The phone was picked up in Washington – Newspaper Kommersant No. 64 (7509) dated 04/13/2023

The largest Russian companies that fell under new US sanctions on April 12 were MegaFon and Metalloinvest, controlled by Alisher Usmanov. A number of mitigating exceptions have been made for the mobile operator. With respect to the iron ore holding, the restrictions look standard, however, like most other Russian producers of raw materials, it began the transformation of its business towards friendly markets last year.

The next round of US sanctions against Russia significantly expanded the SDN list, which included a number of citizens and companies. To a large extent, the new restrictions affected the assets of Alisher Usmanov. The businessman himself was blacklisted a year ago, but then a general license was issued for the companies controlled by him, which removed them from sanctions. Now it has been canceled, most of the assets are included in the SDN list, but again with a number of significant clarifications stipulated by the new licenses. Also on the list were managers of enterprises, partners and relatives of Mr. Usmanov.

“We consider the restrictions imposed by the United States against the USM holding, its subsidiaries, their management, as well as Alisher Usmanov’s relatives and other shareholders as unfair and unreasonable,” the USM statement says. “Alisher Usmanov has not been engaged in entrepreneurial activity for a long time, owns less than 50 % and does not participate in its management. Separately, we emphasize that the inclusion of relatives in the lists is an immoral practice, reminiscent of taking hostages.” The holding promises to challenge the restrictions “as illegal.”

Megafon will call you again

Among the largest holdings included in the SDN list are— “Megaphone”. It is the first Russian mobile operator to be blacklisted, although there were already export restrictions on technology companies. MegaFon considers the inclusion in the US sanctions list “an unfair and illegal step that has no basis.” “We are a commercial company providing services of high social value to millions of customers. We intend to challenge the restrictions by all available means,” they stressed there.

At the same time, a number of exceptions have been introduced with respect to MegaFon that mitigate the situation. As with a number of other assets, the Office of Foreign Assets Control (OFAC) has given a deadline for curtailing operations with MegaFon and entities controlled by it until July 11. But there is also a separate general license, under which American companies can supply goods and provide services to MegaFon and Digital Invest LLC related to telecommunications in Uzbekistan and Tajikistan.

The American regulator has already issued general license No. 25, covering the same volume of transactions, “but it is valid only on the territory of Russia and does not apply to transactions carried out by sanctioned persons abroad,” says Kira Vinokurova, special adviser on sanctions issues at KAK Pen & Paper. She added that both licenses allow individuals to purchase software and technology.

“A year ago there was euphoria in connection with the announcement of exemptions for the supply of telecom solutions to Russian players in order to maintain the “human right to access to information”. Many expected the resumption of deliveries of Nokia, Ericsson, but in vain,” says Alexander Sivolobov, Deputy Head of the Skoltech-based NTI Competence Center for Wireless Communications and the Internet of Things.

OFAC issued the license to avoid accusations of creating excessive restrictions, says Sergey Glandin, partner at NSP law firm. Also, according to him, the license allowed “not to spoil relations with Tajikistan and Uzbekistan.”

Telephone service providers in the case of working with MegaFon will determine whether they are considered “services for communications over the Internet” based on their own policy, the lawyer added. The change of ownership could release the operator from sanctions, as happened, for example, with Rusal, Alexander Sivolobov notes: “But it is worth noting that even in this case there are no guarantees of protection against future restrictions.”

Earlier, in January, it became known that Rostelecom was negotiating the acquisition of MegaFon from USM Group, but, according to Kommersant, other investors, including non-core ones, were also interested in the asset (see “Kommersant” dated January 30). USM itself at the same time began restructuring its telecommunications assets.

New sanctions may block, for example, the operator’s membership in international associations, adds Mr. Sivolobov: “However, we really hope that roaming will not suffer.” Kommersant’s interlocutor on the market, on the contrary, believes that the company’s inclusion in the SDN list threatens it with the loss of direct roaming agreements with foreign operators.

