The Kremlin on Monday refused to accept the Indian demand for mitigating the tax incidence on Oil & Natural Gas Corporation's (ONGC) low-yielding Siberian oil fields (Imperial Energy) by according a special dispensation and insisted that Russian telecom firm Sistema be compensated adequately for the loss of licences in India for no fault of its.
Sources privy to the discussions between Russian President Vladimir Putin and Prime Minister Manmohan Singh said the Russian side has refused to de-link the Sistema issue from the demand for tax concessions for OVL, the subsidiary through which ONGC invested in Imperial Energy.
Said an official source: “It is difficult to strike a bargain with Russia if no progress is made on issues raised by them. They (Russian side) are acting very tough now and want the Sistema issue resolved on time. They also indicated India could face demand for billions of dollars in compensation if the issue is not sorted out to their satisfaction.”
Sistema Shyam is a 74:26 joint venture between the Russian conglomerate and India's Shyam Group. Sistema had bought into the company when Shyam bagged licences for 21 circles in January 2008 to provide CDMA-based mobile services. The company was among nine firms which had got licences from former telecom minister A Raja. Though the CBI did not charge-sheet Sistema for any irregularity in procuring the licence, the Supreme Court on February 2 cancelled all licences granted by Raja and as a consequence, Sistema lost its licences. The company along with a few others filed a review petition which got dismissed. It subsequently filed a curative petition which is still pending. The company did not participate in the November auctions and maintains that since it had committed no wrong, the government should restore its licences or compensate it for the investments made.
In 2009, OVL had acquired Imperial Energy for $2.1 billion. However, with the production from the field, situation in difficult terrain of West Siberia, being much below expectations, the investment is somewhat stressed. New Delhi wants a 10-year tax holiday on export duty on Imperial Energy since 2009 and a total waiver