Why did Putin introduce external management of energy assets of Fortum and Uniper Vladimir Putin

introduced external management of the Russian assets of the largest European investors in the electric power industry - the German Uniper and the Finnish Fortum. RBC figured out

On Tuesday, April 25, President Vladimir Putin signed a decree "On the temporary management of certain property", according to which RUSSIA can introduce external management of Russian assets of foreign investors as a response to the "unfriendly actions" of the United States and other states "joining them" to confiscate property of Russian companies abroad.

The list of such property in the document so far contains only two energy assets - the German state company Uniper (87.73% stake in the Russian company Unipro) and the Finnish state company Fortum (two stakes for 69.88 and 28.35% of the Russian Fortum, owned by Fortum Russia and Fortum Holding respectively). The Federal Property Management Agency has been appointed their interim manager. "If necessary," the list of enterprises under external control can be expanded, the press service of this department said.

Already on April 26, the Board of Directors of Fortum, at the request of the Federal Property Management Agency, dismissed Alexander Chuvaev, who had headed the company since 2009, and appointed Vyacheslav Kozhevnikov as CEO, who since November 2019 held the position of Deputy Chief Engineer - Chief Power Engineer of Bashneft-Dobycha , controlled by the "daughter" of "Rosneft" - "Bashneft". Vasily Nikonov, who has been in charge of the energy department at Rosneft since 2012, has become the acting CEO of Unipro, according to the Unified State Register of Legal Entities.

Fortum has no information about the fate of the Russian business, the press service of the parent company said. “We are investigating and clarifying this matter in every possible way. We are assessing the situation and will let you know when we have more information. Uniper is also studying the "legal situation" in connection with the issuance of Putin's decree, the company said in a statement. RBC sent inquiries to representatives of the Federal Property Management Agency and Rosneft.

Why Fortum and Uniper were the first to come under external control

The purpose of Putin's decree is to form a "compensation fund" to respond to the illegal expropriation of Russian assets abroad, said presidential spokesman Dmitry Peskov . Due to US, EU and other sanctions, Russia has lost access to almost half of its gold and foreign exchange reserves, worth about $300 billion.

When asked why the assets of Fortum and Uniper were first on the list, Peskov replied: “The decree is a response to the aggressive actions of unfriendly countries, which are aimed at creating a regulatory framework for the actual seizure of assets of Russian companies abroad.” According to him, the decree "reflects the attitude of Western governments towards foreign assets of Russian companies." Thus, the spokesman continued, in a number of countries "there is a systematic transition from temporary administration to actual confiscation." In the event of the seizure of frozen assets, Russia will act on the principle of "an eye for an eye", warned Deputy Chairman of the Security Council Dmitry Medvedev , speaking on April 25 at the Knowledge marathon.

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In June 2022, the German government decided to take Gazprom Germania GmbH into external management, gaining control over the trading structures and underground storage facilities (UGS) previously owned by Gazprom. In September, the German authorities transferred 54.17% of the Schwedt refinery and minority stakes in two more refineries owned by Rosneft to the state-owned Federal Network Agency. The company contested this decision, but the COURT rejected its claim. On April 20, 2023, the Bundestag amended the law on energy security, which allows the sale of a controlling stake in the refinery in Schwedt without nationalization.

Last fall, the German government decided to invest more than €8bn in Uniper, which has run into difficulties amid a reduction in gas supplies from Russia, and buy Fortum's stake in this company (previously the Finnish state company controlled Uniper).

Finland, unlike Germany, did not introduce external management of Russian assets, but the customer for the construction of the Hanhikivi-1 nuclear power plant, the Finnish Fennovoima (34% owned by Rosatom), last spring unilaterally terminated the contract for the project with the Russian state corporation. As part of the arbitration proceedings, the companies put forward claims to each other for billions of euros: Fennovoima for about €2 billion, Rosatom for €3 billion.

What are the assets of Fortum and Uniper in Russia

Uniper and Fortum are among the largest foreign investors in the Russian power industry. Uniper controls 87.73% of Unipro, which owns five thermal power plants in Russia: Surgutskaya GRES-2, Berezovskaya GRES, Shaturskaya GRES, Smolenskaya GRES and Yaivinskaya GRES. The company employs more than 4 thousand people. Unipro's revenue in 2022 according to IFRS increased by 20%, to 105.8 billion rubles, net profit - 2.6 times, to 21.27 billion rubles.

Fortum owns 98.23% of Fortum (formerly TGK-10), which operates seven CHP plants in the Chelyabinsk and Tyumen regions, and about 30% of PJSC TGK-1, which generates electricity and heat in northwestern Russia. Fortum, which employs more than 3,000 people, is also a major investor in renewable energy in Russia: the company's portfolio includes a wind farm in the Ulyanovsk region and three solar power plants located in the Orenburg region and Bashkiria. Fortum's revenue under IFRS in 2022 increased by 6%, to 83.6 billion rubles, net profit decreased by 19.3%, to 12.5 billion rubles.