“International agreements on terminating traffic are constantly changing and being terminated, payment is made for the amount of traffic or voice minutes, often operators make mutual settlements for roaming subscribers,” explains the interlocutor of Kommersant. In his opinion, in the event of a break in the agreements, MegaFon “most likely will find intermediaries, but they will take a commission,” which may affect the tariffs. Finam senior investment consultant Timur Nigmatullin confirms that roaming can be implemented through intermediaries.

Iron ore and copper pipes

The United States has entered the SDN-list of Russia’s largest producer of iron ore and pellets Metalloinvestas well as its key assets – Lebedinsky and Mikhailovsky GOKsfactory in UAE Hamriyah Steel. Sanctioned included “Udokan Copper”, USM Gold and her asset Fedorovskoye, on whose balance sheet there is a license for exploration for a gold ore area in the Kemerovo region and Askizsky district of Khakassia. Also on the list are CEO of Metalloinvest Nazim Efendiev.

Udokan Copper is the operator of the large deposit of the same name with resources of 26.7 million tons of copper, but is not yet mining. The launch of the first stage is planned for the end of the third quarter. Metalloinvest does not export products to the US, but has historically supplied significant volumes to Europe (the region accounted for 37% of shipments in 2021).

In 2022, the holding has already faced logistical problems when organizing shipments to European countries, although there were no direct sanctions against the company. Due to the loss of transit through Ukraine, the company then had two logistics options – through the ports of the North-West or Novorossiysk, Nazim Efendiev said in June 2022.

According to the results of the first half of 2022, Metalloinvest reduced its revenue from Europe by 13%, to 103 billion rubles. (30% of the company’s income).

We will be able to see the full impact of the sanctions on Metalloinvest’s business after some time, notes Ilya Kolomeets, director of business development and consulting practice at Metals & Mining Intelligence. He explains that since February 2022, the company has “already changed enough.” “Firstly, deliveries to the domestic market have increased,” the expert clarifies. “Secondly, the export portfolio has changed: it has decreased and shifted towards Asian customers.”

As a result, according to Mr. Kolomeets, Metalloinvest will take further steps to develop the domestic market, will rely on the construction of deep-water terminals in ports, and the holding’s Asian clients “will be able to insist on discounts.”

Products with a high iron content are in demand in China, adds Boris Krasnozhenov from Alfa Bank. When redirecting volumes to China, the company will certainly face an increase in transportation costs, he specified: “However, at the current level of prices and production costs, Metalloinvest can ship through the terminal in the port of Ust-Luga, the ports of the Far East and border crossings on the border with China “. According to the expert, in the future it is necessary to develop transshipment facilities for iron ore in the port of Taman.

Dmitry Pozin, a partner in corporate practice at Stonebridge Legal, says that companies located outside the United States and not doing business there “are not required to comply with the sanctions imposed against Metalloinvest.” “Nevertheless, in practice, many non-US and non-European companies voluntarily comply with US and EU restrictions, avoiding interaction with sanctioned individuals and companies so as not to be sanctioned themselves,” the lawyer says.

Ekaterina Makeeva, partner and head of sanctions practice at AB A-PRO, agrees with this: “It’s not just about direct sanctions bans. A friendly foreign business may face a choice: the US market and investment or the purchase of Russian raw materials.

Another major USM asset that fell under the sanctions was “Ackermann cement”. It owns three plants with a total capacity of 7.3 million tons of cement per year in Novotroitsk, Gornozavodsk (Perm Territory) and Akhangaran (Uzbekistan). The Russian enterprises of Ackermann Cement, like other companies in the industry, produce almost all products for the domestic market, an insignificant part is exported and mainly to the EAEU countries. The holding also received a license to complete transactions.

Ackermann Cement could not be reached for comment. The general license, notes a Kommersant source on the market, could be required for the purchase of filters or equipment. According to him, “the entire cement industry depends on the supply of basic equipment from the US and the EU, and it is also being repaired there.” Just the filters mainly come from the USA, until the spring of 2022, they accounted for more than 40% of all purchases of foreign-made filters by cement companies in the Russian Federation.

Yuri Litvinenko, Yulia Yurasova, Yulia Tishina, Tatiana Isakova, Ekaterina Volkova, Evgeny Zainullin, Khalil Aminov