TheChek News Flow

Kaja Kallas points up European concern at how a Trump presidency could affect west’s Moscow and Ukraine policy

Kaja Kallas, the Estonian prime minister, said the west should seize Russia’s frozen assets before the US election, in a further sign of European concern at the impact a second Trump presidency might have on the west’s policy on Russia and support for Ukraine.

“Elections are always turbulent times,” Kallas told the Financial Times on the sidelines of the Munich Security Conference. “It’s always better to do everything we can before important elections.”

The likelihood that Donald Trump will become the Republican Party’s nominee for this year’s US presidential election has spooked many in Europe, especially after the businessman said he would tell Russia to do “whatever the hell it wants” to Nato countries that failed to spend enough on defence.

Trump’s apparent willingness to throw Nato’s mutual defence clause into doubt cast a long shadow over this year’s Munich Security Conference, an annual gathering of politicians, generals and spy chiefs.

This year’s conference was held amid growing pessimism about Ukraine’s prospects in its nearly-three year war with Russia, as the country groans under a dire shortage of ammunition that has curtailed its ability to counter Russia on the battlefield. 

Western leaders say the situation has been exacerbated by Republican opposition to a new package of aid for Ukraine that has been held up for months in the US Congress. 

Ukraine’s military leaders ordered their soldiers to withdraw from the frontline town of Avdiivka over the weekend. The White House said after a phone call between President Joe Biden and his Ukrainian counterpart Volodymyr Zelenskyy that Ukrainian soldiers “had to ration ammunition due to dwindling supplies, as a result of congressional inaction”.

Washington has been pushing its allies to find ways to seize the €260bn of Russian central bank assets that were immobilised in response to Russia’s full-scale invasion of Ukraine nearly two years ago. Around €191bn of Moscow’s assets are held in Euroclear, a Brussels-based securities depository.

Estonia has long advocated the seizure of the assets. But Paris and Berlin are cautious, amid concerns about legality, financial stability and possible reprisals.

Kallas said seizing Russian funds would be an additional tool that could, alongside military aid to Ukraine and moves to isolate Russia politically, help bring an end to the war. “This is economic pressure we can place on the Russian economy to hasten the breaking point of this war.”

A Register of Damage was set up by the EU in The Hague last year to record evidence and claims for damage, loss or injury caused to individuals, companies and the Ukrainian state by the Russian invasion. Kallas said the frozen funds could be used to cover those losses: “If there’s anything left over we can give it back to Russia,” she said.

Kallas was speaking to the FT five days after being placed on a wanted list by Russia, the first time the Kremlin has pursued criminal charges against a western leader since launching its invasion of Ukraine. 

The move was apparently connected to the Estonian government’s push to remove Soviet-era monuments. “[Russian President Vladimir Putin] wants to send a message that Estonia is actually Russian territory, and he has jurisdiction over us,” she told the FT. “It’s the imperialist mindset.”

She linked the Russian move against her, which had prompted “a lot of congratulations”, with the death of Alexei Navalny, the Russian opposition leader, in a Russian prison. 

“The aim is to scare me, and the western countries, to make us refrain from the decisions we would otherwise take,” she said.

She said she wasn’t shocked by Navalny’s death. “Putin has been torturing him for a long time,” she said. “It’s the playbook they always have — the dictators’ handbook.”

Fortescue chair slams Germany for U-turn on EU supply chain rules

Berlin has withdrawn support for law that would punish companies for environmental abuses in distribution networks

Australian mining billionaire Andrew Forrest has slammed Germany for its U-turn against EU legislation that would punish companies for environmental and human rights abuses in their supply chains.

Germany withdrew its support for the landmark Corporate Sustainability Due Diligence Directive earlier this month at the insistence of the pro-business Free Democrats (FDP), the smallest party in the country’s coalition government.

In an interview with the Financial Times, Forrest, chair and largest shareholder of Fortescue Metals Group, said Germany had “a responsibility” to back the legislation, which had been due for approval until the country’s change of mind. Fortescue is the world’s fourth-largest iron ore producer and a big German trading partner.

