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ONGC Videsh's operations in Russia may have to pay for Sistema's Indian woes

MUMBAI: The setback to Russian telecom giant Sistema in India may impact ONGC's operations in Russia, said RS Sharma, who headed the state-run firm when it had acquired Siberian oilfields of Imperial Energyfor $2.1 billion. 

"No one in the company (ONGC Videsh) will admit it now, but it is obvious that the way the Indian side has treated Sistema by cancelling its 2G licences will have a long-term impact on the way the Russians will treat Indian interests in the Imperial asset," Sharma told ET. 

Sistema holds 56.68% stake in 
Sistema Shyam Teleservices and had invested $3.1 billion in this venture. In February 2012, the Supreme Court had cancelled 21 of its 22 licences in India along with 101 other permits issued by former telecom minister A Raja. 

Sistema and ONGC signed a strategic partnership agreement when former oil minister 
Murli Deora visited Moscow in December 2009. "There was a plan to invest in Sistema's assets and swap that for Imperial assets but that went into a limbo because of valuation issues," said Sharma. 

ONGC Videsh Ltd (OVL) acquired Imperial Energy, an independent oil explorer that has its main assets in the Tomsk region of Western Siberia, in 2009. Imperal's oilfields produced a paltry 12,000 barrels per day last fiscal, well below the initial estimate of 80,000 bpd, which was scaled down to 35,000 bpd later. The plummeting output provoked criticism from the Comptroller and Auditor General of India. 

OVL managing director DK Sarraf told ET that the company has a comprehensive strategy in place to revive the languishing assets, but Sharma says the Sistema episode would influence Russia's approach towards the company. 

In 2011, OVL had explored the idea of teaming up with four other state firms to acquire 25% in an entity that was to be formed by pooling its Imperial assets and Sistema's holding in
Russneft, a Russian oil firm, and Bashneft, an integrated company that operates 140 fields in Russia. In return for acquiring 25% of this merged entity, OVL was planning to divest its entire stake in the Imperial assets. 

Another senior ONGC executive, who did not want to be identified, said one key issue impacting the Imperial deal was the 
taxation policy of the Russian government. "Tax paid by oil exploration companies across Russia varies from month to month. Earlier, Imperial's net realisation after paying all taxes and duties was quite low and we were hoping for special dispensations which eventually did not happen," the executive said. 

An industry official said the 
Indian government tried to convince the Kremlin to delink Sistema's telecom issue from OVL's Imperial issue and grant it a tax holiday that exempts OVL from paying 35% mineral extraction and 50% corporate tax but to no avail. 

"OVL was waiting for special dispensations for the Imperial asset on the tax front which never fructified. The road ahead will be tough for OVL," Sharma said.