Published On: Fri, Jun 20th, 2014

German Government Presses Pause Button On $7 Billion Sale Of Energy Firm To Mikhail Fridman’s Energy Investment Fund


mikhail-fridman_and German Khan - Getty

 

Three months ago Russian billionaires Mikhail Fridman and German Khan signed an agreement to buy oil and gas subsidiary of RWE Germany’s second largest power utility, which holds both producing and exploratory assets.

RWE agreed to sell its subsidiary, called RWE DEA, to London based L1 Energy Fund. L1 energy is an energy investment fund controlled by the two oligarchs, and will be paying about US$7 billion (Euros 5.1 billion) for the deal, including liabilities assumed. “This agreement is a major milestone in delivering our announced strategic realignment of the group, ” said RWE Chief Executive Peter Terium at the time.

Well, that was then and this is now. In the mean-time the political crisis between Russia and the West over the Ukraine has intensified and called into question not just this deal, but all of Europe’s and Germany’s present and future economic relations with Russia.

Accordingly, we learned this week that Germany’s Economy Ministry is now investigating Fridman’s deal, in order to conclude if Germany should block the sale of DEA, either pending resolution of the crisis or even permanently.

Germany has a foreign trade statue on its books, never before utilized, which can allow the German Government to cancel any such deal on the grounds of a threat to the security of the country.

A spokesperson for Germany’s Economy Ministry in Berlin said simply, “An investigation has been started. It is an open-ended investigation as to whether there are conditions for prohibiting the deal under the foreign trade accord.”

Der Spiegel was first to report the Ministry was going to look into the deal, but did not give further details, and the spokesperson for the Economy Ministry has offered no additional information except to say that it is “open-minded” as to the outcome. Der Spiegel also reported that Economy Minister Sigmar Gabriel himself first told RWE CEO Peter Terium of the new investigation.

Accordingly, a spokesperson for RWE later also said, “We have been informed about the investigation and are awaiting its result, ” adding only that the company still expects the deal to go through and to close later in the year.

The deal Mikhail Fridman and German Khan made to buy DEA has come under increasingly intense political scrutiny in Germany since it was announced. The obvious reason is that it was announced at precisely the same time as German has been forced to consider the best way to balance its enormous, and increasingly intertwined, business interests with Russia against the current serious decline in their strategic and diplomatic relationship.

This has come with the onset of what certainly seems like renewed aggressive moves by Vladimir Putin’s Russia to try to restore an older, Soviet era, style of pursuing its interests at the expense of openness with the West.

If, as and when the sale does go through The sale will give Fridman, Russia’s second-richest man, Khan and their other investors a footprint in close to 200 oil and gas properties in Europe, the Middle East and North Africa.

Germany today already receives more than a third of its natural gas and oil supplies from Russia, and both it and the Europen Union as a whole is beginning to consider how to diversify away from this dependency again, after years of having allowed it to gradually come into being.

 

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