“If you want to make sure that all your supply chains lead straight back to China, if you want to continue whingeing about it and wailing about it and doing nothing about it, then . . . don’t adopt the human rights corporate responsibility directive,” Forrest said, adding: “I could not be more stridently opposed to the view that [the directive] is bad for business.”

Many in Brussels believe the law is doomed without the support of the EU’s biggest industrial power.

The directive is intended to ensure that the largest EU companies report and take action on social, environmental and human rights abuses in their supply chains. It is one of the bloc’s most ambitious efforts to raise standards in countries outside the EU, as well as among its member states. 

But critics, including Germany’s biggest business lobby, say the proposed legislation places a huge burden on businesses and in many instances is unworkable.

Fortescue is one of the largest single companies at the end of many German groups’ supply chains. Forrest, Australia’s richest man, is also investing in Europe and Germany to back green technologies.

“I am a big supplier of raw materials and a backer of strategic changes [in European energy supply],” Forrest said. “If [Europe] adopts this law, then they’re going to stay competitive. What I do know is if they don’t adopt this law, then there’ll be a cloud of suspicion over industry.”

Tougher rules on corporate social responsibility in supply chains would also help Europe meet its geopolitical goals, Forrest added, because they would force businesses to diversify away from cheap supplies provided by politically unstable countries. 

“I want to supply green hydrogen, green metals, green iron, green technology, green everything. But I will do so with responsibility for the environment, for human rights and green energy,” Forrest said, adding that if the EU did not adopt tougher supply chain rules, it would be handing an advantage to less scrupulous businesses able to outcompete more responsible ones on price. 

Since Germany withdrew its support for the directive, a number of other countries, including Italy, Bulgaria and Austria, have signalled they would also abstain or vote against it. 

The directive is now in limbo. Multiple votes to try and push it through in the past fortnight have had to be postponed. Without a breakthrough, diplomats in Brussels say it is now unlikely to be passed until after EU-wide parliamentary elections in June.

UK risks second troubled offshore wind auction round, RWE warns

The government wants to have 50GW installed by 2030

The UK’s largest electricity producer has warned that the government is in danger of failing to secure enough new offshore wind projects this year due to flawed internal modelling around the technology. 

RWE told the Financial Times that ministers risk overestimating the costs of offshore power to bill payers leading it to potentially award fewer of the government support contracts needed to get projects off the ground. 

The German company, which produces about 15 per cent of the UK’s electricity and is developing offshore wind projects in the UK, wants officials to rethink their approach ahead of the next auction round in the summer.

“We have given this message to say — you are in danger of not deploying as much renewables as is economically possible,” said Tom Glover, UK country chair for RWE, which is listed in Frankfurt with a market capitalisation of about €23bn.

“We need to keep on track for the overall mission, which is renewable deployment.”

Offshore wind is set to play a crucial part in the UK’s efforts to cut its carbon dioxide emissions to net zero by 2050. The government wants to have 50 gigawatts installed by 2030, up from roughly 14GW today. 

The upcoming auction round for government contracts this year is vital for the industry’s prospects after the 2023 round flopped. No offshore wind developers bid after repeatedly warning the level of government support on offer was too low to offset rising costs. 

In response, the government has raised the maximum price that new wind farms could be paid for each megawatt-hour they eventually produce under its subsidy scheme.

The scheme is designed so that consumers fund top-ups to developers if the wholesale price of power falls below a certain level.  

However, ministers have not yet released forecasts for wholesale power prices and wind farms’ performance, which will help determine the cost to bill-payers and, therefore, the number of wind farms it can back in its budget. 

RWE warned that the forecasts used in the previous auction round for these subsidy contracts did not match market assumptions, with wholesale prices too low and performance too high, and that this could be damaging if repeated.  

Adam Berman, deputy director at trade group Energy UK, echoed the concerns. “It’s become clear over the last couple of years that there have been some fundamental methodological issues with the [contracts] design.

“The reality is we don’t have many auction rounds left to play around with. It’s incumbent on the government to recognise that we are behind where we should be and we have some catching to do.”

Alex Asher, senior consultant at Cornwall Insight, agreed the government’s expectations on power prices looked “on the low side”. 

“There’s benefits to all parties in trying to get those prices as accurate as possible,” he added.

