Indian Oil Companies’ Dividend Income Stuck in Russia

Source: The post Indian Oil Companies’ Dividend Income Stuck in Russia has been created, based on the article “Challenge for oil PSUs: How to get $900 million dividends out of Russia” published in “Indian Express” on 27th September is 2024

UPSC Syllabus Topic: GS Paper 2- International Relations-Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Context: The article discusses how Indian oil companies are unable to access $900 million in dividend income from investments in Russian projects. Western sanctions on Russia, including banking restrictions, make it difficult to transfer or use these funds.

How Much Investment Has India Made in Russian Oil Projects?

1. India has invested over $6 billion in Russian oil and gas projects.
2. ONGC Videsh (OVL) holds a 20% stake in the Sakhalin-1 project and a 26% stake in the Vankor project.
3. A consortium of Indian Oil Corporation (IOC), Oil India (OIL), and Bharat PetroResources (BPRL) holds a 23.9% share in the Vankor project.
4. The same consortium has a 29.9% stake in the Taas-Yuryakh oil field project.
5. These investments were made to secure energy for India, which relies heavily on oil imports to meet its energy needs.

Why is Indian Oil Companies’ Dividend Income Stuck in Russia?

1. Indian oil companies have $900 million in dividend income stuck in Russia, including $600-650 million from IOC-OIL-BPRL and $250 million from ONGC Videsh (OVL).
2. This money is trapped in Commercial Indo Bank (CIBL) (an affiliate of State Bank of India (SBI)) accounts in Moscow due to Western sanctions imposed on Russia after the Ukraine war started in 2022.
3. The sanctions include restrictions on financial transaction systems like SWIFT, making it difficult to transfer the funds out of Russia.
4. The investments are structured through special purpose vehicles based in countries like Singapore, complicating cross-border payments.
5. These funds cannot be easily used for operational needs or to purchase Russian oil due to international legal, taxation, and accounting challenges.

What Are the Possible Solutions?

1. The solution will likely require a combination of diplomacy and commercial negotiations between India, Russia, and other stakeholders.
2. Legal and international accounting experts are being consulted to find a viable path forward.

Question for practice:

Discuss the reasons why Indian oil companies’ dividend income from Russian projects is stuck and the potential solutions to address this issue.