What the Kremlin’s rubble-for-gas threat is all about – POLITICO

Tap play to listen to this article

EU companies are struggling to understand how they can continue to pay for Russian gas without succumbing to EU sanctions or having their gas supply cut off by Moscow.

Their anxiety is the result of Russian President Vladimir Putin’s demand that so-called unfriendly countries pay for their gas in rubles. Moscow sent a signal that it is not bluffing last week as it stopped delivering to Poland and Bulgaria after both countries refused to comply with Russia’s request. Additional gas payments are due in the second half of May, increasing the prospect of more closures unless a solution is found.

Europe is in the process of decoupling itself from Moscow’s energy exports, with an embargo on Russian oil being discussed this week by EU ambassadors, but it is likely to take longer to remove gas that is largely supplied via pipelines. Meanwhile, companies need a way to pay.

The European Commission has tried to explain what companies should do, but the guidance is confusing and countries want more clarity for their companies. POLITICO explains what we know about the rubles-for-gas saga so far:

What exactly does Russia want?

In a presidential decree signed on March 31, the Kremlin demanded that companies from so-called unfriendly countries, a list of EU members, pay for their gas in rubles. It established a payment system whereby a company had to open two accounts with Gazprombank, Russia’s third largest lender and a subsidiary of the state-controlled gas export monopoly Gazprom. The company was to transfer payments to the first account in the currency provided for in its contract with Gazprom and authorize Gazprombank to convert these funds into rubles on the Moscow Stock Exchange, transfer the proceeds to the second bank account and disburse Gazprom. Only then is the payment considered completed.

How does that change from what companies have done so far?

Gas supply contracts are confidential, but industry standards usually have companies paying in a particular currency. In 97 percent of EU companies’ contracts with Gazprom, payment is made in euros or dollars, according to the European Commission. The bank account receiving the deposits will be selected by Gazprom and specified in the contract. Payments are considered cleared as soon as the full amount arrives in that account.

In cases where there is disagreement about the amount due, gas contracts usually require buyers to pay the full amount stated on the seller’s invoice (in this case issued by Gazprom), with a later adjustment made once the dispute is resolved.

Failure to pay can result in a number of fines for the buyer, ranging from interest imposed on any outstanding amount to suspension of gas deliveries or direct termination of contract.

Why is Russia’s proposed payment system in breach of EU sanctions?

According to the Commission, Moscow’s requirements are in breach of the EU sanctions regime, and in particular the ban on “directly or indirectly buying, selling, providing investment services or assistance in issuing or otherwise dealing in transferable securities and money market instruments” issued by the Russian state or its central bank. This is because the new gas payment system “more or less corresponds to a loan that will be given by the companies to the Russian central bank before the payment is completed,” an EU official said last week. “This is for us … a clear breach of sanctions.”

So what can EU companies do?

Businesses can try different things, according to Commission guidelines issued last month. They can apply for a dispensation to continue paying as before. But “the procedure for derogations from the requirements of the decree is not ready yet,” it added.

Alternatively, companies can open a bank account in euros with Gazprombank, pay their membership fee in euros or dollars according to their contract and issue a declaration that their payment obligations have been met. “Then what the Russians do with the money is up to them,” the EU official said. However, they should “seek confirmation from Russia that this procedure is possible,” the Commission wrote in its guide.

Will it work?

Bulgaria and Poland tried to pay in the usual form, but their payment was rejected, the gas supply stopped, and the money was returned.

As for the Commission’s second proposal to pay the euro to Gazprombank, there are no indications that Russia would accept such a solution. According to Bulgarian officials, this is “not really an option.”

What are companies not allowed to do?

They can not open another bank account in rubles and meet Russia’s other demands, according to the Commission. “What we can not accept is that companies are obliged to open another account,” the EU official said. “And that between the first and second account, the amount in euros is in full hands with the Russian authorities of the Russian central bank, and that the payment is not completed until it is converted into rubles.”

“This is definitely a clear circumvention of the sanctions,” the official added.

What are they really doing?

A number of companies have reportedly opened accounts with Gazprombank, but it is not clear whether these accounts are in euros or rubles. A spokesman for German Uniper said: “We continue to believe that future payment processing is possible.” Italy’s Eni declined to comment.

If companies contravene the European Commission’s guidelines, national governments will be required to prosecute potential infringements, as they are enforcers of the EU sanctions regime.

What do European governments say?

EU governments have said they intend to continue paying for gas in euros or dollars under their companies’ contracts. But divisions are beginning to show: Hungary has said it sees no problem in paying in rubles, and Italy said companies should be temporarily allowed to pay in rubles to avoid having their gas cut off. Energy ministers meet in Brussels on Monday to discuss a way forward.

Will the Commission change its position?

This is where the case becomes even more confusing. The Commission initially stated in its preliminary assessment that joining Putin’s demands would be a breach of sanctions by EU countries. One week later, it issued a guide with the proposed solution. A number of EU countries demanded that the Commission clarify its guidance as they were dissatisfied with the confusion. A spokesman for the Commission replied that its guidance “still stands”.

EU Energy Commissioner Kadri Simson confirmed on Monday that the Commission would “issue more detailed guidance on what companies can and cannot do within our sanctions framework.”

But there is little chance that Brussels will agree to Moscow’s demands.

“We have to give [companies] the clarity that the payment of rubles through the conversion mechanism administered by the Russian public authorities and another dedicated account in Gazprombank is a violation of the sanctions and can not be accepted, “said Simson.

What does Putin get out of it?

The immediate effect is a strengthening of the ruble by forcing Gazprom to convert the gas sales proceeds into the Russian currency, which increases demand for it and strengthens its value. But the move comes after Moscow in February demanded that Russian companies convert 80 percent of their foreign-earned income into rubles for just that purpose – raising the question of whether Putin has a different motive.

Breaking the unity of the bloc by forcing countries to choose between sanctions and continued gas supplies could be his ultimate goal. Judging from the confusion that followed, he has at least partially succeeded.

This article has been updated with comments from Energy Commissioner Kadri Simson.

This article is a part of POLITICAN Pro

The one-stop-shop solution for political professionals who combine the depth of POLITICO journalism with the power of technology

Exclusive, groundbreaking scoops and insights

Customized policy intelligence platform

A high-level public network

Leave a Reply

Your email address will not be published.