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Siemens sees itself as a victim in the Crimean affair

Mikhail Bushuev
July 11, 2017

Gas turbines made by German industrial giant Siemens and meant for mainland Russia have ended up in Crimea, in direct violation of sanctions put in place when the Crimean peninsula was annexed from Ukraine.

Gasturbinen bei der Siemens AG in Berlin
Image: picture alliance/dpa/U. Baumgarten

An official report is still pending, but it is clear that there has been a violation of EU sanctions in Crimea. Now the Siemens Group, which is based in Germany, is on the offensive. In Moscow, it filed a complaint against its Russian partner company and, according to news agencies, against its own joint venture.

The Siemens Group has had to put up with a lot of criticism in the past few days. On July 5, Reuters reported that two turbines produced by the Siemens Group had been illegally shipped to Crimea. They were unloaded in Sevastopol where they are to be used for a gas turbine power plant. The EU does not recognize the Crimea as part of Russia. After the annexation of the Ukrainian peninsula by Russia in 2014, Brussels imposed a far-reaching embargo on supplying goods and services to Crimea.

Read more: European Union extends Crimea sanctions by another year

Actually, the case involves four SGT5-2000E gas turbines which were produced by a German-Russian joint venture, in which Siemens holds a 65 percent stake, and which were originally meant for a power plant in the Russian city of Taman on the Black Sea. According to the contract with a subsidiary of the Russian state-controlled company Rostec, the turbines were only allowed to be installed in Taman.

How did the turbines reach Crimea?

The suspicion that the Russians wanted to circumvent the sanctions first became apparent in mid-2015. Vedomosti, a Russian business daily, reported that the order for the Taman power plant was a ploy. The turbines would later be secretly taken to Sevastopol.

In the Crimea there has been a shortage of electricity since the annexation, because supplies from the Ukrainian mainland have been cut off. One of the promises of the Russian government was to quickly remedy the shortage. But in Russia today no one can build gas turbines of this size. There are hardly any alternatives to Siemens' turbines. Supposedly Rostec asked an Iranian producer which operates with a Siemens license for similar turbines. But that deal went sour because "agreement could not be reached on several technical and commercial issues," Rostec said.

Crimea, Ukraine and Russia

Dispute between Siemens and Rostec

The Russian end customer and the German producer have very different stories about the gas turbines. In a press release from November 2016, the Russian partner accused Siemens of delaying the delivery of individual parts for the turbines. At the same time Rostec, which is led by Sergey Chemesov, a friend of Russian President Vladimir Putin, threatened that Siemens could be thrown out of the Russian market.

Siemens on Tuesday told DW that only in September 2016 did it recognize the first reliable signs that the Russian side was considering breaching the contract. Siemens headquarters in Munich told DW: "When we saw that the construction of the power plant in Taman had been put on hold, we stopped all deliveries." 

Gasturbine Siemens
Gas turbines being manufactored in a Siemens factory in BerlinImage: picture alliance/dpa/U.Baumgarten

Operate at your own risk

The Siemens gas turbines in Crimea will now most likely be installed in the power plant with some additional Russian components without any guarantee from the German manufacturer. "Normally, Siemens guarantees its own expertise in installation and maintenance, but we will not do it this time," says the company. When asked if the turbines would work anyway, it said that this is like contemplating the future of a car if you have nothing but a motor.

For the installation and maintenance of the gas turbines in the Crimea, the Russian side asked for a new joint venture with Siemens. But Siemens says they are not interested.

What are the consequences for Siemens?

The turbine affair has now also reached the political level: "The gas turbines on Crimea are from Russian production," claimed a spokesman of Putin on Monday. And the state-owned company Rostec is spreading the idea that the turbines, which are now on the peninsula were "bought second hand" and "modernized by specialized Russian companies." At Siemens, however, they doubt that there is any market for used equipment of this kind.

Read more: Siemens: A model company and global player

Siemens, on the other hand, is defending itself against the impression that it was ​​being sloppy or naive. "We did not ignore the risk that our products could reach the Crimea, but have actively worked against it," a group representative told DW. Therefore, Siemens does not believe that the possible indirect infringement of the EU embargo will bring problems for the Munich-based group. The original contract does not fall under the provisions of the sanctions and Siemens is in close contact with the German authorities because of the affair, said a company representative. When asked whether Siemens was afraid of falling into disfavor with the Kremlin, it only said "we have to wait and see."

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