Unprecedented, risky move: That’s why Habeck is taking the Gazprom deal away from Russia

The Ukraine war keeps giving birth to new firsts: For the first time, the federal government uses a paragraph that brings a foreign-owned company under German control. From the point of view of the Federal Ministry of Economics, there is no alternative to the process – with unclear consequences.

For weeks, the officials in the Federal Ministry of Economics and Climate Protection have had to cut back on work-life balance. Namely when it comes to the words life and balance: The prospective renunciation of Russian coal, gas and oil supplies as well as the search for alternatives to Russian metals and the imposition of economic sanctions are an unprecedented organizational and legal tour de force for the federal government. At the weekend, another mammoth order was added: Securing Germany’s natural gas supply by applying paragraph 6 of the Foreign Trade Act for the first time in Germany. This enables the federal government to place a company owned by a foreign group under trustee administration. In this case: to place Gazprom Germania, which belongs to the Russian Gazprom group, under the trusteeship of the Federal Network Agency.

Gazprom Germania, with its subsidiaries, is the intermediary for Gazprom gas in Germany. Major customers from industry and municipal utilities can obtain their gas from the subsidiaries of Gazprom Germania. In addition, Gazprom Germania operates natural gas storage facilities in Germany, the volume of which accounts for around a quarter of Germany’s storage capacities – a total of around 6 billion cubic meters, of which 3.9 billion are in the storage facility in Rehden in Lower Saxony alone.

Dubious change of ownership

Towards the end of the week, the ministry learned that the Russian state-owned company Gazprom had sold its German business to a company called Gazprom export business services LLC, which in turn ceded 0.1 percent of its shares and 100 percent of the voting rights to a company called Joint Stock Company Palmary Has. This Palmary has not yet appeared and its management is also unknown to the federal government. The deal seems strange: After all, the unknown Palmary has just acquired a company that cost many billions of euros until the Russian invasion of Ukraine, which in 2021 alone paid around 200 million euros in profit to the parent company in Saint Petersburg.

This process alone set off all the alarm bells in Berlin. Even more sensational is that the new owners are not silent partners. On the contrary: The new owners are said to have commissioned the management of Gazprom Germania in Berlin to “liquidate” the entire business. That normally means selling all assets and ending business operations – with unforeseeable consequences for the gas supply in Germany, Great Britain, Switzerland and the Czech Republic, because Gazprom Germania’s sales subsidiaries are also active in these countries.

Habeck takes over

Federal Economics Minister Robert Habeck is now forestalling this liquidation. As the Announcement in the Federal Gazette fans out, Habeck refers to a threat to “the public order or security of the Federal Republic of Germany”. This finding enables the federal government to intervene in accordance with Section 6 of the Foreign Trade and Payments Act: As of now and at least until September 30, the managing directors of Gazprom Germania will not receive their instructions from Russia – neither from the old owner Gazprom nor from the new voter Palmyra – but from the employees of the Federal Network Agency, which is subordinate to the Federal Ministry of Economics.

The Federal Ministry of Economics is convinced that it is on solid legal ground: Companies that operate critical infrastructure may not be acquired by companies that are not based in the European Union without the Ministry’s approval. This is to ensure that potentially hostile states do not gain access to security-relevant infrastructure in Germany without being noticed. Even this sale of Gazprom Germania within Russia was therefore illegal.

The fact that the people behind the new owners Gazprom export business services and Palmyra are not transparent and that Palmyra ordered the liquidation of the business only makes matters worse. “The unclear legal situation, violations of the reporting obligation and the announcement of the liquidation of Gazprom Germania are now forcing the federal government to take this step,” Habeck summarizes his decision himself.

How is Russia reacting?

However, Habeck’s decision entails risks for Germany’s gas supply: it is conceivable that in Russia the transfer to fiduciary responsibility will be interpreted as expropriation and – in Kremlin terms – an “unfriendly act”. So Moscow could have created a pretext for stopping gas supplies on its part. This is relevant if one day there are proceedings before international arbitral tribunals as to who was the first to breach the contract when supplying gas to Germany. In its international communication, the Russian government insists on being a reliable partner and sticking to supply contracts even in times of crisis.

The Federal Government attaches great importance to the fact that the fiduciary takeover does not constitute expropriation and ends when Gazprom Germania is back in an orderly ownership structure. If that doesn’t happen, it is at least theoretically conceivable that the Federal Network Agency will commission the sale of the relevant Gazprom Germania subsidiaries at fair market prices, for example having the gas storage facilities sold to reputable operators.

The sale of Gazprom Germania to Palmyra and Habeck’s consequences could be the beginning of a blamegame mean, a contest of finger-pointing, in the course of which Moscow turns off the gas tap. The federal government has so far ruled out an energy boycott, possibly also because of its own liability issues towards German companies and suppliers. Should the boycott now come from Russia, the Federal Ministry of Economics and Technology would no longer have to worry. But if gas stops flowing from Russia in the near future, the work will probably increase.

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