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How could Germany expropriate Rosneft assets?

A 3D printed natural gas pipeline is placed in front of displayed Rosneft logo in this illustration taken February 8, 2022. REUTERS/Dado Ruvic/Illustration
A 3D printed natural gas pipeline is placed in front of displayed Rosneft logo in this illustration taken February 8, 2022. REUTERS/Dado Ruvic/Illustration

Germany’s Economy Ministry informed Rosneft earlier this week that it was considering expropriating shares in the company’s German assets, the Russian oil giant’s law firm in Germany said on Thursday.

Here is what is known about the potential plan and how Germany may proceed:

 

Why has Berlin decided to expropriate Rosneft assets in Germany?

In the wake of Russia’s full-scale invasion of Ukraine, the German government put Rosneft’s German business, including its 54.17 per cent stake in Berlin’s Schwedt refinery, under a so-called trusteeship in September 2022. This expires in March.

Germany’s economy ministry told Rosneft it was considering expropriation because of a risk of jeopardizing the refineries’ operation if Russia regained control over the companies.

 

How much would Berlin have to pay for Rosneft assets in Germany?

Vedomosti newspaper said in 2022, citing an unnamed consultancy, that Rosneft’s assets in Germany may amount to $7 billion.

Berlin declined to say how much it would need to pay to compensate Rosneft and how it could finance this. Rosneft did not reply to a request for comment.

 

How would expropriation work legally?

Rosneft already filed a case against the trusteeship in December and has said before it was preparing other appeals to the European Court of Human Rights, Investment Protection Arbitration Court and the European Court of Justice.

Joachim Wieland, a professor of constitutional, administrative and public commercial law at German University of Administrative Sciences Speyer, said an expropriation would be based on Germany’s Energy Security Act which was amended following Russia’s war in Ukraine.

The law allows expropriation to secure the energy supply in Germany, Wieland said, and could be enforced under a clause of the Constitution as it is for the benefit of the general public.

However, Bertrand Maliender, Rosneft lawyer in Germany, said Russia and Germany have an investment protection treaty which gives the same rights as the German Constitution to companies and an expropriation decision would be a violation of that treaty.

 

How did Russia react to the possibility of expropriation?

Rosneft will take all measures to protect the rights of its shareholders, its law firm in Germany said, adding expropriation would forever damage investment security in the country.

Kremlin spokesman Dmitry Peskov said Germany’s plans would have negative consequences and undermine investor confidence and Europe’s investment attractiveness.

 

What could Russia do in retaliation?

President Vladimir Putin has signed decrees to take temporary control of assets belonging to some Western companies in Russia, in retaliation against foreign moves against Russian companies abroad, and warned the Kremlin could seize more.

The companies include Finnish utility company Fortum, Denmark’s Carlsberg, France’s Danone, and Germany’s Uniper and Wintershall Dea among others.

Asked if Russia will expropriate German assets in Russia to retaliate, Kremlin spokesman Dmitry Peskov said Moscow didn’t rule out any steps to defend its interests. Many non-listed German companies still operate in Russia.

 

How have Russian interests already been affected in Europe?

Following the invasion of Ukraine, the European Union, the United States, Japan and Canada froze some $300 billion of Russian central bank assets.

In November 2022, Germany nationalised Gazprom Germania, a subsidiary of Russia’s gas giant Gazprom (GAZP.MM), after Gazprom terminated its participation in the company without explanation.

Last December, German prosecutors said they would move to confiscate more than 720 million euros from a Frankfurt bank account of a Russian financial institution, while Finland’s state-owned railway company VR said it had seized four trains it co-owned through a joint venture with its Russian counterpart, Russian Railways (RZD).

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