Russian giants’ investment projects around the world are dying

29 August, 04:35 PM
Russian dictator Vladimir Putin and Turkish President Recep Tayyip Erdogan (Photo:Anadolu Agency)

Russian dictator Vladimir Putin and Turkish President Recep Tayyip Erdogan (Photo:Anadolu Agency)

Russian energy companies have invested billions of dollars in foreign assets, which made it possible to sell own raw materials and technologies. But after Russia’s invasion of Ukraine and the strengthening of sanctions, the situation has changed. Now these are not assets but liabilities.

Perhaps the most famous foreign investments of Russian energy giants that experienced economic difficulties after the full-scale invasion of Ukraine by the Russian army are the Nord Stream 1 and Nord Stream 2 gas pipelines. The first is far from working at full capacity. The second one has not started operating at all. A total of EUR 7.4 billion and EUR 9.5 billion were invested in them, respectively.

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But not only Russian gas monopoly Gazprom invested billions in foreign assets. NV Business has collected information about the facilities of Russian energy companies Rosneft, Lukoil and Rosatom that have experienced difficulties this year.

The biggest investment

The largest foreign investment in India, and indeed the largest Russian investment abroad, took place in 2017. In the presence of Russian dictator Vladimir Putin, Rosneft signed an agreement to buy 49% of the shares of an Indian oil company that later became known as Nayara Energy. It has a refinery, a seaport and a large network of gas stations.

Another 49% went to a consortium that is part of the Singapore trader Trafigura Group and the investment company UCP Investment Group, owned by Russian millionaire Ilya Sherbovich. But the media immediately assumed that Rosneft needed partners to reduce the risk of sanctions against its new asset – Trafigura paid thanks to a loan from Russian bank VTB, and UCP Investment Group has long-standing ties with Russian state businesses.

In total, the deal was valued at almost $11 billion, including a payment by Rosneft of $3.9 billion for its stake in the Indian company. Although the capitalization of Nayara Energy that year did not exceed $2.2 billion, Putin’s personal presence and the high price indicated the political importance of the project.

Nayara Energy again ended up on the pages of leading media after five years. As reported by the Reuters news agency, with reference to sources in the Indian company, many global oil traders and banks have stopped dealing with it. They are worried about possible derivative Western sanctions – while Nayara itself is not under sanctions, sanctions have been imposed on Rosneft, which has increased oil supplies to India since the Russian invasion of Ukraine.

Nayara Energy has increased its purchases of Russian oil thanks to a significant discount to market prices. This made it possible to achieve record profits in April-June. But it seems that was only a temporary gain.

This is because other producers and traders have almost all refused to sell raw materials to the Indian refiner, which controls 8% of India’s oil refining capacity and is a Rosneft affiliate.

“It is becoming increasingly difficult for the company,” said one source.

There are also difficulties with financing activities due to fears of foreign and Indian banks to cooperate with a company whose partners include a sanctioned Russian business.

Nayara officially refutes such assumptions. But according to Reuters, some of its top management officials, including its chief financial officer, have left the company since Western nations began to impose sanctions on Russia.

Almost Finnish gas stations

After World War II, the assets of several oil companies in Finland were transferred to the Soviet Soyuznefteexport. In the 1960s, a company that would later be named Teboil attracted the attention of the Finnish government by starting to build gas stations with huge diesel fuel tanks. It happened in small villages with a few tractors. The Ministry of Defense of Finland then noted with concern that these stations were located near the border with the USSR and could be used, for example, by Soviet tanks during an invasion of Finland. Fortunately, it did not come to this. But the Teboil company is still owned by Russians.

It was reported in early June that the Shell gas station network in Russia would change its name. This was not surprising, because earlier the British-Dutch company withdrew from the Russian business, including retail. Russian oil and gas giant Lukoil, which has its own network of more than 5,000 gas stations, including more than 2,600 in Russia, became the buyer of the assets.

Russia’s Shell network had 411 gas stations in 28 cities across Russia. But for some reason, Lukoil decided not to integrate them into its structure. The Russian company announced these stations would operate under another foreign brand – the Finnish Teboil. Since 2005, it has been part of Lukoil and was purchased for $160 million from another Russian company, Neft Moscow. The Finnish retail network consists of about 430 points: service stations and automatic gas stations for private and commercial vehicles. That is, after changing the name of Russian gas stations, the Teboil network will double in size.

