Putin forbade foreigners to leave the Russian fuel and energy complex: experts outline the risks

The share of foreign equipment in the industry is still high

Western companies that have invested in the Russian power industry and now want to sell their assets will have to wait. Vladimir Putin’s decree prohibiting foreigners from leaving the domestic fuel and energy complex froze any deals with generating companies until the end of the year. On the one hand, such a moratorium will keep foreign investors in the industry for a while. On the other hand, it will force the Europeans to give a full account of the already completed and future technological support for energy projects in our country.

First of all, the ban will affect the Italian Enel and the Finnish Fortum, which have already announced the sale of shares in their Russian assets. The first was going to part with a controlling stake in Enel Russia, which includes three district and two wind power plants. The second decided to get rid of an entire network of combined heat and power plants in the Urals and Western Siberia, several plants operating on renewable energy sources, as well as a blocking stake in TGC-1, which is the leading electricity producer in the North-West region of our country.

Both the Finns and the Italians have already identified buyers for their property. Moreover, Fortum will secure the consent of a pool of potential customers, and Enel has even entered into preliminary agreements with the future owners of generating enterprises. However, in accordance with a presidential decree banning foreigners from conducting any transactions with raw materials and energy assets in Russia without special government permission, the now practically agreed-upon deals were frozen.

“The emphasis of the authorities on the preservation of the assets of foreign companies in our country, especially in strategic energy facilities, was made for a reason,” says Sergey Suverov, investment strategist of Arikapital Management Company. – The West has recently been actively confiscating Russian property in its jurisdiction. For Moscow, it is quite reasonable to keep a number of European assets under its control in order to strike back an adequate blow if the opportunity arises.” In addition, there are financial circumstances that prevent foreign companies from promptly selling generating enterprises. In particular, according to industry sources, the main condition for the sale of Fortum shares is the repayment of a large debt to the Finnish parent holding by the end of the year. It is possible that the issue of settlement of these obligations directly affected the postponement of the transaction.

However, the wholesale withdrawal of Western investors from the Russian fuel and energy complex may turn into other long-term and rather painful troubles. According to the head of the analytical department of AMarkets Artem Deev, Enel and Fortum not only provided Russia with access to advanced technologies in the field of electric power industry, but also supplied components and specialists, but also engaged in maintenance of ultra-modern equipment. “Now in our fuel and energy complex there are serious technological risks, since the domestic energy sector mainly uses imported installations and units: more than 20% of steam turbines, almost 50% of transformers and almost the entire fleet of gas turbines come from abroad. When Western companies leave Russia and sanctions restrict supplies, the sector’s technogenic sustainability is gradually being disrupted. The Ministry of Economic Development plans to fully replace imports in some areas of the energy sector only by 2030. The ban on the exit of foreign capital is a measure to prevent a collapse in the domestic energy sector in the near future, ”the expert notes.

Moreover, failures in the full supply of electricity threaten to adversely affect the balanced work of other important sectors of the economy and the consumer sector, including agriculture, mining of metals and hydrocarbons, and the production of finished products. “Saving shares for Western companies contributes to the use of developments to support and maintain equipment in the face of existing restrictions. Profits earned in Russia can be invested by foreigners in the creation of new capacities, which will be supported by legal obligations under existing agreements. Accordingly, it can be assumed that the period of the ban on the sale of Russian assets by Western owners will be extended after December 31, 2022, ”said Mark Goykhman, chief analyst at TeleTrade.

Published in the newspaper “Moskovsky Komsomolets” No. 28843 dated August 10, 2022

Newspaper headline:
The world did not converge like a wedge