Temporary management is introduced "pointwise" in relation to the generating assets of Fortum and Unipro, "which are of paramount importance for the stable functioning of the Russian energy sector," the press service of the Federal Property Management Agency said. This will “ensure the uninterrupted operation of companies significant for the national economy and eliminate the risks of the influence of the political position of a number of unfriendly countries” on the security of Russia.

The assets of Fortum and Uniper in Russia were the first to fall under temporary management, most likely due to the fact that they operate in one of the most strategic industries, and energy security is extremely important, confirms Sergey Pikin, DIRECTOR of the Energy Development Fund . Until now, both Western investors, who announced plans to leave the Russian market last spring, were not ready to go for significant discounts when selling assets, unlike, for example, the Italian Enel, which in June agreed to sell Enel Russia for € 137 million (the company estimated the losses from the transaction in the amount of €527 million), recalls Pikin.

How Uniper and Fortum prepared to sell assets in Russia

On April 26, the Uniper press service stated that the company had decided in the summer of 2021 to sell a controlling stake in Unipro and informed the Russian authorities about this in the fall of the same year. In the spring of 2022, after the start of Russia's special operation in Ukraine , Uniper, like many other Western investors, decided to suspend investmentsinto a Russian subsidiary and resumed negotiations on the sale of Unipro. In September 2022, a contract was signed with a Russian buyer, but the company has not yet received permission for the deal, the press service of the German company clarified. The conclusion of the deal was complicated by Putin's decree, which prohibited "unfriendly" shareholders until December 31, 2022, from buying and selling shares in strategic enterprises, including in the energy sector. At the end of last year, Uniper classified assets in Russia into the category of "discontinued operations" due to the loss of the ability to make decisions and manage Unipro, it said in a report.

In May 2022, Fortum also announced plans to leave the Russian market, but so far has not been able to do so. The company continues the process of exiting Russia, observes interest in its assets not only in Russia, but also in other countries, its top manager said during the annual meeting of shareholders on April 13, 2023. “The deal will happen, but when exactly, I can’t say yet,” said then the HEAD of the company, Markus Rauramo. In a report on the results of 2022, the Finnish company noted that in the current geopolitical situation, there is a risk that the sale of business in Russia will not take place or will be seriously postponed. The company also cited "the risk of undervalued sales or, in the extreme case, expropriation of assets."

What does external management mean?

The interim manager, who has the right to change the heads of companies, is endowed with broad powers, but cannot dispose of property, Putin's decree says. The Federal Property Management Agency emphasizes that the document does not deal with property issues and does not deprive the owners of their assets. “External management is temporary and means that the original owner no longer has the right to make management decisions. The external manager receives powers that allow him to ensure the efficiency of enterprises in accordance with their importance for the Russian economy, ”they added.

Management can be multi-year or even indefinite, Pikin argues. The decree does not set any deadlines for interim management: it can exist for an unlimited period and can only be canceled by a decision of the president, confirms Victoria Bortkiewicza, managing partner of the law firm Better Chance. It is not at all necessary that management will end with the sale of these assets in the near future, although, of course, the issuance of a decree will be an additional incentive for the current owners to try to sell them, Pikin notes. Plus, no one bothers to move on to the nationalization of these assets in the future, if the foreign policy situation worsens, he warns. Peskov did not answer the question of journalists whether foreigners would be able to sell their Russian subsidiaries: “I would leave this question unanswered at the moment. The decision is still made by the external manager.”

The institute of interim management is not regulated in the legislation, says Stanislav Petrov, lawyer, partner of Infralex: The Federal Property Management Agency receives the authority to ensure the safety of foreign shares in case of actions to seize Russian assets abroad, but the decree does not give a clear answer to whether the department has the right receive dividends from shares transferred to temporary management and turn them into state revenue (now dividends to non-residents can be transferred to type C accounts, without the right to withdraw abroad). The document contains only a provision on reimbursement of expenses for temporary management at the expense of income from the use of property. “The decree does not clarify the fate of the remaining income,” the lawyer concludes. The head of the Moscow Bar Association "Nikolaev and Partners" Yuri Nikolaev suggests that

According to the decree, not only the Federal Property Management Agency, but also another organization can be appointed as a temporary asset manager for foreigners. Such assets can be transferred to the management of specialized local players, said the head of VTB Andrei Kostin in an interview with the Rossiya 24 TV channel on April 24. “The Finns are not very friendly now, they have a big company, Fortum, for example. They value it in billions of dollars, and there are a lot of people who want to buy it abroad, even in Russia. And why, for example, not to take control? Give, I don't know, Inter RAO or some specialized management company. Let them manage and pay the state money for this, ”he suggested.

Inter RAO, whose largest shareholder Rosneftegaz (owns 27.63%), would be the most logical candidate to manage the assets of both Fortum and Uniper, Pikin agrees. This company has already announced plans to create a full-fledged energy holding at all stages from engineering to the production and sale of electricity and heat, this is an investor with similar assets that is understandable for the state, he explains. But, according to the expert, for Inter RAO direct management may result in sanctions risks, so the holding will distance itself from this, but it is enough to appoint trusted people from the state to manage the companies. The representative of Inter RAO declined to comment.