The public sector oil companies ONGC Videsh (OVL), Oil India (OIL), Indian Oil Corporation (IOC), and Bharat PetroResources (BPRL) are stuck in Russia and have parked well over $300 million of their dividend income from their investments in Russian projects there.

The cause? difficulties with payment channels following Russia’s invasion of Ukraine in February 2022.

A number of significant Russian banks were immediately barred from using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system for processing financial transactions, severely restricting Moscow’s access to the international payments system.

In an effort to control currency rate volatility, the Russian government has also restricted the repatriation of dollars.

The Russian government has also put restrictions on the repatriation of dollars in an effort to reduce the volatility of exchange rates.

Indian public sector businesses have committed tens of billions of dollars to acquire stakes in Russian oil and gas production projects throughout the years. As India is significantly dependent on energy imports, these investments, which according to one estimate total about $6 billion, are a part of its energy security policy. These agreements have been greatly influenced by India and Russia’s long-standing strategic alliance.

Oil and Natural Gas Corporation (ONGC)’s foreign investment division, OVL, has a 20% share in the Sakhalin-1 project and a 26% stake in the Vankorneft field. Imperial Energy, which has fields in Siberia, is also owned by it. Vankorneft and Taas-Yuryakh Neftegazodobycha fields are owned by a consortium made up of IOC, OIL, and the upstream division of BPCL (Bharat Petroleum Corporation).

Prior to the Russian invasion of Ukraine in February 2022, Indian corporations were earning regular dividend revenue from their investments in Russia; however, since the conflict started, they have been unable to bring that cash home.

Although the Indian partners are receiving dividend payments from the Russian corporations managing the projects, the money is still building up in the Russian Commercial Indo Bank (CIBL). The Indian businesses are also getting some attention from it.

For dividend income stored at CIBL, no official information is available. A senior government official had claimed in April that dividends still held in Russia were currently valued at about $400 million. However, the true amount can be higher.

There are almost $300 million in unpaid dividends parked in CIBL for the partnership of IOC, OIL, and BPRL. OVL dividends are accumulating as well.

SBI and Canara Bank previously collaborated in CIBL, but Canara Bank recently transferred its ownership to SBI.

According to a senior government official, India and Russia have been constantly discussing the matter and are working to find a solution. The official did, however, note that although the dividend obligations are not trivial, they are negligible in contrast to the total volume of oil traded between Russia and India and have no impact on it.

The Indian businesses have been considering practical alternatives for accessing and using that money, even if it cannot be promptly repatriated to India, as the government raises the issue with Moscow.

The funds might theoretically be used to partially cover India’s soaring imports of Russian petroleum. But a senior official from one of the consortium members noted that there are numerous obstacles along the way.

IOC and BPRL’s parent company BPCL both purchase Russian oil, while OIL does not. Second, funds are invested in Russian projects via special purpose entities (SPVs) created in other countries like Singapore. As a result, not only Russia and India but also any payment involving Russian oil in this situation would fall under the purview of the overseas territories.

It is important to note that Russia and its energy sector are subject to a number of Western sanctions. Cross payments for Russian oil using this dividend income might therefore end up being a very complicated process from a tax and accounting perspective.

The dividend revenue may also be accessed and used for additional investments in the same projects in the future. But there is a problem because the investments made by Indian corporations have outlived their major capital expenditure cycle and are now producing assets. According to officials, this makes substantial cash calls or demands for more investment in the projects extremely unlikely in the short- to medium-term.

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