Millennium Post

India-Russia relations under stress

The economic relations between India and Russia have come under severe stress following the developments related to the Russian telecom giant Sistema which has been adversely affected as a result of the Supreme Court order cancelling 122 telecom licences including those belonging to Sistema. The Sistema group owned by the Russian tycoon Yevtushenkov is reported to have invested about $3.1 billion for nearly 75 per cent shares in a joint venture with the Indian Shyam Telecom. The unfolding of the 2G scam and the consequent action by the Government of India, has given a big blow to the process of Russian investments in India.

The Sistema issue has been taken up at the highest level of the Russian government and now, with President Putin scheduled to visit India by the end of this year, the Sistema tangle has emerged as the major issue casting its shadow over the Putin visit. As of now, at the official level, there is little scope for coming to an understanding on the issue. The government position is that Sistema can not claim any damages from the Indian government under any bilateral investment promotion and protection agreement [BIPA] as suggested by Sistema management. This position is valid for all the foreign telecom companies including Sistema and Indian government will go by the advice of the Attorney General [AG] on this issue. PMO which is involved in sorting out this issue with Sistema has given nod to the AG’s advice that India should be ready with battery of lawyers in case Sistema moves the International Court after 26 August against the Indian position. PMO however wants that while, India should be ready to defend its position, the negotiating committee on Sistema should work fast and try to evolve a formula for avoiding legal battle. However, White and Case LLP, London representing Sistema JSFC of Russia had filed a case under BIPA for their investment in Sistema Shyam Teleservices.  India is not sure whether any way out outside the legal course is possible.

The AG has told Department of Telecommunications that there should be no refund of entry fee paid by the licencees and it is not in favour of including new clauses in the upcoming auctions, which require foreign players to indemnify that in case they succeed in auction, they will not claim damages from the government. The AG also made it clear that foreign investors cannot invoke their bilateral treaties if the investors were found to have misrepresented facts which led to wrongful determination of eligibility criteria for getting the licences. The Indian officials feel that the Sistema issue can be dealt now only at the level of the Prime Minister Manmohan Singh as a part of a composite understanding on India-Russia relations.

As against this Indian position, Sistema has suggested that the Indian government initiates parliamentary action to reach a binding decision so that the Supreme Court order cancelling 122 telecom licences does not apply to its Indian joint venture and its licences. As regards the new auction policy, Sistema wants that a lower reserve price for spectrum, limiting the auctioning to only new players who lost their licences due to the court order and adjusting the prior licence fee against the new auction price. None of these have been incorporated in the 2G spectrum auction policy cleared by the government.

As a result the stalemate is continuing and the future of India-Russia economic relations, especially the Russian investments in India, hangs in a balance. It is difficult for the officials of the two countries to find out a solution of this vexed issue since the Supreme Court of India is involved, but this has to be sorted out and that has to be done at the highest political level – at the level of the Singh and the Russian President Putin. For Singh, this should be a big challenge as here is the scope to give a big push to the India-Russia economic relations which have been stagnating at a low level as against the booming trade between India and China. There are many areas where the Indian companies can invest in Russia including the oil and gas fields. Further, the Russians are equally interested now to invest in the steel, metals and power sectors.

As regards oil and gas sector, Indian oil and gas companies have made major moves to take part in the oil and gas exploration programmes in Russia and they want the collaboration in oil and gas as a major area in India-Russia relations. ONGC Videsh Ltd, the overseas arm of the ONGC will team up with Petronet LNG and Indian Oil Corporation to bid for 20 per cent stake in Russia’s Novatek LNG project in the Yamal Peninsula. OAO Novatek, the second largest gas producer in Russia after the state run Gazprom, is looking for international partners to develop the Yamal project and share implementation costs. Indian petroleum and natural gas ministry is backing the efforts of its companies and the PMO has been requested to take up the issue of Indian participation in Russian oil and gas fields as a major issue in talks with the Russian President during his October visit. Similarly, state owned GAIL India is buying stake in Russia’s planned ten million tones LNG plant at Vladivostok on the pacific coast and import natural gas from the $7 billion project to meet nation’s energy needs.

So far as Koodankulam Nuclear Power Units are concerned, India is not in a position to make any exception to the Russian aided Koodankulam number three and four units from the liability clause as per the act of Parliament since this is applicable to all the nuclear power plant collaborating companies belonging to other countries. But India understands the Russian position and so, India will agree to a hike in costs of these two plants and negotiations will take place for that. Safety is of paramount importance for India and in order to ensure that India is not minding some costs escalation. India will like to conclude the negotiations for the revised costs before Putin visit but it may not be possible since such talks take lot of time. Indian sources however say that Indian side will be very objective in the revision process and all efforts will be made to ensure smooth conclusion of the revised cost estimate.

Russian sources maintain that India is likely to get very favourable terms for the third and fourth unit of Koodankulam. Both Indian and the Russian governments are serious in arriving at an agreement on the third and fourth units of Koodankulam and it will figure prominently during discussions at the summit this year. But the stumbling block to any breakthrough in India-Russia economic relations is now Sistema. Indian PM has to find a way out to protect Sistema investments in India so that more Russian investments are made in India in the core sectors of the economy.
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