BackOil PSUs hit dividend roadblock in Russia
$400 mn stuck as Western curbs make it harder to transfer money
PremiumNew Delhi: State-run energy firms, including ONGC Videsh Ltd (OVL), Bharat Petro Resources Ltd, Indian Oil Corp. (IOC) and Oil India Ltd (OIL), are unable to access around $400 million in dividend payments stuck in Russia as Western sanctions have made it harder to transfer money out of the country, three people aware of the development said.
This stuck dividend income is on account of the Indian firms’ stakes in Russia’s CSJC Vankorneft and LLC Taas-Yuryakh.
India has leveraged its “special and privileged strategic partnership" with Russia to acquire stakes in Russian oil and gas projects. OVL, for instance, holds a 26% stake in CSJC Vankorneft, the owner of the Vankor Field and North Vankor license. An Indian consortium comprising Indian Oil Corp., OIL, and Bharat Petro Resources also holds a 23.9% stake in the same venture, with Rosneft’s affiliate RN Vankor operating the field with a 50.1% stake. In addition, a consortium of Indian Oil Corp., OIL, and Bharat Petro Resources holds a 29.9% stake in LLC Taas-Yuryakh.
OVL also owns 20% of Sakhalin-1 and acquired Imperial Energy Corp. Plc, which has 10 exploration and production blocks in the Tomsk region of western Siberia.
“We are unable to transfer the dividends. The dividend payments have been pending since the Western sanctions cut off Russian banks from the SWIFT payment system. Repatriation is a problem, and it has been adding up. We are trying to find a solution and are confident that it will be resolved. That money will come," one of the three people cited above said, requesting anonymity.
In March last year, just weeks after Moscow’s invasion of Ukraine, seven major Russian banks were removed from the SWIFT international payments system. SWIFT, jointly owned by thousands of financial entities globally, allows for the smooth and secure movement of international payments across borders. By expelling Russian banks from the system, American and European financial institutions hoped to impose major costs on Russia’s economy. It was followed by a ban on Russian Federation-origin crude oil that came into effect on 5 December for maritime transportation of crude oil and on 5 February for seaborne transportation of petroleum products, along with a price cap.
In an emailed response, a Rosneft spokesperson said, “there are no dividend debts."
“The company is committed to its cooperation with Indian oil and gas companies and supports the mutually beneficial and integrated partnership along the entire value chain, from production to refining and distribution of petroleum products. Cumulative payments and the dividends to Indian partners from joint projects have exceeded $5 billion over the past four years," the spokesperson said in the emailed response.
Indian energy firms have invested around $16 billion in Russia to date.
“Rosneft pays the dividends to shareholders on time and in accordance with the corporate procedures," the Rosneft spokesperson said. “In 2022, Indian partners in two projects, Vankorneft and Taas-Yuryakh Neftegazodobycha, were paid $855 million in dividends based on the results of work at the end of 2021 and in the first half of 2022. Part of the funds was transferred in 2022 to the accounts of our partners, and another part was also transferred to the account indicated to us. It is not possible to monitor the accounts of Indian partners. At the moment, the partners have not requested Rosneft’s assistance in transferring the funds."
India, the world’s third-largest oil importer, is getting a steep discount on oil cargoes from Russia, which has never been a major oil supplier to India. It emerged as the largest supplier to energy import-dependent India in FY23, as the country snapped up supplies shunned by others because of sanctions.
In the current fiscal till January, India imported crude oil worth $24 billion from Russia, shows data from the Union ministry of commerce and industry.
“The stuck dividend income to OVL alone account for around $100 million. There are some sensitivities involved with the issue. We are trying to find a solution," said a second person, cited above, who also did not want to be named.
“We are seized of the issue," said a top Indian government official who also did not want to be named.
Queries emailed to the spokespeople for India’s ministries of external affairs, petroleum and natural gas and the Russian embassy in New Delhi, OVL, Bharat Petroresources Ltd., Indian Oil Corp. and Oil India Ltd on Monday remained unanswered till press time.
A consortium of OVL, IOC and Oil India Ltd is also looking to invest jointly in the massive Vostok project of Russia’s Rosneft. India has also been looking to invest in Novatek’s Arctic LNG-2 project as part of its energy security playbook.
With India dependent on imports for as much as 85% of its oil needs and 55% of its natural gas demand, record-high energy prices are a big concern for a major consumer nation such as India. The country is also a key Asian refining hub, with an installed capacity of nearly 250 million tonnes per annum (mtpa) across 23 refineries, with plans to grow this to 400 mtpa by 2025.
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