks with Iran on annual contracts.

Japan's top refiner, JX Nippon Oil & Energy Corp, a unit of JX Holdings, said it has not received any instruction from the government on Iranian oil, including the reported 11 percent cut, and whether Japan will win waivers. Two other refiners also had heard nothing, industry sources said.

"We are worried because the government is not good at planning ahead," one source at a Japanese buyer of Iranian crude said.

By contrast, China and South Korea, the two other big Asian buyers of crude, increased imports from Iran last year.

(Additional reporting by Kiyoshi Takenaka in TOKYO and Alister Bull in WASHINGTON; Writing by Stanley White; Editing by Michael Watson and Paul Tait)

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Greece awaits bailout decision but issues remain

BRUSSELS (AP) — Eurozone governments hoped to sign off on Monday a long-awaited rescue package for Greece, saving it from a potentially calamitous bankruptcy next month, but several key points of division remained, senior officials said.

Finance ministers meeting in Brussels were still wrangling over how to further reduce Greece's debt load and impose even tighter control over the country's spending, and the meeting was expected to stretch late into the night. Rich countries like Germany and the Netherlands and the International Monetary Fund want to be sure that Athens can eventually survive without aid.

But after months of delays, time for Greece is running out. The country needs to secure the euro130 billion ($170 billion) bailout so it can move ahead with a related euro100 billion ($130 billion) debt relief deal with private investors. That deal needs to be in place quickly if Athens is to avoid a disorderly default on a bond repayment on March 20.

"I am of the opinion that today we have to deliver, because we don't have any more time," Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said as he arrived in Brussels.

An uncontrolled bankruptcy would likely force Greece to leave the 17-country currency union and return to its old currency, the drachma, further shaking its already beaten economy and creating uncertainty across Europe.

Heading into the meeting, ministers were optimistic that a deal could be reached.

"We now have all of the elements to achieve an agreement," said French Finance Minister Francois Baroin. "Greece knows what it has to do, and we'll watch over it continually. We also know what we have to do."

But the finance ministers were also negotiating on several fronts, trying to move Greece's other creditors to increase their commitments. Greek Prime Minister Lucas Papademos rushed to Brussels to back up his finance chief, Evangelos Venizelos, in talks with the IMF, the European Central Bank and representatives of private holders of Greek debt.

The goal is to bring Greece's debt down to around 120 percent of gross domestic product by 2020 — the maximum the IMF sees as sustainable. At the moment, the country's debt load stands at more than 160 percent.

Last week, a new report prepared by the European Commission, the ECB and the IMF concluded that the new bailout, Greek spending cuts, and a planned euro100 billion debt relief from private investors would still leave Greece's debt at almost 129 percent of economic output by the end of the decade.

Ministers were exploring several options to close that gap, but as talks dragged on Monday, no final solution appeared imminent.

A Greek official said Monday morning that there seemed to be agreement on further reducing the interest rate on Greece's first, euro110 billion bailout as well as having national central banks in the eurozone, which also hold some Greek bonds, participate in the debt relief. The official was speaking on condition of anonymity because the talks were confidential.

However, other officials questioned the participation of national central banks, as well as whether the ECB would be willing to transfer profits from its Greek bond holdings back to Athens.

On the sidelines of the finance ministers' meeting, Venizelos headed into a new round of talks with representatives of Greece's private bondholders — mostly banks and investment funds — to explore whether they would be willing to accept further losses.

A current plan foresees private creditors swapping their old Greek bonds for new ones with half the face value, lower interest rates and much longer repayment periods.

But now some countries are pushing for bondholders to also give up on an accrued interest payment of around euro5.5 billion on their old bonds, a demand that could further discourage investors from signing up to the debt swap.

Amid the ever-changing mood over the country's rescue, some frustration was setting in among the Greeks.

"Greece comes into today's Eurogroup meeting having fulfilled all the requirements for the approval of the new program," Venizelos said. "For Greeks, this is a matter of national dignity and a national strategic choice and no other integrated and responsible choice can be opposed to it."

