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Nayara, a sanctions-hit company, scrambles with New Delhi to maintain operations

Since late August, Nayara Energy refinery in western India has been moving fuel by rail to inland depots with two or three 50-tanker trains per day. This is more than twice the amount of diesel and petrol it used to transport previously. The European Union imposed crippling sanctions on the Russian-owned refinery on July 18 that shut it out of many markets. It forced the refinery to find new customers and divert more fuel into the domestic market.

Sources from the Indian government and the company claim that the ongoing crisis at Nayara has forced the Indian government to provide enough support for it to continue operating, while avoiding actions that could provoke an Western backlash. New Delhi has taken several measures to assist a refinery that is owned by a friendly country. These include providing tanker train services and approving coastal vessels for the transport of its products.

Nayara is owned by the Russian state oil giant Rosneft, which puts it in the middle of a long-standing relationship between New Delhi and Moscow. This puts India at odds against its Western allies. The refiner's biggest shareholder, the Russian state oil company Rosneft relies solely on Russia to import oil, after Iraqi crude and Saudi Arabian oil supplies were cut-off following the EU measure. This makes it vulnerable if flow disruptions are caused by tighter sanctions or increased U.S. pressurization.

"The government is trying cover two possible scenarios: trying to support Nayara, while remaining aware of the fact there will be a persistent global pressure to tighten the sanctions," said Amitendu Palait, a Senior Research Fellow at the National University of Singapore Institute of South Asian Studies.

He said that "Long-term Support might not be sustainable until the global dynamics change, such as a resolution between Russia & the U.S.A.

Nayara has not responded to an email asking for comment on this story. India's Oil Ministry and Rosneft have not responded to requests for comments.

Nayara, a Mumbai-based company, is a major player in India's rapidly growing fuel sector. It accounts for 8% the refined product output and operates more than 6,500 gasoline stations. It has been forced to reduce crude runs at its 400,000-barrel-per-day Vadinar refinery to 70-80% of capacity - it was previously running at 104% - as it struggles to find export buyers for its fuel and banks to facilitate payments, sources with knowledge of the refinery operations say.

STOP-GAPS AND WORKAROUNDS Nayara's refinery, which is not connected to the pipeline network, increased its use of railcars for fuel transportation after sanctions made it difficult to charter coastal vessels or export products, forcing it redirect production domestically. Its access to more railcars was facilitated by New Delhi, which has also temporarily allowed Nayara to use four coastal vessels, sources said, including the E.U.-sanctioned Leruo and two shadow fleet ships, the Guinea-Bissau-flagged Garuda and Djibouti-flagged Chongchon.

Sources said that Nayara was seeking approval from the government to use two additional coastal ships. Nayara also seeks government assistance to find equipment and materials it struggles to get due to sanctions, for a scheduled maintenance shutdown in February. Sources said that Nayara is also considering pushing back the shutdown until April while it searches for alternative raw materials.

A senior official of a company, speaking on condition of anonymity due to the sensitive nature of the issue, said that the company was constantly under threat. The official cited the concern that the vessels they are currently using may be subject to future Western sanctions.

We never expected to be so directly hit. "Every day is like fighting fires."

Nayara, a combination of Hindi and English meaning "New Era", was originally called Essar Oil. It was purchased by Rosneft in 2017, along with a group that included the Russian fund UCP and Trafigura. Trafigura later sold its share.

Nayara purchased oil from many countries until 2022. In that year, India began buying discounted Russian oil, after the West sanctioned Moscow for its invasion in Ukraine. It became the largest buyer of Russian crude by sea. Recent purchases by India have led to a diplomatic rift between Washington and New Delhi. President Donald Trump doubled tariffs on Indian imports up to 50%.

MAINTENANCE AND PAYMENTS ARE THE IMMEDIATELY BIGGEST CHALLENGES

Sources at the company have stated that the most immediate challenge for Nayara is to resolve the maintenance issue and be able make international payments. Sources have reported that Nayara’s principal banker, the government-owned State Bank of India (SBI), stopped processing forex and trade transactions for the refiner due to concerns over EU sanctions in August. SBI did respond immediately to a comment request.

Nayara officials met with officials from the finance ministry and banks to try to resolve this banking issue. However, they have not yet found a solution. This limits Nayara’s ability to import and export fuel in foreign currencies.

The Indian finance ministry has not responded to a comment request.

According to shipping and traders data, Nayara exported 30% of its production before the sanctions. This was mainly through trading with Western, Middle Eastern, and Asian firms to ship products to Asia and Northwest Europe. Data shows that since then, Nayara has shipped cargoes to the Middle East, Turkey and Brazil. At least 16 of these cargoes were diesel, gasoline, and jet fuel, and they were all transported on EU-approved tankers. Industry sources claim that some of these recent exports were done through traders, with payment offset against crude supplies.

According to Kpler, Nayara exports 2.23 million barrels in September. This compares with an average of 3.3 millions barrels per month from January through June.

A trader from north Asia said, "We're interested in buying their products." They told me that their bank account was blocked and they couldn't accept payments.

(source: Reuters)