Siemens fumes as worst suspicions on Crimea turbines confirmed

By bne IntelliNews July 21, 2017

German technology major Siemens said on July 21 it has "credible evidence" that all four gas turbines supplied for a power plant in the south of Russia were locally modified and illegally supplied into Crimea.

"This development constitutes a blatant breach of Siemens' delivery contracts, trust and EU regulations," Siemens said, while adding that it will halt deliveries of power equipment to Russian state-controlled customers and review supplies to Russian subsidiaries.

It is not clear yet whether Siemens will pull out of Russian subsidiaries and joint ventures with Russian companies following the Crimea turbines scandal, as suggested by unconfirmed reports.

A report by Reuters claimed that Interavtomatika, a Russian company in which Siemens owns a 47.5% stake, is supplying the German company's turbines to power plants in the peninsula in the first known breach of Crimea-related EU sanctions by a major European company.

Reportedly Siemens, in addition to pressing charges, is mulling exiting Siemens Gas Turbines Technologies, a joint venture with Russian Power Machines, and give up the 45.7% share in Russian Interavtomatika because of the Crimea turbines scandal.

Meanwhile, the general manager of Power Machines (Silovye Mashiny), Roman Filippov, has resigned "under agreement between the parties". As the Crimea turbines case was unfolding in the press, Filippov was detained and questioned by Russian law enforcement authorities reportedly because of treason accusations.

Siemens' latest statement referred to a power plant in the city of Taman in Russia's southern Krasnodar region. In September 2016, Vedomosti daily reported that a company called Tekhnopromexport scrapped the project and put four turbines that were acquired for it up for sale.

Tekhnopromexport, a subsidiary of the Rostekhnologii (Rostec) state technology agency, is also involved in the construction of power plants in Crimea and holds 17% in Interavtomatika. The company claimed that the two controversial turbines were acquired on the secondary market and modernised by domestic contractors.

"Over the last few months, our customer has confirmed to us numerous times in writing that a delivery to Crimea would not occur," Siemens explained previously, adding that "as a consequence, Siemens will initiate criminal charges against the responsible individuals".

Russian authorities, meanwhile, claimed the turbines are Russian-made. "The turbines installed in Crimea were produced in Russia, assembled from Russian components," Kremlin press secretary Dmitry Peskov told media on July 10.

"Although the freeze on supplying equipment appears to be a temporary measure (until the control of future turbine use is established, according to Siemens), the situation elevates certain risks for some companies in the sector," Renaissance Capital wrote on July 21.

The analysts note that Russian utilities majors such as InterRAO, Unipro, Enel Russia, Mosenergo and TGK1 "do not expect to order any Siemens turbines in the near future".

At the same time, OGK2 is risking a delay in completing the Groznenskaya power plant in the Russian Caucasus republic of Chechnya. Another utility major in risk is TGK, but none of its projects are truly ‘state-affiliated’ and supplies may continue as planned, RenCap notes.

Notably, the planned 48GW modernisation programme in the Russian generation space for the period 2019-2025 costing an estimated $24bn "would be significantly harder without Siemens actively supplying equipment", Renaissance Capital added.

Such a scenario would "most likely require the Russian government to agree to allow Chinese, Korean and Japanese equipment into the market", the analysts believe, noting, however, that it would not be in the interests of Siemens to lose such a lucrative market.

The EU sanctions against Russia and specifically against Crimea were imposed in summer 2014 after Moscow annexed the peninsula from Ukraine and supported a pro-Russian rebellion in the east of the country.

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