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Challenge for Oil PSUs to get Dividends out of Russia
Context:
For over two years, Indian oil companies have accumulated around $900 million in dividend income from their investments in Russian upstream projects. These funds are currently stranded in the companies’ accounts at the Commercial Indo Bank (CIBL), an affiliate of SBI in Moscow, due to complications from Western sanctions on Russia.
Indian Investment in Russia:
- Indian public sector companies have invested over $5-6 billion in Russian oil and gas projects as part of India’s energy security strategy.
- ONGC Videsh (OVL) holds a 20% stake in Sakhalin-1 and 26% in Vankor. A consortium of IOC, OIL, and BPRL holds 23.9% in Vankor and 29.9% in the Taas-Yuryakh project.
- From being a marginal supplier of crude to India before the war in Ukraine, Russia has emerged as New Delhi’s biggest source of oil over the past year, overtaking big players like Iraq and Saudi Arabia.
Options Available:
- Mechanising to move the money or use it in the bilateral trade between the countries .
- Using part of the funds for OVL’s pending shareholder payment for its stake in Sakhalin-1.
Challenges in repatriating the money:
- Western Sanctions: The main challenge stems from Western sanctions on Russia, especially restrictions on payment channels following the 2022 Ukraine invasion. Russian banks were cut off from the SWIFT system, limiting access to global payments.
- Legal Complexities: Indian companies invested in Russia through special purpose vehicles (SPVs) registered in jurisdictions like Singapore. This adds complexity to repatriating or using the funds, as it requires navigating multiple legal frameworks beyond Russia and India.
- Limitations on Dividend Utilisation Options: The dividend income stuck in Russia could have been used for payments, reinvestments, or operational expenses. However, these options are currently unfeasible
- Due as the dividend payments are being received after deduction of operational expenses.
- projects have passed their major capital expenditure cycles and no new significant investments are planned.
- Taxation and Accounting Challenges: A potential solution to use stranded funds for paying Indian imports of Russian oil faces challenges due to tax, accounting, and jurisdictional issues.
- Although Indian companies like IOC and BPCL purchase Russian oil, OIL does not, and cross-payments involving dividends would likely entail considerable legal and financial complications.