(Investing) – BERLIN/LONDON – Management at a Russian-owned oil refinery in Germany have privately warned Berlin that U.S. sanctions are hurting its business and threatening fuel supply for the country’s capital and the region, according to correspondence seen by Reuters.
In a January letter, management of the PCK Schwedt refinery, controlled by , made an “urgent appeal” to economy and energy minister Katherina Reiche to resolve a standoff with the United States over the refinery’s future.
The letter outlines escalating problems at the refinery, which fuels nine out of 10 cars in Berlin, its airport, supplies petrol across the state of Brandenburg and eastern Germany and key ingredients to the chemicals industry.
Berlin’s lobbying won the refinery an exception from sanctions imposed late last year on Rosneft as part of Washington’s effort to squeeze Russia’s energy sector, but it expires on April 29.
The business, however, depends on long-term supply contracts, banks for payments and insurers to cover oil cargoes, all of which is being hit by fear about being swept up by sanctions, said one person with direct knowledge of the matter. That pressure, he said, could accelerate the refinery’s sale and one oil group and a large energy investor had explored buying the business.
“We are already experiencing … restrictions in our operating business,” management of the refinery wrote in the letter, urging the government to secure a permanent exception from U.S. sanctions.
“The consequences of the ongoing sanctions affect the security of supply for the region,” the letter warned.
The discussions are unfolding against the backdrop of pressure from Washington, with October sanctions on Rosneft and Lukoil, Russia’s two largest oil firms, squeezing a vital German artery supplied by the former Soviet state of Kazakhstan.
The sanctions, although suspended, have shaken confidence in Rosneft’s German arm among banks, insurers and its main supplier, Kazakhstan, said the first source.
Unimot, a Polish fuel importer which buys 2 million tons of fuel annually from the refinery, underscored looming risk.
“There’s no way to replace that refining and logistical capacity in terms of supplying fuels for Brandenburg but also for Poland. This is a result of a gross neglect by Germany to resolve the Rosneft issue,” said Robert Brzozowski, Unimot’s deputy chief executive.
“Supplies for April are already being contracted. Everyone is concerned, but most importantly oil suppliers, who are wondering whether the ship that will bring oil on April 29 will not violate sanctions,” he said.A task force of officials from Germany’s government, from the local state of Brandenburg and refinery management, will meet in the coming days to discuss possible solutions, said a third person familiar with the discussions.
At stake is a critical pillar of energy supply, as the country grapples with one of its biggest postwar slowdowns.
The German energy ministry told Reuters it was in talks about extending the U.S. licence and was committed to supporting the refinery.
Germany has a significant say in, but not ownership of, Rosneft’s German operations.
BUYERS’ CIRCLE
Rosneft has been looking for a buyer for its German business but to no avail. The U.S. sanctions increase pressure on both Rosneft and Berlin to act.
One person familiar with German government thinking said both a sale to a U.S. investor and a takeover by the German state were possible.
One U.S. official, who asked not to be named, said that while officials in Washington have urged U.S. companies to consider buying Rosneft’s German businesses, they expressed no particular interest in investing in Europe in recent months.
A U.S. Treasury official said “the Trump administration is committed to ensuring Russia does not profit from exporting energy until it stops the senseless killing.”
The first source said a sale of Rosneft’s German business was discussed when President Trump met Russian President Vladimir Putin at a summit last August in Alaska.
The Kremlin could not be reached for immediate comment, while Rosneft did not respond to requests for comment.
Rosneft’s wider German businesses, including control of Schwedt and stakes in several refineries, account in total for one third of oil refined in Germany.
