The European Union has prohibited new investments in the Russian energy sector and exports of energy-related equipment to the country in a fresh round of sanctions in light of Russia's invasion of Ukraine, the Council of the EU announced.
"This fourth package of sanctions is another major blow to the economic and logistic base upon which Russia relies on to carry out the invasion of Ukraine," Josep Borrell, high representative of the European Union for foreign affairs and security policy, said March 15.
Finland's Fortum Oyj and subsidiary Uniper SE are among the European utilities most exposed to Russia. Fortum announced March 3 that it will end new investments in Russia until further notice but said it would not pull out of the country, citing obligations to customers and its roughly 7,000 employees in the country.
Sanctions on technology exports into Russia may hamper operations and modernizations in the country, analysts at MSCI said in a note March 10 before these latest measures were announced.
"Potential new restrictions on the export of western technology to Russia (gas turbines, transformers, IT systems) may further limit the ability of the German utility to source the necessary equipment needed to modernize, service and repair its local power stations in the country," MSCI said.
Asked about implications of technology import bans for upgrades and maintenance of its Russian fleet, Fortum said all of its operations are running normally, and it can secure the necessary supply of energy for customers in all its markets. "It is obviously clear that we are complying with all applicable laws and regulations, including sanctions, and preparing for various scenarios," a company spokesperson said in a March 15 email.
In light of the geopolitical risks, S&P Global Ratings placed Fortum and Uniper on watch for downgrade March 14. This stems from risks of disruptions to their Russian gas contracts, potentially forcing them to buy back volumes at the now-high market prices. Ratings also said it believes that Russia-based subsidiaries of Fortum and Uniper will not be able to transfer earnings outside of Russia, implying a 20% drop in EBITDA contributions.
Alongside the new energy sanctions, the EU announced a stop to all transactions within certain state-owned enterprises and the provision of credit rating services to any Russian person or entity. It also expanded the sanctions list of people linked to Russia's defense and industrial base and introduced trade restrictions for iron, steel and luxury goods.
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