However, it is possible that the brand may soon become purely Russian. Teboil’s sales have been falling in Finland since the beginning of the war. Back in March, the Ministry of Finance allowed state and municipal enterprises and departments not to buy fuel in this network. Although it is this network that has a contract with the state-owned company Hansel, which conducts procurement. The Ministry of Finance recommended that future announcements of tenders conducted by state institutions include a supplier statement that he or his owners are not included in EU sanctions lists.

The reality turned out to be even worse. In June, the Finnish mass media reported that sales at the Teboil gas stations fell by almost a third due to a boycott by private consumers and entrepreneurs. The company does not comment on this information. But several large consumers announced in July and August the suspension of cooperation with the Finnish branch of Lukoil.

Last year, Teboil’s share in the Finnish market of light petroleum products reached almost 30%. The company’s annual revenue amounted to EUR 2.16 billion in 2021.

Peaceful atom as a political weapon

At the same time, another confrontation is unfolding in Finland’s energy sector. It was reported in late August about the lawsuits exchanged between Fennovoima (Finland) and Raos Project (a subsidiary of the Russian Rosatom). The cases concern the construction of the Finnish Hanhikivi 1 nuclear power plant, which was carried out by these companies. The Finns demand EUR 2 billion from the Russians, including an EUR 800 million advance payment, while the Russians demand EUR 3 billion in damages from the Finns.

The contract for the construction of a new nuclear power plant in Finland was signed in 2013. But Rosatom constantly missed the deadlines for commissioning the facility. Initially, it was planned for launch in 2024. However, it was reported this year that the project would be completed only in 2029.

However, Fennovoima terminated the supplier contract with Rosatom in April. On May 24, the company withdrew its application for obtaining a permit for the construction of a nuclear plant. The Finnish company’s management explained such move by non-fulfillment of contractual conditions, and not by Russia’s invasion of Ukraine. However, they noted that the consequences of the invasion could impair the Russian company’s capabilities.

Rosatom is one of the largest exporters of Russian technology. Last summer, the Russian media reported that the company was building 35 new nuclear power plants in 12 countries outside Russia, including in China, Turkey, India, Egypt, Hungary, etc. The portfolio of foreign orders for the next 10 years was estimated at $140 billion.

But cooperation in the field of nuclear energy has recently had more than a tinge of scandal. In April 2021, the Czech Republic forbade Rosatom from taking part in a tender for the construction of a new reactor at the Dukovany Nuclear Power Plant worth EUR 6 billion. The reason was Russia’s involvement in the 2014 explosions at military warehouses in Vrbětice, the Czech Republic.

The construction of the Akkuyu Nuclear Power Plant in Turkey worth $22 billion faced difficulties this year. In late July, construction operator Akkuyu Nukleer AS, which is controlled by Rosatom, suddenly changed the general contractor. The Turkish IC Ictas was replaced by Russian-controlled TSM Enerji.

The Turkish contractor called such actions illegal and promised to file lawsuits in the courts of the UK and Turkey. It became known in mid-August that the construction of the nuclear plant had actually stopped.

It is noteworthy that this nuclear plant should become the first project in the world nuclear energy, which is built according to the BOO (Build – Own – Operate) principle. Rosatom’s structures own almost 100% of the operator’s shares.

It is also notable that during the construction of a new nuclear power plant in Egypt, which Rosatom began this summer, Korea Hydro & Nuclear Power Co. (South Korea) became a supplier of equipment worth $2.2 billion. It is part of another Korean energy company, KEPCO, which is actually Rosatom’s global competitor in nuclear power plant construction.

Despite the events in Finland, the Czech Republic and Turkey, the Russian nuclear monopoly (which has not yet been sanctioned) still has reasons to rejoice.

The Hungarian Atomic Energy Authority on Aug. 25 issued a permit to Rosatom for the construction of the Paks II Nuclear Power Plant.

Earlier Hungarian Foreign Minister Péter Szijártó said he expects the construction to be completed by 2030. But a lot can change during this time. Sanctions against Russia and its economy only increase every day. Therefore, this project has every chance to die unborn.

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