After Russia shipped four Siemens gas turbines in July to Kremlin-occupied Crimea, where such trade is banned by the West, the Munich, Germany-based global engineering giant claimed it had been deceived.
It launched a lawsuit in Moscow against TechnoPromExport, the Russian company that bought the machines.
But amid the scandal, experts claimed Siemens’ outrage might just be a sham — a way to ward off being held to account for breaking international sanctions imposed on Russia in 2014 following the Kremlin’s invasion and annexation of Ukraine’s Crimea.
Siemens said it would reconsider all of its contracts in Russia after turbines it sold in 2015 for a power station on the Taman Peninsula in southern Russia, just across the Kerch Strait from Crimea, were instead sent to Crimea. Siemens said this was a blatant breach of its delivery contracts, trust and European Union regulations.
However, energy expert Mykhailo Gonchar, president of the Centre for Global Studies Strategy XXI, told the Kyiv Post on Sept. 25 that Russia’s intention to send the Siemens turbines to Crimea was known in 2015.
Indeed, Russian newspaper Vedomosti reported on June 30, 2015, that Siemens Gas Turbine Technologies LLC, a St. Petersburg branch, would provide the gas turbines for a new power station in Crimea, using the alleged new power station in Taman as a smokescreen.
Getting away with it?
“Both sides were involved and must bear responsibility for this delivery. For now, only the Russian side has been formally punished,” Gonchar said, referring to a European Commission decision in August to sanction three Russian individuals and three companies involved in the delivery of the turbines to Crimea.
If the commission found no grounds to punish Siemens, that would be a signal to many other companies seeking to evade economic sanctions against Russia, Gonchar said.
“They’re all waiting. If Siemens gets away with it, they’ll see that you can always keep trading with Russian officials or companies on the sanctions list, and if you’re busted, just put all the blame on the Russians,” Gonchar said.
However, German Ambassador to Ukraine Ernst Reichel told the Kyiv Post on Sept. 25 that it was not fair to consider the Siemens case as proof that the international sanctions policy is flawed.
Reichel said that sanctions are clearly defined in scope and forbid doing business in certain restricted areas, such as Crimea.
“It’s not a question of whether the government approves or likes what a company does — that is their decision, that is the way the free market economy works,” Reichel said with respect to trade in unsanctioned areas of Russia.
“As for Siemens and this particular deal with the turbines: Siemens had it expressly written in the contract that it signed with the Russian company that the turbines were not to be transferred to Crimea,” he said. Siemens was “cheated… They’ve learned their lesson from this, and they’ve reduced their business engagement in Russia following this incident.”
The ambassador said he is not worried other companies will follow the example of Siemens, as the company “has taken tremendous damage from this story, and they’re upset about it.”
Siemens reacts
Meanwhile, in September, Moscow Arbitrage Court postponed its hearings of the Siemens case for a third time, until Oct. 16, at the request of TechnoPromExport.
Wolfram Trost, a Siemens spokesman, told the Kyiv Post by e-mail on Sept. 22 that after Siemens discovered that the turbines it built for the Taman power station had been modified in Russia for use in a power station in Crimea, the German company took four decisive steps in response.
According to Trost, Siemens will fully divest its minority interest in the Russian company Interautomatika, which offers products and services for power plants. Siemens has also started to cancel agreements with Russian companies that build Siemens power station equipment under license.
“Siemens will also halt power generation equipment deliveries under existing contracts to state-controlled customers in Russia for the time being,” Trost wrote. “In the meantime, Siemens is implementing an additional control regime that by far exceeds legal requirements.”
The controls are intended to ensure that Siemens’ future deliveries to Russia will only be dispatched after the company gets confirmation that the equipment will be installed only at the final, contractually-agreed destination, Trost wrote.
Siemens has also started an internal investigation into all of its units and relevant partners in Russia, and will review all potential collaboration between its subsidiaries and other entities around the world with regard to deliveries to Russia, Trost wrote.
Only business
Although Siemens touts itself as a reliable partner to all customers, the company seems to have favorites — Russian state-owned company Gazprom in particular, Gonchar said.
“Siemens is a long-term partner of Gazprom, working on the Nord Stream undersea gas pipeline and various other projects,” Gonchar said,
Gazprom’s official website reads that in 2015, during a meeting in St, Petersburg, Gazprom chairman Alexey Miller and Siemens CEO Joe Kaesar discussed prospects for cooperation — in particular, the procurement of equipment and technology for the Nord Stream 2 pipeline, the second stage of the Nord Stream project. Together, when Nord Stream 2 is completed in 2019, the twin pipelines will have the capacity to transport 110 billion cubic meters of natural gas — about the same capacity as Ukraine’s pipelines that will be bypassed.
Russian Gazprom board member Alexey Miller (L) and Siemens AG CEO Joe Kaeser (R) speak during a meeting at the St. Petersburg Economic Forum in 2016. (Gazprom)
Gonchar said Siemens had picked a side in the Ukraine-Russia gas conflict long ago.
Back in 2013, Siemens canceled a deal to supply equipment needed to modernize the Ukrainian gas transportation system due to fears it might lose contracts in Russia, Andriy Kobolev, the head of the Ukrainian state-owned gas company Naftogaz of Ukraine, said at the annual Yalta European Strategy summit in Kyiv on Sept. 15.
Naftogaz’s press service told the Kyiv Post on Sept. 25 that in 2013 Ukrtransgaz, the subsidiary of Naftogaz that runs the gas transit pipeline network, signed a contract on April 29, 2013, with Germany’s FerroStaal Indusrieanlagen GmbH for the modernization of the Bar compressor station in Vinnytsya Oblast. The modernization was to have included the supply of Siemens turbines.
But four months after the contract was signed, FerroStaal informed Ukrtransgaz that Siemens had refused to supply turbines for the project. As a result, Ukraine had to find another supplier, finally choosing turbines and software from U.S. company General Electric. The first part of the GE software arrived in Ukraine early in September. Ukrtransgaz expects the modernization to be completed by 2018.
Asked if Siemens had refused to supply turbines to Ukraine in 2013 because of its business considerations in Russia, Trost said only: “We looked into these allegations and can tell you that we have no indication from our own service division that this is the case.”
Investigate or not?
Reichel said he was not aware if a criminal investigation of Siemens is under way by German law enforcement.
But U. S. newspaper The Wall Street Journal reported in July that the German government had in fact called Siemens officials in for questioning over how their turbines got to Crimea.
“I’m not sure Germany or Europe is going to investigate and fine Siemens, but the U.S. might,” Gonchar said. “They’ve already done that with the other German company that violated the sanctions — Deutsche Bank.”
In January, U.S. and U.K. authorities fined Deutsche Bank $630 million for using its offices in Moscow and London to move $10 billion out of the U.K.
America has fined Siemens before. In 2008, the U. S. Securities and Exchange Commission accused the German manufacturer of violating the Foreign Corrupt Practices Act by systematically paying bribes to foreign government officials to obtain business. The SEC alleged that Siemens had paid bribes in Venezuela, Israel, Mexico, Bangladesh, Argentina, Vietnam, China, and Russia.
According to the SEC, Siemens also paid kickbacks to Iraqi ministries in connection with sales of power stations and equipment to Iraq under the United Nations Oil for Food Program, and earned more than $1.1 billion in profits on these and several other transactions.
At that time Siemens agreed to pay $350 million to settle the SEC’s charges, and paid a $450 million fine to the U. S. Department of Justice to avoid prosecution.
