Stuck Dividends: Indian Oil Firms Face $1.4 Billion Challenge
The ongoing conflict in Ukraine has led to significant repercussions for Indian oil firms, with their dividend income from Russian projects now estimated at nearly $1.4 billion. This increase is primarily due to international payment restrictions that have emerged since Russia's invasion in February 2022. Major companies like ONGC Videsh (OVL), Oil India (OIL), and Indian Oil Corporation (IOC) have funds trapped in Moscow, complicating their financial operations.
Indian oil companies receive their dividends from stakes in Russian upstream oil projects, yet these payments are being credited in roubles into accounts at the Commercial Indo Bank (CIBL), an affiliate of the State Bank of India. Unfortunately, there is currently no effective mechanism for these firms to repatriate this money or utilize it for trade between India and Russia. Despite repeated attempts to address this issue with Russian partners and discussions at the government level, a resolution remains elusive.
The situation escalated after major Russian banks were excluded from the SWIFT financial system, severely limiting Russia's access to global payments. Additionally, Russia has implemented restrictions on the repatriation of US dollars, further complicating the financial landscape for Indian firms. With these dividends now stuck, the companies are left with few options to utilize the funds effectively.
Executives from these firms indicate that the only viable solutions may involve using the funds for payments within Russia or increasing investments in existing projects. However, with the dividends already reduced by operational expenses, there is little incentive to invest further in Russian ventures. Moreover, companies are not currently seeking new projects in Russia, which limits their options.
Theoretically, the stuck funds could be used for India’s crude oil purchases from Russia. However, this poses significant challenges, as not all companies involved in the dividend payments are engaged in purchasing Russian oil. The investments are also made through special purpose vehicles located in overseas jurisdictions, complicating any potential transactions.
As Russia has evolved from a marginal supplier to India's largest source of crude oil, the complexities surrounding these stuck dividends highlight the intricate relationship between international finance, geopolitics, and energy security. The companies are actively seeking legal and accounting advice to navigate this challenging situation and find a way forward.
