Indian public sector oil companies, including ONGC Videsh (OVL), Oil India (OIL), Indian Oil Corporation (IOC), and Bharat PetroResources (BPRL), find themselves in a predicament as their dividend income from Russian oil projects, amounting to over $300 million, remains stuck in Russia. The root cause of this situation can be traced back to the wartime sanctions imposed on Russia, which have resulted in payment channel-related complications. Furthermore, the Russian government’s restrictions on dollar repatriation, aimed at managing exchange rate volatility, have compounded the issue.
These Indian companies have made substantial investments, totaling nearly $6 billion, in Russian oil assets as part of India’s energy security strategy, given its heavy reliance on energy imports. Notably, OVL holds a 20% stake in the Sakhalin-1 project, a 26% stake in the Vankorneft field, and owns Imperial Energy with fields in Siberia. Additionally, a consortium comprising IOC, OIL, and BPRL has a 23.9% share in Vankorneft and a 29.9% share in Taas-Yuryakh Neftegazodobycha fields.
The dividend income, which was flowing smoothly until the Ukraine invasion in February 2022, has since been trapped in Commercial Indo Bank (CIBL) in Russia. While the Russian companies operating these projects release dividends to their Indian partners, the money accumulates in CIBL. The exact amount of dividend income currently held in CIBL is not officially disclosed, but estimates suggest it could exceed $400 million. The consortium of IOC, OIL, and BPRL alone has approximately $300 million in unpaid dividends. OVL also faces a similar situation.
Resolving this issue poses significant challenges. Although discussions between India and Russia are ongoing, the dividend dues, while substantial, are deemed inconsequential when considering the overall oil trade between the two countries. Consequently, Indian companies are exploring alternative options for utilizing the trapped funds, even if repatriation to India is not immediately feasible.
One potential option is to use the funds to partially offset India’s purchases of Russian crude oil. However, this presents several obstacles. Firstly, while IOC and BPRL’s parent company BPCL do import Russian oil, OIL does not. Secondly, the investments in Russian projects are facilitated through special purpose vehicles (SPVs) registered in overseas territories such as Singapore. Consequently, any transactions related to Russian oil would involve the jurisdiction of these overseas territories, in addition to Russia and India. Complications arising from Western sanctions against Russia’s energy sector could further complicate cross-payments for Russian oil, including the use of dividend income, due to taxation and accounting complexities.
Another option could involve directing the trapped dividend income toward future investments in the same projects. However, this approach faces challenges as the assets in which Indian companies have invested are now in the production phase, with limited prospects for significant additional capital expenditure in the near-to-medium term.
Addressing this conundrum will require a combination of diplomatic finesse and commercial negotiations with stakeholders in Russia and other relevant parties. Although a clear-cut solution remains elusive, it is through such intricate deliberations that a viable and pragmatic resolution may eventually emerge.
