Indian public sector oil companies face a complex issue. They have over $1.4 billion in dividend income stuck in Russia. This money comes from investments made in Russian oil and gas projects. The challenge of repatriating these funds has persisted since the Russia-Ukraine war began in 2022. Despite regular dividend payments into Indian company accounts in Moscow, accessing and using the money remains blocked. This situation impacts India’s energy security strategy and financial planning.
Background of Investments in Russian Oil
Indian firms like ONGC Videsh (OVL), Indian Oil Corporation (IOC), Oil India (OIL), and Bharat PetroResources (BPRL) have stakes in key Russian projects. OVL owns 20% of Sakhalin-1 and 26% of Vankor. The consortium of IOC, OIL, and BPRL holds nearly 24% in Vankor and 30% in Taas-Yuryakh. These investments total over $6 billion. Dividends from these stakes have accumulated but cannot be transferred due to geopolitical and financial barriers.
Impact of Russia-Ukraine Conflict on Payments
The war triggered sanctions on Russia, including bans on major Russian banks from using the SWIFT global payment system. This blocked smooth international financial transactions. Russia also limited the outflow of US dollars to stabilise its currency. Indian companies receive dividends in rubles through the Commercial Indo Bank in Moscow, an affiliate of the State Bank of India. However, restrictions prevent these funds from being repatriated to India.
Legal and Jurisdictional Complications
Investments were often made through special purpose vehicles (SPVs) registered outside India, such as in Singapore. This adds layers of jurisdictional complexity. Western sanctions target Russian financial and energy sectors, complicating any cross-border fund transfers. Government-level talks between India and Russia have not yet resolved these difficulties due to these intertwined legal and financial hurdles.
Limited Options for Using Stranded Funds
Indian firms have explored using the dividends within Russia. Possible uses include funding operational costs or new investments. However, most projects are past major capital expenditure phases. Operational expenses are already deducted before dividend payments. OVL needs to pay $600 million to maintain its Sakhalin-1 stake and is negotiating to use dividends for this. Yet, even this is stalled by payment restrictions.
Challenges in Cross-Payment for Russian Oil Imports
Indian companies import volumes of Russian oil, but using stranded dividends to offset payments is complicated. Not all companies involved in dividends buy Russian oil. Jurisdictional issues with SPVs and sanctions make cross-payment arrangements difficult. Taxation and accounting complexities also arise. Legal and financial experts are advising Indian firms on navigating this landscape. A solution will require commercial ingenuity and diplomatic efforts.
Questions for UPSC:
- Discuss the impact of international sanctions on global energy trade with reference to India’s investments in Russian oil and gas projects.
- Critically examine the role of special purpose vehicles (SPVs) in international investments and their implications for jurisdiction and taxation.
- Explain the challenges of repatriating foreign earnings in the context of geopolitical conflicts and financial sanctions. How can countries mitigate such risks?
- With suitable examples, discuss the importance of energy security in India’s foreign policy and economic planning. Comment on the challenges posed by reliance on imports from geopolitically sensitive regions.
