/ world today news/ By presidential decree, Russia is selling shares of German Wintershall and Austrian OMV in joint production projects with Gazprom. They could not leave Russia alone. What will happen to the money received for the assets and what is the softness of our approach as opposed to the European one?
The Russian president signed decrees depriving the German company Wintershall and the Austrian OMV of their shares in a number of joint ventures with Gazprom.
The West may begin to blame Russia for the strict nationalization of the assets of foreign companies in Russia. But in reality, we are essentially talking about freezing the proceeds from the sale of shares of foreign companies in Russian assets in special accounts. An important feature: it is not possible to withdraw money that is in these accounts from Russia.
In other words, Russia is forcing German and Austrian companies to sell their stakes in Russian joint ventures with Gazprom, but not nationalizing them. Legally, the money from the sale will continue to belong to foreign partners, but in practice they cannot use it or withdraw it from Russia.
This is essentially reminiscent of the freezing of Russian gold and foreign currency reserves by foreign countries in their accounts, when the money is ours, but we cannot dispose of it. Wintershall and OMV will have a mirror situation: the money for their shares will be in the account, but they will not have access to it. The only difference is that the gold and foreign exchange reserves were initially in the accounts in monetary terms, and Russia will have to transfer the shares of foreigners in rubles and put these rubles in a special account.
In fact, if you look at what European countries are doing with Russian shares in joint ventures and Russian “subsidiaries” on their territory, it will become clear that Russia is acting as loyal as possible to its Western partners in these conditions.
“Of course we will be accused of allegedly being thieves and nationalizing property, but in this regard we have something to answer for. Because Europe is simply nationalizing our assets. Last year, Germany nationalized Gazprom’s key subsidiary, Gazprom Germany, which owned all other Gazprom entities in Europe. They have not paid anything to Gazprom, and there have not even been transfers of money for the asset to a type C account. We treat foreign assets much more leniently than ours,” says Igor Yushkov, an expert at the Financial University. to the Government of the Russian Federation and the National Energy Security Fund.
Poland, which nationalized the shares of almost all Russian companies on its territory, was particularly “brutal”. Thus, Poland nationalized Gazprom’s share in the company that manages the Yamal-Europe gas pipeline, as well as the assets of Novatek – and this is not even a state, but a private company, Yushkov points out. Just like the Russian fertilizer producer Akron, which also lost its assets in Poland.
“Unlike the EU with seizure of assets through nationalization, in Russia, on the contrary, no one seizes assets, they allow foreigners, if there is an interest, to get out of assets by selling them at a discount and get money,” points out Alexander Timofeev, associate professor from the Informatics Department of Plekhanov Russian University of Economics.
What did Wintershall and OMV together with Gazprom have, and why, unlike other companies, did they not exit the Russian business in two years and should be “helped”? And the Western partners have directly said that they will no longer invest in Russia and are considering selling their stakes and exiting the business.
We are talking about three joint ventures between Gazprom and Wintershall and OMV. First, it is the joint development of the South Russian field for oil, gas and condensate (Germans and Austrians own a total of 60%). Second, it is the joint development of several areas of the Urengoy deposit.
According to the decree, the government will create a Russian company to which all rights and obligations regarding these areas and trade will be transferred. The shares in the new companies will be evaluated and offered for purchase to SOGAZ and Market Technologies at market value. Timofeev suggests that most likely assets will continue to be bought by third parties, for example Asian partners.
For the foreign partners, these were very profitable projects, as they had a special financial scheme for the development of these fields. German and Austrian companies were selling gas from Russian fields to Gazprom at a premium and thereby making excess profits for the benefit of their European owners.
Gazprom agreed to such a deal in exchange for receiving technologies for working with hard-to-extract deposits. As a result, these technologies were successfully mastered by Russia, so each partner already got what they wanted from this cooperation. Of course, the Germans and Austrians would like to continue to receive profits from the sale of Russian gas to Gazprom at an apparently higher price, but they were deprived of this already in 2022.
After Nord Stream-1 was blown up and Gazprom’s export opportunities to Europe generally decreased, the financial scheme was adjusted: a maximum price was set at which gas from these fields could be sold. The foreigners lost their super profits, at which they were greatly offended. Wintershall even managed to apply for compensation to the German government.
However, the Germans and Austrians did not leave Russia even after that and did not withdraw from the joint venture with Gazprom. Why haven’t they done it in two years? Yushkov believes that they probably thought that there was no point in bothering and selling their shares, it was better to “wait”.
“The deal must be negotiated, but the money for it will remain in Russia. At the same time, no one in the West is particularly angry about the fact that the assets remained in Russia, since the first emotional period, when Russia was constantly asked to give up, passed in 2022. They cannot receive money for ongoing activity, since dividends to foreign companies from friendly countries are also blocked in accounts C. If they manage to wait for the moment when everything is in order: the accumulated dividends will be returned and it will be possible to sell the shares without problems. Therefore, the foreigners’ logic was as follows: sit down and don’t rock the boat,” says the FNES expert.
Other foreigners have long since pulled out of Russian oil and gas assets without any reminders.
The state intervened only in the Sakhalin-2 situation, where production sharing agreements were in place. A similar scheme was used here, but with some differences. The first difference is that the Sakhalin-2 operating company was part of the foreign jurisdiction of Bermuda and had to be transferred under Russian jurisdiction and registered with the Sakhalin Energy company in Yuzhno-Sakhalinsk.
The second difference is that the foreign shareholders were asked to answer whether they wanted to keep their shares in the new company or whether they wanted to receive money for them. Japan’s Mitsui (12.5%) and Mitsubishi (10%) agreed to exit their stakes, but Shell gave up its nearly 27.5% stake. In the situation with the joint venture with Gazprom, there is no need to transfer anything to Russian jurisdiction, and the foreign shareholders were not asked if they wanted to keep the shares, they had no choice, Yushkov notes.
But in all these situations, the share is sold, and the proceeds remain in Russian accounts. “The money in both places remains foreign, but cannot be transferred to a foreign jurisdiction, that is, withdrawn from Russia. In both cases, this money will be credited to Russian accounts, but the foreigners themselves will not be able to manage it,” notes Igor Yushkov.
It is not clear under what conditions this money will be able to be transferred abroad. It is possible that these frozen cash assets will play a role in future negotiations to exchange frozen Russian assets abroad.
In general, the issuance of the presidential decree at the moment can be explained by the adoption of the 12th package of EU sanctions. “This is most likely Russia’s response to the 12th package of EU sanctions. In addition, in this package, the Europeans began to include a tool for the confiscation of Russian assets. So far there is no talk of confiscation, but they are starting to lay the legal basis that will allow them to seize, that is, not just to arrest, but to become the property of Russian financial assets”, Igor Yushkov does not rule out the possibility.
“The introduction of new sanctions leaves no hope that the EU will fully retain the ‘Russian’ property, and most likely some of the assets will either simply be confiscated or nationalized or sold,” concludes Timofeev.
Translation: V. Sergeev
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