EU Drafts Plan for Buying Russian Gas Without Breaking Sanctions

eu-drafts-plan-for-buying-russian-gas-without-breaking-sanctions

(Bloomberg) — The European Union is set to offer its gas importers a solution to avoid a breach of sanctions when buying fuel from Russia and still effectively satisfy President Vladimir Putin’s demands over payment in rubles.

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In new guidance on gas payments, the European Commission plans to say that companies should make a clear statement that they consider their obligations fulfilled once they pay in euros or dollars, in line with existing contracts, according to people familiar with the matter. The EU’s executive arm told the governments that the guidance does not prevent companies from opening an account at Gazprombank and will allow them to purchase gas in accordance with EU sanctions following Russia’s invasion of Ukraine, the people added.

European companies have been scrambling for weeks to figure out how they can meet Moscow’s demand and keep the crucial gas flowing without violating sanctions on Russia’s central bank. Putin said on March 31 that if payments aren’t made in rubles, gas exports would be halted. Europe depends heavily on the Russian fuel to heat homes and power industry.

Initially, the EU had assessed that the payment mechanism demanded by Putin handed Moscow total control of the process, breached contracts and — crucially — violated the bloc’s sanctions.

On Friday, the commission told member states in a closed-door meeting that the updated guidance will clarify that companies can open an account in euros or dollars at Gazprombank as ordered by the Kremlin, according to the people, who asked not to be identified because the meeting was private.

But the EU’s executive arm stopped short of saying whether also having an account in rubles — a step included in the Russian decree — was in line with EU regulations. Previously, officials had indicated, though never in writing, that opening such an account would breach sanctions. The updated guidance, as presented to member states, fails to address this specific point, the people said.

Another key point in the guidance is that once European companies make a payment in euros or dollars and declare their obligation complete, no further action should be required of them from the Russian side in regard to the payment.

The clock is ticking because many firms have payment deadlines falling due later this month — and if they don’t pay, gas flows could be cut off. Poland and Bulgaria already saw their supplies cut after failing to comply with Russia’s requests.

Putin’s demands to pay in rubles have divided EU member states, highlighting the dependence of some nations on Russian imports. Italian Prime Minister Mario Draghi said earlier this week European companies will be able to pay for gas in rubles without breaching sanctions.

At the Friday meeting, government representatives were split too, according to one of the people. While Germany, Hungary, Italy and France broadly endorsed the commission’s plan, Poland said it failed to offer legal clarity and called for the matter to be discussed by EU ambassadors. Others were confused by the lack of specific guidance on opening accounts in rubles.

Germany said at the meeting that it consulted its companies on the proposal and got positive feedback, the person added. It also sought to fine-tune the recommendations by clarifying that EU sanctions don’t prohibit opening multiple accounts at Gazprombank.

The commission declined to comment on the revised guidance.

Individual member states are ultimately responsible for enforcing EU sanctions, but the commission provides legal guidance.

Putin’s decree called for companies to open two accounts with Gazprombank — one in euros and one in rubles — and stipulated that gas payments aren’t settled until euros are converted into rubles.

Russia clarified its decree earlier this month, stating that payments received in foreign currency would be exchanged to rubles via accounts with Russia’s National Clearing Center, and Gazprom provided buyers with additional assurances that the central bank would not be involved in the conversion process.

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