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October 13, 2022

Russia’s Fuel and Energy Sector Under Sanctions: Help or Hindrance?

KEY CONCLUSIONS

Sanctions have helped to find new development paths and led to the emergence of new effective administration of the law. 
“Whatever doesn’t kill us makes us stronger [...] The sanctions didn’t just appear today. They have always existed: the first wave came in 2014, when the oil industry was 60% dependent on imports, but now it is no more than 40%. In literally five years, it will be no more than 20%. We are solving the goals of import substitution bit by bit […] and this includes new jobs, new technologies, our domestic expertise in all areas of business, and new developments. In this regard, the sanctions are helping us become stronger,” said Pavel Zavalny, Chairman of the Russian State Duma’s Energy Committee and President of the Russian Gas Society.

“I view what’s happening now on our end as a very constructive approach with the preservation of the existing framework of the legal system. Targeting problematic aspects selectively prevents us from destroying the system as a whole. I firmly believe that whoever initiates such sanctions against our country is definitely moving towards the destruction of the system as a whole. We’ll see. Let’s wait and see,” said Daniil Krainsky, Deputy General Director for Legal Support at Rosseti. 

“We view this time as a time of opportunity and a time of development for ourselves,” said Svetlana Nikonova, First Deputy General Director for Development and Relations with the Regions and Government Agencies at Rusatom Infrastructure Solutions.

“In terms of positive aspects from the sanctions imposed on Russia and Russian individuals, I would highlight the emergence of new effective administration of law […] The entire energy sector has realized the need to protect the energy sovereignty of the Russian Federation,” said Zhanna Sedova, General Director of Enel Russia.

“A new concept of legal regulation is emerging, including in the fuel and energy sector, both at the national level and on foreign economic markets,” said Viktoria Romanova, Scientific Director of the Musin Research Centre for the Development of Energy Law and Modern Legal Science.

“Our primary goal is reliable energy supply,” Krainsky said.

PROBLEMS
Discrimination and the legalization of a policy of double standards
“In the West, we should expect unconventional legal approaches […] Russian business formally had enjoyed equal legal protection in any country. There was discrimination, but de facto, at the level of double standards. Now, discrimination occurs based on origin in terms of the inviolability of property and access to justice in these countries, and all this is already enshrined in law,” said Mikhail Galperin, Deputy General Director and Director of the Legal Department at Inter RAO.

Growing investment risks
“In 2022, the Russian economy had to deal with sanctions restrictions and the ensuing negative changes in the economy, which has led to serious risks for the investment process. This includes a serious rise in prices for building materials, construction and installation work, an increase in energy fuel prices, growth in costs and restricted access to commercial debt financing in the first half of 2022 due to changes in the key interest rate, and tariff and contractual liability for postponing the implementation of investment projects,” Nikonova said.

“Import substitution. Such a support measure as conserving the fleet life was more important for us. We understand that spare parts for imported combined-cycle plants are not available. There is no domestic manufacturing to produce analogues yet. And now we are asking for the conservation of the fleet life, and not all our stations can afford it,” Sedova said.

SOLUTIONS
Financial support for companies and the lifting of administrative barriers
“Companies need to have access to loans to ensure the security and reliability of supplies on the domestic market and ensure export supplies [...] Companies face the task of increasing their efficiency [...] in this regard, here’s what is important: all sorts of administrative barriers – something you could put up with before. Now you don’t have to put up with it. The lifting of various kinds of administrative barriers is what we are waiting for,” Zavalny said.

“We need to strengthen traditional legal values inside the country,” Galperin said.

Flexible approaches to regulating public-private partnership
“In such conditions, the main goal of legislative support for the investment process is to ensure the stability, assurance, predictability, and efficiency of public and private investments and a prompt response to risks [...] I believe it’s important to note one more decision – for parties in concession agreements to have the opportunity to agree on an increase in budgetary co-financing in existing concession agreements through the mechanism of a repeat state expert evaluation,” Nikonova said.

Support for the Russian judicial system
“The courts understand their role in protecting Russian business. They understand that companies that were previously controlled by foreign capital still perform a public law function, protect public interests, and are engaged in reliable uninterrupted power supply. And they have never forgotten about this [...] We are specifically defending our energy sovereignty and fighting technological aggression [...] I put my trust in the role of the courts, which, together with business entities, regulators, and law enforcement agencies, provide a single line of defence,” Sedova said.

For more, please visit the Roscongress Foundation’s Information and Analytical System roscongress.org and the official Forum website: rusenergyweek.com.