Siemens: turbine in the Crimea imported Russian partner

Representatives of one of the largest German companies said Monday that the company unwittingly became a pawn in the scheme to evade sanctions imposed against Russia, and the removal of the actual blockade of the supply of electricity on the territory of annexed Crimea.

According to representatives of Siemens, the giant of the group, located in Munich and working in the field of engineering and electronics, Russian client illegally sent two turbines for the power plant in the Crimea instead of to take them to their destination on the South of Russia. Change of address delivery of the turbines was a violation that, according to the statement Siemens is an agreement not to violate the sanctions regime imposed by the international community after the annexation by Russia in 2014 the territory of Ukraine.

The incident is fraught with the deterioration of relations between the two countries a few days after the controversial meeting of world leaders, which in Hamburg was organized by the German Chancellor Angela Merkel. This Congress was attended by President of Russia Vladimir Putin. Russian customer specified Siemens — “Technopromexport” — has close ties with the Kremlin.

This incident also shows how energy has become a weapon in the ongoing struggle between Russia and Ukraine, which was the main source of electricity supply in Crimea before the conflict. Moscow, apparently, works so desperately trying to solve the problem of acute shortage of electricity that are willing to take the risk and provoke tension in the relations with Germany.

“Relations between Russia and the EU are already not in the best condition. To a large extent this is due to the fact that there is currently no way to soften EU sanctions, said Mujtaba Rahman (Mujtaba Rahman), head of the European division of the group, Eurasia Group, operating in the field of political consulting. — From this point of view, the incident will be seen as a provocative act on the part of Russia and will lead to a further deterioration of relations between Berlin and Moscow.”

The scandal also will not encourage foreign investment or to restore the reputation of Russia — the country in which agreements are often ignored, property is subject to unjustified arrest, and in which almost no remedy.

For Russia, Siemens is one of the most reliable foreign investors. It operates in the country since Czarist times, and usually tries to avoid statements that could cause irritation of the Russian authorities.

But, leaving any hints of diplomacy, Siemens announced that it intends to start in Russia, criminal and civil proceedings against those who are guilty, according to representatives of the company, is the fraudulent export of the turbines. This is an unusually sharp statement was made on Monday after reports of violations of the sanctions regime from “sources”, which the company called “reliable”.

Siemens also said its Russian client lied to her. According to representatives Siemens, Technopromexport has repeatedly assured the company that in the Crimea the turbine will not be sent.

As said on Monday the press Secretary of the Kremlin Dmitry Peskov, the turbine was made in Russia from Russian components, that is, the sanctions do not apply to them. According to a statement from Siemens, the turbines were manufactured in Russia together with the Russian partner. But, in accordance with the contract, they are subject to sanctions restrictions.

“This incident is a clear violation of agreements on the supply of Siemens, which clearly and unequivocally States that our client does not have the right to supply in Crimea”, — said the representatives of the company Siemens.

Despite the fact that Russia is suffering losses as a result of sanctions, a prolonged economic downturn in the country due to low oil prices. In Crimea the situation is different. The Peninsula is isolated and is the subject of a territorial dispute, is in a more strict regime, and supply of electricity are particularly politicized.

In 2015, Ukrainian nationalists blew up electric pylons, resulting in rolling blackouts. This put the Russian government in the difficult position of demonstrating their dependence on Ukraine to ensure smooth operation in virtually all spheres — including the movement of trolley buses and hospitals.

Russia quickly laid an underwater cable, but it is possible to ensure the needs of the region only partially. Then Ukraine tried to include their claims of sovereignty in the new agreement on the supply of electricity, thereby again hitting Russia for a living, reminding her of her inability to provide electricity Crimea.

Attempt to illegally import (in the Crimea) generators to bypass the sanctions is by far the most aggressive step by Russia towards solving the problem of electricity shortage.

Electricity is provided by noisy and inefficient diesel generators. But given the cost of fuel, they already cost the companies associated with the Kremlin, a lot of money. This increases the total cost of integration of the region in terms of sanctions.

International companies like Siemens may find it difficult to navigate the confusing restrictions existing in Russia. Its Russian partners have a strong incentive to curry favor with authorities, bypassing the rules. And the parent company has an equally powerful incentive to avoid penalties.

And in the conditions existing in Russia, complicated and confused the legal system there is no guarantee that rules will be respected.

The incident with the illegal transportation of turbines Siemens is one of the first of the cases of violations of the sanctions related to Ukraine. But in Russia and used to be a lot of examples of violation of the rules of local subsidiaries, which has caused a lot of concern to the parent companies.

For example, in 2010, German carmaker Daimler agreed to pay a fine of $ 185 million in exchange for refusal of the U.S. justice Department from criminal prosecution in connection with bribes and kickbacks that Daimler gave officials in several countries, including Russia. Russian office automaker was one of two who pleaded guilty in U.S. district court in Washington and during the ensuing investigation conducted by the State Commission on securities and stock market.

According to representatives of Siemens, the company produced turbines in Russia together with the Russian partner and sold them to the company “Tekhnopromexport” to install the power plant in Taman, a city on the Peninsula in the South of Russia, which is separated from Crimea by a small Strait.

According to the representative of Siemens, Technopromexport in writing agreed to supply turbines to the Crimea and to supply electricity generated by their use, annexed territory.

The European Union banned its companies to export to Crimea of equipment for infrastructure after the in 2014 Russia annexed Ukraine belonging to the Peninsula, taking action which has outraged the international community.

The German government will almost certainly be embroiled in this scandal because of the scale of Siemens and its importance to the economy of the country. The Ministry of economy declined to comment and said only that the German company responsible for the observance of the sanctions imposed against Russia.

The activities of Siemens in Russia began in 1850, when the company built a Telegraph network. But lately, sales in Russia fell due to economic problems in the country. Sales volume of Siemens in Russia last year amounted to 1.2 billion euros ($1.4 billion), which is two times less than in 2013.

The company is very sensitive to accusations of illegal actions. In 2008, she paid to the authorities of the US and Germany, more than 1.6 billion in fines, admitting that he had regularly given to foreign officials bribes to obtain contracts.

Siemens representatives said that management will review business activities in Russia with the aim to prevent other violations of the sanctions regime.