Indian Oil Companies Dividends Stuck in Russia

Indian Oil Companies Dividends Stuck in Russia

Why in News?

Indian public sector oil companies are struggling with dividend income of  $1.4 billion stuck in Russia. This situation has continued for over three years after the Russia–Ukraine conflict erupted in February 2022 and remains inaccessible, creating concern for energy security.

Major Indian Companies Affected by this Crisis

• ONGC Videsh Limited (OVL) is one of the main companies facing this problem. OVL is the foreign investment arm of Oil and Natural Gas Corporation. The company invested in Russian energy projects like Sakhalin-1 and Vankor. It owns a 20 percent share in Sakhalin-1 and a 26 percent share in Vankor. The dividends that belong to OVL have reached close to 400 million dollars. 
• The consortium of Indian Oil Corporation (IOC), Oil India Limited (OIL), and Bharat PetroResources Limited (BPRL) are also affected by this. These companies joined hands to buy large stakes in Russian fields. The consortium holds 23.9 percent in Vankor and 29.9 percent in Taas-Yuryakh. Their share of dividends is close to 1 billion dollars, according to industry estimates.

• The dividends from Russian oil and gas projects are being paid regularly by Russian companies into accounts held at Commercial Indo Bank Limited (CIBL) in Moscow. Even though the funds arrive in the accounts on time, the Indian companies cannot freely transfer or convert the money.

Challenges to Repatriate Indian Dividends from Russia

• Payment System Restrictions: The main challenge is that Russia is not part of the SWIFT system. After the 2022 Russia-Ukraine war, many large Russian banks lost access to SWIFT. This blocked international financial transactions and made it almost impossible to transfer money abroad. Russia also introduced limits on dollar repatriation to stabilise its currency. These restrictions create a strong barrier.

• Jurisdictional Complications: Most of the Indian investments in Russian oil projects are made through special purpose vehicles (SPVs) registered in countries like Singapore. These SPVs mean that any transaction has to follow Indian, Russian, and overseas laws at the same time. This makes a simple transfer or solution extremely difficult. 

• Limited Options: Companies have tried to use the funds inside Russia. One option is to pay for operational expenses of the projects. Another option is to fund capital expenditure for expansion. The dividends already cover current operations, and most projects have completed major capital investments. Also the payments continue to be credited in rubles, but the companies cannot convert them freely into dollars or rupees.

• Cross-Payment Challenge: IOC and BPCL buy Russian oil actively, but OIL and OVL do not. This mismatch makes cross-payments complicated. The SPV structure, combined with Western sanctions, such transactions would create complex tax and accounting problems, making this option highly impractical.

Impact of this on India

• The total blocked funds of over 1.4 billion dollars reduce the liquidity available to Indian oil companies for reinvestment and operational purposes. This limits the ability of companies to fund new projects or expand existing ones. 
• This affects India’s energy security. India depends on imported oil for nearly 85 percent of its needs. Since the dividends are stuck, companies cannot fully utilise the returns to secure additional supplies or invest in domestic energy projects. This may increase India’s dependence on alternatives.
• The stranded funds also affect government revenue. Dividends from public sector companies are a source of income for the central government. The blockage delays the transfer of these earnings to India. This impacts budget planning and financial projections, especially in sectors dependent on energy revenues. 
• Limited funds affect the ability of companies to pay contractors, suppliers, and service providers involved in international projects. This indirectly affects related industries and may slow economic activity linked to energy investments.

Way Forward

• Indian oil companies and the government need to take clear steps to continue diplomatic engagement with the Russian government. Officials from India and Russia should discuss practical solutions that allow the dividends to be used or repatriated. 
• Companies can negotiate with Russian banks and authorities to use the funds within Russia for operational expenses or investments in existing projects. For example, OVL may use part of its stranded dividends to pay its re-nomination fee for the Sakhalin-1 project. 
• Companies should consider multiple jurisdictions, diversified investment vehicles, and flexible financial structures. This can reduce risks from political conflicts in any single country and protect India’s energy security in the long term.
• The government should engage international legal and accounting experts. Expert guidance can help navigate complex issues such as currency restrictions, SPV regulations, and sanction compliance.
• Discussions with other countries affected by the same sanctions or involved in similar projects may offer solutions. Multilateral engagement can also put pressure on international systems to allow limited financial transactions under controlled conditions.