Siemens to wind down Russian operations

Siemens to wind down Russian operations
A Siemens H-class gas turbine / Siemens
By bne IntelliNews May 12, 2022

German engineering giant Siemens has announced that it “will exit the Russian market as a result of the Ukraine war”, and it is starting the proceedings to wind down its industrial operations and all industrial business activities. 

The company said that that “the comprehensive international sanctions, as well as current and potential counter-measures, impact the company’s business activities in Russia, particularly rail service and maintenance”.

As reported by bne IntelliNews, the possible departure of Siemens is one of the most closely watched foreign industrial major pullouts out of Russia due its major role in the supplies of gas turbines. Siemens did not specifically comment on the sales of turbines in the press release.

Siemens most significant market-leading business in Russia is gas turbines used to power generation stations. About 50% of Russia's electricity is generated using natural gas, and a major generation capacity modernisation drive launched by the government also included a state programme for supporting gas turbine production.

Previously Siemens survived a sanction-busting embarrassment when its gas turbines were used to power utility assets in the annexed Crimea peninsula, and it even solidified its presence in Russia by playing along with Kremlin’s localisation demands.

Should Siemens indeed pull out of Russia for good, it is unclear whether alternatives to Siemens turbines will be provided by domestic players. 

Russian state utility major InterRAO planned to invest $0.8bn in the development of gas generation turbines, with a goal to sell over 20 turbines by 2030. However, InterRAO operates the project through its Russian Gas Turbines (RGT) joint venture with General Electric, which is likely to be scrapped due to sanctions.

Another contender on the gas turbine market is REP Holding, a subsidiary of Russian Gazprombank, but it also operates as a joint venture with a foreign company, the Italian Ansaldo Energy.

Siemens also holds 65% in a joint venture with Power Machines, the engineering company of sanctioned steel tycoon Alexei Mordashev. Mordashev also tried to compete with Siemens for the production of gas turbines and previously rallied state support for his efforts to produce turbines domestically. His Power Machines has repeatedly urged authorities to shift lucrative state contracts for gas turbines away from foreign companies like Siemens and it has aimed for gas turbine contracts together with ODK Saturn, a subsidiary of Russian state technology agency Rostec.

In Russia Siemens also operates Siemens Transformatory. Siemens Gamesa develops renewable energy projects with Enel Russia. It also produces electric intercity trains Lastochka through its subsidiary Sinara, which  operates a joint venture with Urals Locomotives.

Previously in March Siemens already notified the Russian Railways of the suspension of a contract on purchases of new Sapsan electric trains. The €1.1bn contract was signed in 2019 and covered purchases and maintenance of 13 new Sapsans, with the deliveries scheduled for 2022.