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Tensions have surfaced between India and Russia over the dividends from ONGC Videsh Ltd (OVL) 20 per cent stake in the Sakhalin-1 oil and gas field, according to a report by Mint. Despite India’s push for equity oil, as initially agreed, Russia and Rosneft PJSC have maintained their position on paying dividends instead. This development comes amid the mounting unpaid dividends from Vankorneft and Taas-Yuryakh Neftegazodobycha LLC, which have reached $600 million for Indian state-run companies.
Russia’s stand on dividends
Rosneft PJSC and the Russian Federation have insisted on paying dividends rather than delivering equity oil to OVL, despite India’s desire for the latter. The issue was a topic of discussion during Prime Minister Narendra Modi’s visit to Moscow for the 22nd India-Russia Annual Summit.
Importance of equity oil for India
Amid ongoing production cuts by the OPEC-plus (Organization of the Petroleum Exporting Countries) group, which includes Russia, equity oil is crucial for India’s energy security. As the world’s third-largest oil importer, India relies on imported oil for over 87 per cent of its requirements.
Vankorneft and Taas-Yuryakh Neftegazodobycha LLC
The issue is compounded by $600 million in unpaid dividends from Indian investments in Vankorneft and Taas-Yuryakh Neftegazodobycha LLC. An OVL spokesperson confirmed with Mint that discussions regarding the transfer of stake and dividends are ongoing, but challenges remain due to sanctions on Russia.
India’s energy investments and implications
India has made significant investments in Russia, with state-owned firms investing $16 billion to date. The Sakhalin-1 asset, purchased for $331 million in 2001, has generated $4.5 billion in revenue over the years, making it one of India’s most lucrative energy equity buys overseas.
Rosneft emphasised the strategic partnership between India and Russia, asserting that ONGC’s right to participate in Sakhalin-1 is indisputable. However, the receipt of equity oil is contingent on the price aligning with market levels and covering production costs.
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This standoff highlights broader challenges in India-Russia energy relations, particularly in the context of the ongoing Ukraine war and Western sanctions on Russia. Despite these challenges, Russia has emerged as a major supplier of discounted oil to Indian refiners, helping India meet its growing energy demand.
While India is keen on securing equity oil to bolster its energy security, Russia’s stance on dividends reflects broader geopolitical and economic considerations. As discussions continue, the resolution of this issue will be crucial for the future of India’s energy investments in Russia.
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