A procedure that is as complicated as it is delicate is entering the second round this Tuesday before the Federal Administrative Court: was the federal government allowed to bring two German subsidiaries of the Moscow oil company Rosneft under state control as part of the sanctions against Russia? Two weeks ago, the Leipzig judges had been negotiating this for a whole day. Witnesses are to be heard and evidence collected before a verdict is reached.
Should the court overturn the trust administration, it would not just be a gossip for the federal government. It would also affect the energy market and German consumers. Because Moscow would regain influence over the important PCK refinery in Schwedt, Brandenburg. (File number: BVerwG 8 A 2.22).
What is the procedure about?
The state-controlled Russian company Rosneft – the Moscow parent company and a subsidiary in Luxembourg – is suing the federal government in September 2022 to buy the two German subsidiaries Rosneft Deutschland GmbH and RN Refining
The Federal Network Agency is specifically responsible. This appointed a new management. Rosneft is still the legal owner of the German subsidiaries, but can no longer have a say. Should the subsidiaries make a profit, this remains with them in Germany as a reserve. The federal government doesn’t make money, but neither does Russia.
Why did the federal government take control?
In the wake of EU sanctions over the Russian attack on Ukraine, Germany pledged to stop using Russian crude oil from 2023. This is exactly what the Rosneft subsidiaries imported and processed. At the same time, they had a significant market share: According to the Federal Ministry of Economics, they held twelve percent of the oil processing capacity in Germany through holdings in three refineries.
Central was the majority stake of 54 percent in the PCK refinery, which supplies north-east Germany with gasoline, diesel and other products. She depended on Russian crude oil from the Druzhba pipeline. According to Economics Minister Robert Habeck, Rosneft had no interest in stopping this. Rosneft’s attorneys disagreed before the Leipzig judges. Rosneft Germany was definitely working on alternatives, they explained in the process.
How does the federal government justify the trust solution?
Legally, the ministry argued in the Federal Gazette as follows: Due to uncertainties about the consequences of the EU sanctions, contractual partners had restricted cooperation with Rosneft. Employees are about to migrate. This puts the operation of critical infrastructure at risk.
According to the ministry, in the case of PCK, in order to continue operating the refinery economically without Russian oil, it would need deliveries of tanker oil via the port of Gdansk. According to Polish information, this is only conceivable when Russian shareholders are no longer involved, the Federal Gazette continued. In fact, an agreement with Poland about deliveries via Danzig only came about after the start of the trusteeship.
How does Rosneft justify the lawsuit?
The plaintiffs cited three main reasons: There had been no hearing before the trust solution. That played a role in the process for a long time. The federal lawyers said that there had been talks with the German Rosneft subsidiaries beforehand. Rosneft’s lawyers didn’t think that was enough.
In the lawsuit, they also argued that the legal requirements for trust management were not met. And there is no legal basis for an embargo on pipeline-bound Russian crude oil since January 1, 2023. This refers to deliveries via the Druzhba pipeline. These are not covered by the EU oil embargo against Russia, only tanker oil. Germany also waived the pipeline oil per EU protocol note.
Why was the federal government allowed to access it from his point of view?
The traffic light coalition had amended the Energy Security Act accordingly in 2022. Paragraph 17 provides for the option of trusteeship for operators of critical infrastructure in the energy sector. It comes into play “when there is a specific risk that without trusteeship the company will not be able to fulfill its tasks that serve the functioning of the community in the energy sector and there is a risk of the security of supply being impaired”. The trusteeship is initially valid for six months, i.e. until March 15th. It should be extended – if the federal government wins in Leipzig.
Why is the procedure in Leipzig important?
With the legal construction of the state trust administration of a private company with foreign owners, the federal government entered new legal territory. Should the court abolish the trusteeship, the German subsidiaries would be under Russian control again. Rosneft would have a say over a significant portion of Germany’s refining capacity. Deliveries of tanker oil via Gdańsk might be in question.
The presiding judge, Ulla Held-Daab, made it clear in the Leipzig proceedings that the restriction of property rights has far-reaching consequences: “We’re already seeing an intervention of a clearer intensity.” On the other hand, she emphasized that the security of energy supply is “a particularly important common good”. That has to be considered.
It is unclear whether the verdict will be passed this Tuesday. As a precaution, the court has scheduled another hearing for Wednesday.