RWE is developing 10 offshore wind projects in Britain with a total capacity of 11.2GW, including the Sofia project it is building 195km off England’s north-east coast. 

In December it agreed to buy three big projects in development from Swedish rival Vattenfall, months after the latter suspended work on the most advanced of them, Norfolk Boreas, blaming rising costs. 

A government spokesperson said it reviewed its assumptions on potential project costs ahead of every auction, and highlighted the success of the scheme so far in driving “substantial” growth across the renewables sector, with the world’s five largest offshore wind farms located in the UK.

Anglo-Russian miner rushes to leave country to avoid nationalisation

Polymetal, until recently one of the world’s most profitable gold miners, has secured a buyer for its Russian business that values it at more than $3bn, in a deal the Anglo-Russian group claimed would protect it from nationalisation.

Polymetal shareholders will vote on the sale to Mangazeya Mining — a Russian precious metals producer based in eastern Siberia — at next month’s shareholders’ meeting, the company said on Monday. If approved, the deal is expected to close as soon as March.

The terms highlight the increasingly challenging conditions for foreign companies trying to leave the Russian market with a decent valuation. Companies must find a buyer that does not violate western sanctions and must secure approval from Moscow.

“Some shareholders might say that financially the terms are not the best we could get — and I would agree,” Vitaly Nesis, Polymetal’s chief executive, said in an interview with the Financial Times. “But now it is more important to complete a satisfactory deal quickly than to continue striving for a good deal. It’s the question of uncontrollable risks of catastrophic nature.”

These include a “material risk of nationalisation or other form of property expropriation” by the Russian government and negative effects on Polymetal’s business in Kazakhstan, the company said in its statement.

Nesis, who only six months ago declared that he did not believe in the possibility of his company being nationalised, said he now believed this was very likely. “It’s not specific to us. It’s the general environment.”

Polymetal, until recently listed on the London Stock Exchange, has eight gold and silver mines in Russia and two in Kazakhstan, which account for about 40 per cent of the group’s earnings before tax and provide all of its cash flow. In the year ended June 30, the group produced 1,714 ounces of gold-equivalent and generated more than $3bn in revenues, an 8 per cent year-on-year rise.

The transaction values Polymetal’s Russian business at about $3.69bn, 5.3 times its earnings before interest, tax, depreciation and amortisation for 2023, the group said on Monday.

The deal is largely structured as a non-cash transaction, with the Russian unit paying a $1.4bn dividend to Polymetal while also retaining about $2.2bn of net debt.

The structure would avoid sanctions risks arising from the buyer’s need to attract external financing, since Russia is cut off from western capital markets and its own major lenders are subject to restrictions, said Nesis. Withdrawing so much cash from Russia would also be a challenge.

Nesis acknowledged that the “universe of potential buyers was limited” from the start because the company wanted to comply with sanctions, and the pool kept shrinking as the US and UK imposed new restrictions.

“There wasn’t much competition,” he said. “We probably had three or four offers, only one of which was actionable.”

Mangazeya is one of Russia’s 20 largest gold miners with four deposits in Siberia’s Zabaykalye region. It is owned by Sergey Yanchukov, a former oil trader who started his career in Ukraine’s Odesa region and has since worked with several Ukrainian and Russian oligarchs, including Vladimir Potanin of Norilsk Nickel.

According to Nesis, the choice of Mangazeya Mining was primarily dictated by Polymetal’s desire to fully comply with sanctions and its ability to complete the deal quickly without attracting attention.

The deal comes as multiple companies seeking to exit Russia have given up. The upcoming Russian presidential election, scheduled for March 15-17, has complicated matters further with turnover in some senior government personnel expected, including members of the government subcommission that approves corporate exits.

One person working on multiple exit deals said he knew at least two western companies that had recently decided to abandon planned exits altogether and remain.

Any exit involving a country deemed “unfriendly” by Russia — such as the US, UK or those in the EU — needs approval. This has in the past often depended on personal connections with government ministries and officials, while Moscow has also mandated a 50 per cent discount on assets. The seller must also make a contribution to Russia’s budget.

“You’re getting yourself in a mess,” the person involved in exits said. “You’re getting less money. Even if you ended up agreeing to less money at the beginning of the process, the end amount could be significantly lower.”