The Greek parliament has faced down violent protests to approve the austerity measures demanded by the eurozone. Its main political leaders have committed in writing to uphold the bailout terms even after general elections in April. And later Monday, the government in Athens is expected to introduce in parliament another two pieces of emergency legislation, including wage and pension cuts.

Despite Athens' efforts, however, some countries have indicated their patience with Greece was growing short.

"We've seen that Greece time and time again fails to satisfy the conditions that the international community makes. ... In the Netherlands, it really is an issue that you have to lend money to a country that for the umpteenth time hasn't held itself to its agreements," said Jan Kees de Jager, the finance minister from the Netherlands, which has been especially hard on Greece. "So it's indeed essential to me, and also the Dutch government, that we have control over the money that we're going to lend."

To that end, Greece is expected to be forced to set up a separate account that would ensure it services its debt. This escrow account would give legal priority to debt and interest payments over paying for government services. That would maintain pressure on Greece to stick to promised austerity and reform measures and spare the eurozone the risk of a destabilizing default.

The escrow account would, however, be an unprecedented intrusion into a sovereign state's fiscal affairs and could ultimately see Greece forced to pay interest on its debt before paying salaries to teachers and doctors.

In addition, Greece's international creditors will station permanent representatives in Athens to monitor the country's progress.

Another issue under discussion is how much the IMF will contribute to the new rescue. The fund has provided one-third of the bailouts for Ireland and Portugal and Greece's first rescue package.

"The indication is that the figure will be rather low," a European Union official said, adding however that a final decision from the fund's board is still outstanding. The official was speaking on condition of anonymity because talks were not yet concluded.

Some worry that more austerity could exacerbate Greece's problems by putting a stranglehold on growth. Prime Ministers from a dozen European countries — including the U.K., Italy and the Netherlands — wrote a letter Monday to EU President Herman Van Rompuy and Commission President Jose Manuel Barroso calling for growth across the bloc.

"The crisis we are facing is also a crisis of growth," the letter said. "It is now time to show leadership and take bold decisions which will deliver results that our people are demanding."

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Don Melvin in Brussels, Toby Sterling in Amsterdam, and Elena Becatoros and Derek Gatopoulos in Athens, Greece, contributed to this story.

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Decision day for second Greek bailout despite financing gaps

BRUSSELS (Reuters) - Euro zone finance ministers are expected to approve a second bailout for Greece on Monday to try to draw a line under months of uncertainty that has shaken the currency bloc, although there is work to be done to make the figures add up.

Diplomats and economists say they do not expect the package to resolve Greece's economic problems. That could take a decade or more, a bleak prospect that brought thousands of Greeks onto the streets to protest austerity measures again on Sunday.

The ministers need to agree new measures to square the numbers, given the ever-worsening state of the Greek economy. But they say an agreement on Monday will help restructure the country's vast debts, put it on a more stable financial footing and keep it inside the 17-country single currency zone.

Senior officials from euro zone finance ministries and the European Central Bank held a conference call on Sunday to go over the final details of the 130-billion-euro ($171-billion)program, including a debt sustainability analysis critical to the International Monetary Fund.

While there is skepticism in Germany and other countries that Greece will be able to live up to its commitments - including implementing 3.3 billion euros of spending cuts and tax increases - officials said momentum was building for approval of the deal.

French Finance Minister Francois Baroin said all the elements were in place to reach an agreement.

"It cannot wait any longer ... Greece has debt payments in March and could find itself in bankruptcy, something which France has been trying to avoid for the last 18 months," he told Europe 1 radio on Monday.

Finnish Finance Minister Jutta Urpilainen said Greece had done all that had been asked of it.

"There are many open details ... A big issue is that we have to get Greece's debt on a level that is sustainable and enables Greece to survive," she told reporters in Helsinki.

A euro zone official in contact with junior ministers involved in the Sunday conference call said the financing gaps were not so large that they risked derailing the whole process.

"I don't see anybody wanting to be responsible for pulling the plug on the deal at this late stage," he said.

