Learjet Liaisons

To Russia with Sanctions

ceos-metro-eon-basf-bayer_teaser size
Germany's managers are keeping in touch: Clockwise from upper left, the chief executives of Bayer, E.On, BASF and Metro, Marijn Dekkers, Johannes Teyssen, Kurt Bock and Olaf Koch, respectively.
  • Why it matters

    Why it matters

    The publicity surrounding top-level German business ties to Russia amid E.U. sanctions could revive a debate in the country over Germany’s participation in the European trade penalties.

  • Facts

    Facts

    • The CEOs of Bayer, BASF, Metro and E.ON attended an investors’ conference in Russia on Monday.
    • The council — which includes the CEOs of 51 multinational companies — met in Moscow.
    • The meeting’s guest list was secret, but members include heads of Coca Cola and Exxon Mobil.
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  • Audio

    Audio

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The tragic death this week of a French oil executive at a Moscow airport thrust into the limelight on Thursday Germany’s business ties with Russia amid Europe’s economic sanctions.

German newspaper Bild identified four German chief executives who had attended a Russian foreign investors’ conference on Monday with Total Chief Executive Christophe de Margerie – Kurt Bock of BASF, Marijn Dekkers of Bayer, Johannes Teyssen of E.ON and Olaf Koch of Metro.

The scrutiny comes amid signs that Germany may be poised to reconsider its participation in E.U. sanctions, which have hurt both German exporters and their Russian clients.

The German foreign minister, Frank-Walter Steinmeier, said it may be time for Germany to reevaluate its stance.

“Even it if is not the right time to discuss lifting (sanctions), we must begin to think about where we go on from here,’’ Mr. Steinmeier said in an interview with Die Zeit weekly newspaper.

Mr. de Margerie and his German peers were among about 50 top global executives who attended the annual meeting of the Russian Foreign Investment Advisory Council, a Russian group set up in 1994.

“Even it if is not the right time to discuss lifting (sanctions), we must begin to think about where we go on from here.”

Frank-Walter Steinmeier, German Foreign Minister

The event was chaired by Russia’s prime minister, Dimitri A. Medvedev. Mr. de Margerie died that evening when his private jet collided with a snow plough during takeoff at a Moscow airport.

According to Bild newspaper, the purpose of the meeting was: “How could foreign companies continue to invest and do business in Russia despite the current E.U. sanctions?’’

Amid E.U. sanctions against Russia, the guest list of the investor council’s meeting was kept private.

The move was probably made to spare the companies unwanted publicity, said Constantin Gurdgiev, an economics professor at Trinity College in Dublin.

“This was a scheduled meeting,” Mr. Gurdgiev, who is Russian, said. “There is nothing really strange about it, except for one small factor. In the past all the minutes of the meetings have been posted publicly, they were also recorded and broadcast, so it was very much a kind of open meeting. But this time around that meeting was behind closed doors.”

Representatives of German companies at the meeting who were contacted by Handelsblatt Global Edition said the gathering was held within the legal constraints of E.U. sanctions, and aimed to simply promote better economic ties with Russia.

Günter Forneck, a spokesman for German pharmaceutical maker Bayer, said its chief executive, Mr. Dekkers, a Dutch-American, had attended the Moscow event.

“The purpose regarded the investment conditions surrounding our products that are not covered by the sanctions; to make sure that our medicines reach patients,’’ Mr. Forneck said. “This was not about trying to get around sanctions, because these products are not covered by the sanctions at all.’’

A spokeswoman for BASF, Europe’s largest chemicals maker, said its chief executive, Mr. Bock, had traveled to Moscow to improve business ties with Russia, not to evade European sanctions.

“Most of our businesses are not currently affected by sanctions,’’ said the BASF spokeswoman, Stefanie Wettberg.

A spokesman for E.ON, Europe’s largest energy company, declined to comment. A Metro spokesman confirmed that Mr. Koch had attended the Moscow event, declining further comment.

Deutsche Bank sent Pavel Teplukhin, the bank’s Russian company head, to the event, according to a source with knowledge of the event.

The Russian investors’ council lists 51 large, global companies as members on its website, including not only the four German firms but Deutsche Bank and Siemens as well.

 

olaf koch in russia 2014_ullstein bild
Metro chief executive, Olaf Koch, at the “Translating Challenges into Opportunities: Acting Together” session during the CEO Summit at the 27th St. Petersburg International Economic Forum in May of this year.

 

But the council’s membership list is much more geographically broad, ranging from Britain’s BP and BAT to France’s LaFarge and Schneider Electric, to Royal Dutch Shell and Unilver of the Netherlands, to Nestlé of Switzerland, and even The World Bank. Eight American companies — Exxon Mobil, Pepsico, Coca Cola, Ford, Alcoa, International Paper, Proctor & Gamble and United Technologies – are also listed as members.

The group “functions on the basis of direct dialogue between the chief executives of investor companies and the Russian government, with a focus on the crucial aspects of fostering a healthy investment climate,’’ the Russian council said on its website.

Germany, after initially opposing economic sanctions against Russia over its military conflict with Ukraine, reluctantly joined the E.U. economic sanctions, which apply largely to defense machinery and technology and some energy products. Russia has responded by penalizing products from countries supporting the export penalties – such as banning apples from Poland, or closing some McDonald’s restaurants in Moscow.

The sanctions remain politically controversial in Europe’s largest economy, which is Russia’s biggest trading partner.

A spokesman for the German-Russian Forum, a German group that promote ties to Russia, declined to comment.

Eckhard Cordes, the managing director of the Ostausschuss, or Eastern Committee, a German business group that focuses on Russia, said Germany needs to rethink its support of E.U. sanctions.

“The longer this political crisis continues, the more likely it is that trust will deteriorate between German and Russian businesses,” Mr. Cordes, a former DaimlerChrysler executive and the former chief executive of Metro, told Handelsblatt Global Edition. “That’s why we are hoping for a quick resolution to the situation. The isolation of Russia is increasingly prompting the country to look for other business partners in Asia, who are more than willing to oblige.”

After a forum on October 13, the Ostauschuss warned that E.U. sanctions were taking a heavy toll on German exporters as well as Russian businesses.

“The E.U. economic sanctions and the protectionist responses by Russia are creating significant challenges for German businesses,’’ the group said at the time in a statement.

Some German businesses have complained that the E.U. sanctions’ prohibition against the export of “dual-use’’ goods – products that have a civilian as well as military use – have placed German companies at a competitive disadvantage against rivals from countries that don’t observe the sanctions.

The German government agency which issues export licenses, the Federal Office for Economic Affairs and Export Control, or BAFA, is taking too long to process Russian export applications, the Ostauschuss said, and the rules are sometimes so vague that many German companies are unsure whether their products even fall under the sanctions. The result has been delivery delays of German products to Russia.

“This has led increasingly to a loss of trust among Russian clients regarding the reliability of German companies,’’ the Ostausschuss said in its statement.

 

Kevin O’Brien, an American who has worked for 20 years in Germany and Austria, is the editor in chief of Handelsblatt Global Edition. Christopher Cermak, Siobhán Dowling and Franziska Scheven,  who are editors at the Handelsblatt Global Edition in Berlin, contributed to this article. Mathias Brüggmann, who speaks Russian, is a Handelsblatt correspondent based in Berlin who is responsible for Russian coverage. To reach the author: obrien@handelsblatt.com

Editors note: This story was updated at 2:47 p.m. CET to include comments from Eckhard Cordes, director of Ostausschuss, a German-Russian business group.

 

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