July 11, 2017 / 12:08 PM / 10 days ago

Siemens sues Russian state firm over turbines imbroglio

Siemens AG logo is seen during official opening of headquarters in Munich, Germany, June 24, 2016.Michaela Rehle

MUNICH/MOSCOW (Reuters) - Siemens filed a lawsuit against a Russian state firm on Tuesday after two gas turbines it sold for use in Russia turned up in Crimea, a region subject to EU sanctions on energy technology.

A Siemens source familiar with the matter told Reuters earlier on Tuesday that Siemens was rethinking some of its business connections in Russia because of the episode, in which it said its Russian customer had acted in bad faith.

Siemens, Germany and the European Union are under pressure to show they take potential sanctions-busting seriously after Reuters disclosed that Russia had moved the turbines to Crimea and that a firm part-owned by Siemens had been hired to help install them.

Russia annexed the Black Sea peninsula from Ukraine in 2014, a move the European Union denounced as a breach of international law. It then imposed sanctions on Russia which ban EU firms such as Siemens from selling energy technology to Crimea.

Moscow needs the turbines for two Crimean power plants the Kremlin wants to get up and running to fulfill a promise, made by President Vladimir Putin, to ensure a stable power supply for the region's residents. Crimea used to rely on the Ukrainian power grid but is now dependent on Russia for electricity.

The German industrial group originally supplied four turbines for a project in Russia, but said on Monday that at least two of them had been moved to Crimea without its knowledge and against its will.

Siemens filed the lawsuit, which court documents show was brought in the Moscow city arbitration court, against Russian state firm Technopromexport which originally bought them for use in a power station in Taman, southern Russia.

Technopromexport is also building two power stations in Crimea for which the Siemens-made turbines are intended, according to three sources close to the project.

Technopromexport did not immediately reply to a Reuters request for comment. Power Machines, a Russian partner in Siemens Gas Turbine Technologies LLC, a St Petersburg-based joint venture in which Siemens has a majority stake, declined to comment.

ZAO Interautomatika, another Siemens Russian joint venture which sources have told Reuters was involved in the installation and commissioning of the turbines in Crimea, did not respond to a request for comment.

Siemens said on Monday that Interautomatika had confirmed in writing Siemens' insistence that all relevant activities with respect to Crimea be immediately terminated.

Relations to Russia

The Siemens source familiar with the matter told Reuters earlier on Tuesday, referring to the turbines scandal: "We have to think what this means for our relations to Russia."

The source asked not to be named because of the delicacy of the matter. "We can't simply go back to business as usual."

"One has to keep a cool head but act responsibly," the person said on Tuesday. "There must be a certain effect on particular connections."

A spokesman for Siemens declined to comment.

Germany's ambassador to Moscow said that Russia will have seriously hurt its prospects for investment if it is confirmed that the Siemens-made turbines have been delivered to Crimea, the Interfax news agency reported.

Siemens had said on Monday it would press criminal charges over the moving of its turbines from Russia to Crimea, and would seek to have them returned to Taman, their original destination.

"Siemens insists categorically on full compliance with all export control restrictions for itself and also at its partners and customers. In addition, Siemens is evaluating what additional actions are possible," it said.

An EU spokesman said that implementation and enforcement of the EU sanctions was a matter for the bloc's member states.

"The (European) Commission is in touch with the German competent authorities on this particular case,” he said.

The German Committee on Eastern European Economic Relations, which represents German industry in the area, defended Siemens.

“The sanctions restrictions were strictly followed by the German side,” the committee’s head, Michael Harms, told Reuters. “No German company can afford to be suspected of evading the requirements of the sanctions. Siemens is doing everything to make sure that the restrictions are respected.”

Siemens made about 1.2 billion euros ($1.4 billion) in sales in Russia last year, roughly 2 percent of its total revenue. It is active there primarily in energy and transportation and has said it indirectly employs 48,000 people in the country.

Chief Executive Joe Kaeser met President Vladimir Putin several times in his first year after becoming CEO in 2013, and attracted wide criticism for a visit just after Russia's 2014 annexation of Crimea.

At the time, he reaffirmed his commitment to Russia, where Siemens has been present for almost 170 years and has invested about a billion euros ($1.14 billion) in the past decade, saying the relationship would not be sidetracked by "short-term turbulence".

Additional reporting by Andreas Rinke in Berlin, Alissa De Carbonnel in Brussels and Oksana Kobzeva, Anton Zverev and Anastasia Lyrchikova in Moscow; Writing by Georgina Prodhan/Andrew Osborn; Editing by Sabine Wollrab and Philippa Fletcher

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