The fiduciary administration was one in a series of similar measures adopted by the German Government in the midst of last year’s energy crisis. As a result of BNetzA’s appointment as fiduciary, even though Rosneft remained the legal owner of the shares in the relevant German companies, it lost its voting rights in these shares and thereby lost the control over the companies’ management as well as access to its resources and potential profits. After several hearings and witness statements, the court rejected Rosneft’s appeal. The decision is final.
The two Rosneft subsidiaries (Rosneft Deutschland GmbH and RN Refining & Marketing GmbH) are active in the import and processing of Russian crude oil. They combine a significant share in the overall crude oil processing capacity in Germany, which is said to amount to approximately 12 percent. In particular, the German subsidiaries control the PCK refinery in Schwedt/Oder, which ensures the basic supply of mineral oil products to Northeast Germany and also supplies the Berlin airport. The PCK refinery was heavily dependent on crude oil supplies from Russia via the Druzhba pipeline.
In March 2022, Rosneft Deutschland GmbH asked the German Federal Ministry of Economics and Climate Protection (Bundesministerium für Wirtschaft und Klimaschutz – BMWK) for support because business partners were refusing to cooperate with the Rosneft subsidiary. In some cases, the business partners apparently went beyond the sanctions declared at EU level (so-called over-compliance). This concerned in particular cooperation with banks and insurance companies, which had the potential to cause serious financial distress.
In response, BMWK issued a Letter of Comfort confirming that Rosneft’s German subsidiaries did not fall under the EU sanctions regulations and emphasized their importance for the security of German oil supply. BMWK did not respond to a later request for an additional Letter of Comfort, but considered ordering a fiduciary administration instead. A short time later, reports surfaced that attempts were being made to withdraw capital from the German subsidiaries.
The insolvency of the German Rosneft subsidiaries, or any substantial expectation to that end, would have had the potential for a cascade effect in the German energy market, causing a severe threat to the German energy supply.
In order to prevent any such risk, BMWK placed the Rosneft subsidiaries under BNetzA’s fiduciary administration in September 2022.
Under the order, BNetzA assumed control of the day-to-day management of Rosneft’s German subsidiaries, and it appointed new (interim) management. While Rosneft Russia maintained legal ownership of the shares in the two German companies, it lost its voting rights from these shares and thus was unable to influence operations or access to the companies’ profits.
The BVerwG had to deal with the question of whether the German Government was entitled to place the two Rosneft subsidiaries under BNetzA’s fiduciary administration.
On 13 October 2022, Rosneft filed an appeal with the BVerwG challenging the legality of the German Government’s fiduciary administration order.
The proceedings before BVerwG were highly controversial because the national security interest in sufficient crude oil supplies conflicted with the civil and constitutionally protected ownership rights of a private company. It took the BVerwG four hearings and a comprehensive evidence collection with several witness statements to come to a decision.
Rosneft’s appeal mainly relied on three arguments:
(i) Rosneft claimed a violation of the right to be heard in that Rosneft alleged that there had not been any or only insufficient hearing of its position before BNetzA’s appointment as fiduciary. However, according to BVerwG, there had not been insufficiencies on hearing Rosneft due to the imminent risk concerned. The indications of an imminent withdrawal of capital raised fears of a collapse of the Rosneft subsidiaries and a cascade effect in the market this could have had.
(ii) Rosneft further claimed that the legal requirements as stipulated for fiduciary administration under the relevant provisions of the German Energy Security Act (Energiesicherungsgesetz – EnSiG) had not been met. However, the German State was able to convince BVerwG that the requirements had in fact been met essentially because the security of German crude oil supply where substantially impaired at the time.
(iii) Finally, Rosneft took the position that Germany was attempting to enforce an import embargo on Russian crude oil without a legal basis. The background to this is the sixth EU sanctions package and Germany's additional protocol declaration to refrain from importing Russian pipeline oil. However, evidence apparently showed that the appointment of a fiduciary, which had been on the table for a while, was ordered due to the indications for a withdrawal of capital.
Germany’s right to intervene into Rosneft
Germany’s intervention into Rosneft’s German subsidiaries was based on EnSiG and this measure formed part of a series of similar decisions adopted by the German Government at the time seeking to manage the German energy crisis. The decision followed the outbreak of the war in Ukraine as a consequence of which Germany faced a decrease in Russian oil and gas supplies and expected to fall short of relevant supplies.
In subsequent months, EnSiG was amended quite fundamentally several times. Amongst other substantial changes, the German legislature included Section 17 into EnSiG, which provides for the possibility of the German Government to place operators of critical infrastructure in the energy sector under fiduciary administration if, among other requirements, a threat to the security of supply arises.
Under these rules, if the requirements continue to be met, the fiduciary administration can be (repeatedly) extended by the German Government beyond the initial six-month period by up to another six months each.
If the BVerwG had annulled the German Government’s fiduciary administration order, it could have had a major impact on the German energy market and German consumers. The Russian shareholder would have regained influence over the PCK refinery in Northeast Germany. In addition, supply of Polish tanker oil via Gdansk would have been in question.
Also, such decision could have potentially raised questions regarding the legality of similar measures, which the German Government has imposed on other energy suppliers in the course of 2022.
The BVerwG’s decision is now final as proceedings before the BVerwG were the first and last instance against Germany’s fiduciary administration order.
While Rosneft could theoretically attempt to file for a constitutional appeal (Verfassungsbeschwerde) to the German Federal Constitutional Court (Bundesverfassungsgericht), the prospects of success of such a step should generally be low.
The initial term of the fiduciary administration ordered in relation to the Rosneft subsidiaries was to expire on 15 March 2023, so the BVerwG’s decision came just in time for the German Government to have legal certainty before extending the term. On 14 March 2023, BMWK already announced that it will extend the fiduciary administration by six months.
Client Alert 2023-069