RUSSIAN GAS FOR ROUBLES IS POSSIBLE

PLATTS - 22 Apr 2022 - The European Commission believes it could be possible for European buyers of Russian gas to pay according to the terms of Moscow's new decree on ruble conversion without breaching EU law.

Russian President Vladimir Putin signed the decree March 31 requiring EU buyers to pay in rubles for Russian gas via a new currency conversion mechanism or risk having supplies suspended.

In a guidance document sent to member states on April 21, the EC said it "appears possible" to pay for Russian gas after the adoption of the new decree without being in conflict with EU law.

"EU companies can ask their Russian counterparts to fulfil their contractual obligations in the same manner as before the adoption of the decree, ie. by depositing the due amount in euros or dollars," the EC said in the document.

"The decree does not preclude a payment process which is in line with the EU restrictive measures. However, the procedure for derogations from the requirements of the decree is not clear yet," it said.

An EC spokesperson told S&P Global Commodity Insights on April 22, however, that the EU's position remained that existing supply contracts should be honored.

"With our G7 partners, we have clearly expressed our position: agreed contracts must be respected," the EC spokesperson said.

"97% of the relevant contracts explicitly stipulate payment in euros or dollars. Companies with such contracts should not accede to Russian demands," the spokesperson said.

"The EU will continue to respond in a united manner to this latest attempt by Russia to circumvent our sanctions."

Legal framework

In its guidance document, the EC said the new Russian decree "substantially amends" the legal framework for the execution of supply contracts concluded between Russian gas suppliers and EU companies, adding new obligations for each EU company.

It said EU companies could only lawfully comply with implementation measures of the new decree if the compliance with the measures is not in conflict with obligations set out in EU sanctions against Moscow.

"The decree introduces a new payment procedure, whereby the deposition of euros or dollars on the supplier's account is no longer considered as fulfilment of the contractual obligations," it said.

"Instead, euros or dollars received by EU companies need to be converted into rubles under the decree, and EU companies are only deemed to have fulfilled their contractual obligations once the conversion process has been successfully completed, and the payment has been made in rubles," it said.

The EC said the process -- which is entirely in the hands of the Russian authorities -- would also allow Moscow to involve the Russian Central Bank through a number of transactions linked to the management of the Central Bank's assets and reserves, which is prohibited under EU sanctions.

"As the conversion process may take an undefined amount of time, during which time the foreign currency is entirely in the hands of the Russian authorities including the Central Bank, it may even be considered as a loan granted by EU companies," it said.

In the document, the EC also said existing EU sanctions against Russia did not prohibit engagement with Gazprom or Gazprombank, beyond the refinancing prohibitions relating to the bank.

"Likewise, they do not prohibit opening an account with Gazprombank. Such engagement or account, however, should not lead to the violation of other prohibitions," it said.

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