Russia seizes subsidiaries from Finland’s Fortum, and Germany’s Uniper

Kremlin creates compensation fund in response to the west’s “illegal expropriation” of Russian assets

The Kremlin took control of the Russian subsidiary of Finland’s Fortum, and Germany’s Uniper. It said that this was a reaction to western confiscations.

Dmitry Peskov – the spokesperson for President Vladimir Putin – told reporters Wednesday that the Kremlin wished to create a “compensation” fund to fight back against “the illegal confiscation of Russian assets overseas”.

Putin signed an order late Tuesday night to “protect Russian interests and property” by allowing “temporary controls” to be imposed by the state over assets of companies from nations deemed hostile by the Kremlin.

This move highlights the impasse faced by western firms in Russia after its invasion of Ukraine. It follows a series measures imposed by Moscow that restrict their exit.

Companies from “unfriendly countries” can only sell Russian assets at a maximum half of their value. They must also make a “voluntary donation” of between 5-10% of the sale price to Russia’s war fund. The government must approve all deals, and in the energy and finance sectors, Putin personally.

The decree, which allows Russian authorities to temporarily control the shares and property of “unfriendly” companies while retaining ownership of those assets is a defiance of the Kremlin.

Putin can only reverse the external control if he decides to do so.

“This is the beginning of a new phase in the war on sanctions,” said Alexandra Prokopenko. She was a former Russian Central Bank official and visiting fellow with the German Council on Foreign Relations. “Russia avoided directly nationalising assets by 2022, in the hopes that business would return to normal and Russian companies could avoid having their assets confiscated in Europe. Putin’s order shows that the Kremlin abandoned these hopes.”

Fortum, the largest utility in the Nordic countries and controlled by the Finnish government, was one of the biggest investors before the Russian invasion of Ukraine last summer. It also owned Uniper before Berlin nationalised it last autumn.

Fortum, one of the few companies that participated in the privatisation process of Russia’s energy industry in the early 2000s, represented approximately 5 percent of Russia’s power generation capability.

In spring of last year, the Finnish group announced that it wanted to sell its Russian assets. However, this was not possible after Putin placed restrictions on such transactions. Fortum wrote off its Russian assets last May by EUR2.1bn, but valued them at EUR1.7bn as of the end last year.

Uniper, once Europe’s largest importer of Russian natural gas, and which had announced in February that it would be taking a EUR4bn loss after losing control over its Unipro subsidiary said in response to the decree it was “reviewing” the legal situation. The German Finance Ministry, which controls the company now, has said that it is examining the issue.

Although Unipro and Fortum’s Russia business was the only company named in documents released along with Putin’s decree it stated that all companies connected to “unfriendly” countries could be affected.

Peskov stated that “External Control was introduced selectively to energy production companies which are the most important in the Russian energy sector”. This ensures the stability of the important companies for the Russian economy. We only cover our own risks.”