Indian oil firms explore using stranded $600 million to buy Russian oil

Indian state oil firms have invested $5.46 billion in buying stakes in four different assets in Russia. These include a 49.9% stake in the Vankorneft oil and gas field and another 29.9% in the TAAS-Yuryakh Neftegazodobycha fields.

Indian oil companies are exploring the possibility of using close to $600 million of their dividend income stranded in Russia to buy oil from that country, officials said on Thursday.

India's top four oil companies -- Indian Oil Corporation (IOC), a unit of Bharat Petroleum Corporation Ltd, Oil India Ltd and ONGC Videsh Ltd -- haven't been able to repatriate dividend income they accrue from their investments in Russian oil and gas fields. That money is lying in their bank accounts in Russia but could not be brought to India due to tough Western sanctions that followed Moscow's invasion of Ukraine.

This is at a time when Russia has emerged as the top crude oil supplier to India, accounting for more than a third of all purchases New Delhi makes from overseas.

Officials said one of the options could be to loan the money lying in Russian bank accounts to entities buying oil. These entities could repay the loan in India.

The entities that buy oil from Russia include IOC and BPCL.

"We are studying legal and financial implications of such a move,' an official said. 'We are mindful of the sanctions and do not want to do anything that may in any way attract any breach."

Indian state oil firms have invested $5.46 billion in buying stakes in four different assets in Russia. These include a 49.9 per cent stake in the Vankorneft oil and gas field and another 29.9 per cent in the TAAS-Yuryakh Neftegazodobycha fields. They get dividends on profits made by the operating consortium from selling oil and gas produced from the fields.

Soon after Russia's invasion of Ukraine in February last year, several major Russian banks were banned from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) financial transaction processing system, constricting Moscow's ability to access the global payments system.

Also, the Russian government has put restrictions on the repatriation of dollars from that country to check volatility in foreign exchange rates.

This led to a situation of dividend money getting stranded in Russia.

ONGC Videsh Ltd (OVL), the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC), holds a 26 per cent stake in Suzunskoye, Tagulskoye and Lodochnoye fields -- collectively known as the Vankor cluster in the north-eastern part of the West Siberia.

Indian Oil Corp (IOC), Oil India Ltd (OIL) and Bharat PetroResources Ltd (a unit of Bharat Petroleum Corp Ltd or BPCL) hold another 23.9 per cent in the same project. Russia's Rosneft is the operator with 50.1 per cent interest.

The consortium of OIL, IOC and Bharat PetroResources has a 29.9 per cent stake in TAAS-Yuryakh Neftegazodobycha.

Separately, OIL chairman and managing director Ranjit Rath said about $150 million of dividend income of OIL is lying in bank accounts in Russia.

The total for its consortium (IOC and BPRL included) is about USD 450 million, he said.

OVL has another $130 million of dividend income.

"We see this has a temporary phenomenon," Rath said.

"We are working at three levels -- exploring legal options, analysing banking challenges and using government-to-government to negotiations." He, however, refused to elaborate.

Other officials said the options being explored includes using the stranded money to buy oil.

"IOC as well as BPCL already are big buyers of Russian oil and perhaps they can use that money to buy oil," an official said. "Legal and financial issues in doing so are currently being studied."

Another official said a solution is likely to emerge in 2-3 months' time.

The dividend is lying with the Commercial Indo Bank LLC (CIBL), which was a joint venture of the State Bank of India and Canara Bank. Canara Bank in March sold its 40 per cent stake in CIBL to SBI.

The dividend from TAAS was paid on a quarterly basis, while Vankorneft's earnings were paid half-yearly.

The Indian firms are looking at options of how to repatriate the money from Russia, Rath said.

All dividend income prior to the Ukraine war was repatriated but the one that accrued after that is stuck.

The operations of the fields have not been impacted and they continue to produce as normal, he added.

OVL also has a 20 per cent stake in the Sakhalin-1 oil and gas field in Far East Russia, and in 2009 acquired Imperial Energy, which has fields in Siberia, for $2.1 billion.