"The gut feeling is that this is going to go through - everyone feels the pressure this time to deliver," he said, indicating that the Netherlands, Finland and Germany, which have been the most critical of Athens' ability to commit, looked likely to come on board if the financing gaps could be closed.

GREEK ANGER UNABATED

Several thousand Greeks demonstrated on Sunday against the austerity measures to reduce the country's debt, although the numbers were much lower than earlier protests.

Greek Prime Minister Lucas Papademos flew to Brussels for last-minute preparations as about 3,000 demonstrators massed on the capital's central Syntagma square.

Riot police shielded the national assembly to prevent a repeat of riots a week ago when masked youths torched buildings and looted shops across Athens.

Under one crucial element of the deal, Greece will have around 100 billion euros of debt written off via a restructuring involving private-sector holders of Greek government bonds.

Banks and insurers will swap bonds they hold for longer-dated securities that pay a lower coupon, resulting in a real 70 percent reduction in the value of the assets.

The bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130-billion-euro program will be used to finance the bond swap and to ensure that Greece's banking system remains stable: 30 billion euros will go to "sweeteners" to get the private sector to sign up to the swap, 23 billion will go to recapitalize Greek banks.

A further 35 billion will allow Greece to finance the buying back of the bonds, and 5.7 billion will go to paying off the interest accrued on the bonds being traded in.

The overall objective is to reduce Greece's debts from 160 percent of GDP to around 120 percent by 2020 - the figure and timeframe that the IMF, ECB and the European Commission, together known as the troika, have established as sustainable.

MEETING THE TARGET

The focus of Monday's finance ministers' meeting will be what "around 120 percent" means in practice.

A debt sustainability report delivered to euro zone finance ministers last week showed that under the main scenario, Greek debt will only fall to 129 percent by 2020.

The IMF has said if the ratio cannot be cut to around 120 percent, it may not be able to help finance the Greek program.

U.S. Treasury Secretary Tim Geithner urged the International Monetary Fund to support the program.

"This is a very strong and very difficult package of reforms, deserving of support of the international community and the IMF," Geithner said in a statement on Sunday.

As well as working to get the number down, there are moves to convince members of the troika that a debt level of 123-125 percent in 2020 would be sustainable.

"If we can get it down to 123 or 124 percent, I think everyone's going to be okay with that," the euro zone official said after the Sunday conference call. "Everyone will find a way to tweak the numbers."

A number of measures, including restructuring the accrued interest portion or reducing the "sweeteners," are being considered to move the figure closer to 120, a euro zone official familiar with the negotiations said.

There are also discussions about marginally lowering the interest rate on 110 billion euros of bilateral loans already made to Greece in May 2010 - the first package of support - to lighten the financing burden on Athens.

Central banks could help too.

The ECB is weighing up whether to allow Greek bonds held in euro zone central banks' investment portfolios to be subject to the same writedowns private investors are set to take, central bank sources told Reuters on Friday.

The central banks hold around 20 billion euros of Greek bonds in their traditional investment portfolios and the ECB holds about double that amount from its emergency bond-buying program. It has also signaled it could forego the profits made on the latter at some point.

If the finance ministers do succeed in reaching an agreement, it will provide immediate relief to Athens and financial markets, which have been kept guessing since the bailout package was announced last October.

But no one is pretending it will end Greece's problems. Figures last week showed its economy shrank 7 percent year-on-year in the last quarter of 2011, much more than expected, with further cuts likely to make matters worse.

The troika, responsible for monitoring Greece's reform progress, carries out quarterly reviews, while the European Commission will soon have dozens more monitors on the ground.

Already there is concern that at any one of those reviews of the new program - if it is approved on Monday - Greece will be found to be behind, especially if GDP continues to slump.

That will again raise the threat the country will have to default if it cannot meet its obligations, and invite questions about its ability to remain in the euro zone.

($1 = 0.7597 euros)

(Additional reporting by Daniel Flynn in Paris, Terri Kinnunen in Helsinki and George Georgiopoulos in Athens; writing by Mike Peacock; editing by Elizabeth Piper)

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