German authorities are preparing to nationalize Rosneft’s oil refining assets

German authorities are discussing the nationalization of Rosneft’s oil refining assets (MOEX: ROSN), which were already brought under control in September 2022. Rosneft’s largest asset in the country, the Schwedt refinery, depended on Russian supplies via the Druzhba oil pipeline, but after Germany refused oil from the Russian Federation, it began to experience loading difficulties.

The German government is considering the option of nationalizing Rosneft’s assets in the country, a local publication reports. Handelsblatt with reference to sources. Hearings on the nationalization of Rosneft assets in Germany were held on February 5, and were attended by a representative of the Russian oil company, Handelsblatt notes. A final decision on this issue has not yet been made. Kommersant sent a request to Rosneft.

The decision on nationalization is made by the German Ministry of Economics, taking into account the opinion of the Ministry of Finance, explains Nikita Tyurin, senior lawyer at the Delcredere Bar Association. Before a decision is made, the owner is given the opportunity to express his position. If the decision is made, it can be appealed in court. If it comes into force, the owner will have the right to demand compensation in the amount of the market value of the assets.

Lawyer of AB NSP Gleb Boyko adds that the expropriation procedure is established in the German Law “On Energy Security”.

Expropriation is acceptable to ensure security of energy supply. In this case, its necessity is explained by the fact that Rosneft is under EU sanctions.

Rosneft owns shares in the Bayernoil refinery (Voburg an der Donau) – 28.57%, MiRO (Karlsruhe) – up to 24%, the largest asset is a controlling stake in PCK (Schwedt) – 54.17%. In September 2022, the German government ordered the transfer of these assets into state trust, arguing that this was a threat to the safety of the refinery’s operations. Rosneft tried to challenge this decision in court, but to no avail.

The Russian Federation, in response to the actions of the German authorities, took the Unipro generating company, which belongs to the German Uniper, under temporary external control. The management bodies of Unipro included managers of Rosneft (see “Kommersant” dated April 26, 2023). A similar measure was taken in relation to the Russian assets of the Finnish Fortum, which until December 2022 was the majority shareholder of Uniper.

Rosneft oil supplies to the Schwedt plant were stopped after the EU imposed an embargo on Russian oil in December 2022. The German authorities agreed to supply Kazakh oil via Druzhba to the Schwedt refinery in the amount of 100 thousand tons per month. This is not enough to fully load the refinery with a primary processing capacity of 11.6 million tons per year (more than 230 thousand b/d). To solve problems with loading, the German authorities decided to expand the Rostock-Schwedt oil pipeline (capacity 110 thousand b/d), but this may take years. In addition, the refinery receives oil from the port of Gdansk, but these volumes are not enough. At the end of December 2023, Reuters reported that the issue of selling German assets of Rosneft was being discussed; the Polish group Orlen expressed interest in them.

Throughout 2023, the Schwedt refinery was kept operational thanks to supplies of 994 thousand tons from Kazakhstan, notes Victor Katona from Kpler. The Polish port of Gdansk is not able to simultaneously serve the Polish refineries, Total’s Leuna refinery and the Schwedt refinery, so it will have to choose which of these plants should be loaded first. If the only source of supply is the pipeline from Rostock, the Schwedt refinery could be closed, since it is unprofitable at a load below 60–65%, the analyst emphasizes.

Dmitry Kozlov