Oil Firms Ask for Russian Barter Deal of Oil Import against Divided Dues

Russia is currently India’s biggest source of crude oil. In July alone, India’s Russian oil imports were valued at $3.37 billion, as per data from the Directorate General of Commercial Intelligence and Statistics.

India’s public sector oil companies want their stuck dividend income from their Russian investments, piling up in their bank accounts in that country, to be used for India’s oil purchases from Moscow, and are exploring all legal options with regard to that, sources with direct knowledge of the matter said.

A total of nearly $600 million in dividend payments paid to ONGC Videsh (OVL), Oil India (OIL), Indian Oil Corporation (IOC), and Bharat Petroleum Corporation (BPCL) arm Bharat PetroResources are stuck in their bank accounts in Russia due to payment channel-related restrictions in the aftermath of Russia’s February 2022 invasion of Ukraine. The issue has been taken up by Indian companies with their Russian partners over the past few months. It has also featured in government-to-government discussions between New Delhi and Moscow.

“The most practical and viable option would be to use that money to partly pay for oil being bought from Russia. But there are many financial and legal complexities. We are working on those to find a solution,” a senior official with one of the Indian oil majors said on condition of anonymity. Using the money directly to adjust against oil dues might not be feasible as it would be fraught with challenges related to taxation, accounting, and international tax jurisdictions, and the Indian oil companies do not want to be in breach of Western sanctions against Moscow.

One of the ways for utilising the stranded money for payments could be to lend it to Indian refiners buying Russian oil, the official said. The refiners could use the money lying in Russia to partly pay for their oil purchases, and then repay the loan in India. Public sector refiners IOC and BPCL are already among the Indian oil companies with investments in Russia.

OVL, the overseas investment arm of Oil and Natural Gas Corporation (ONGC), holds 20 per cent stake in the Sakhalin-1 project and 26 per cent in the Vankor project. The consortium of IOC, OIL, and Bharat PetroResources (BPRL) has 23.9 per cent share in Vankor and 29.9 per cent in the Taas-Yuryakh project. Around $450 million of the stranded dividends belong to the consortium of IOC, OIL, and BPRL. Around $150 million in dividends belonging to OVL are also stuck.

From being a marginal supplier of crude to India before the war in Ukraine, Russia has emerged as New Delhi’s biggest source of oil over the past year, overtaking heavyweights like Iraq and Saudi Arabia. Indian refiners started snapping up Russian crude, which was being offered at a discount by Moscow as the West began to shun Russian barrels.

With the money stuck in Russia, the only viable options would have been to use it for payments there, increasing investments in Russia, and funding operational and capital expenditure requirements of existing projects. However, the dividend payments being received are after deduction of operational expenses and there is no plan at present to invest more capital into the projects. Also, the companies are currently not exploring investments in any other project in Russia, which leaves using the money for payments as the only feasible option.

The bank in Russia where the money is parked is understood to be the Commercial Indo Bank (CIBL). CIBL used to be a joint-venture of SBI and Canara Bank, but the latter sold its stake in the venture to SBI a few months ago. Soon after the war in Ukraine broke out, a number of major Russian banks were banned from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) financial transaction processing system, seriously constricting Moscow’s ability to access the global payments system. Russia also restricted repatriation of US dollars out of the country in a bid to curb foreign exchange volatility.