The war in Ukraine is leading to spectacular political decisions that nobody would have thought possible just a few months ago. The federal government is even considering expropriating German subsidiaries from Russian energy companies in order to secure Germany’s gas supply.
After the Russian energy group Gazprom recently transferred the shares and voting rights of its German subsidiary Gazprom Germania GmbH to other companies and decided to “voluntarily liquidate” them, the German government reacted promptly.
She used the Federal Network Agency as trustee of Gazprom Germania. In addition, the Bundestag amended the Energy Industry Act and introduced filling level specifications for gas storage facilities to ensure that the gas storage facilities in Germany are always sufficiently full (“Gas Storage Act”).
This escalation raises the question of what (constitutional) legal options there are for influencing companies with Russian majority holdings that are based in Germany.
Two companies in particular are currently the focus of public attention: the energy plants of PCK Raffinerie GmbH in Schwedt, which are operated with a majority holding by the Russian state and are majority-owned by Rosneft Deutschland GmbH; and Gazprom Germania, which operates, among other things, the largest natural gas storage facility in Western Europe in Rehden, Lower Saxony.
Expropriation can only be considered as a last resort
As ultimately the most massive form of encroachment on property, expropriation is subject to strict requirements and, for reasons of proportionality, can only be considered as a last resort.
First of all, it needs justification by a sufficiently weighty and legitimate interest in the common good. For this purpose, the state’s duty to protect, which is protected by fundamental rights, to ensure the security of the supply of gas and oil is a good option.
However, it should be borne in mind that the Russian subsidiaries in Germany represent only part of the overall supply chain in the energy market and do not necessarily have access to all Russian production resources themselves.
The nationalization of these companies also harbors the risk of discouraging Russia from fulfilling its contractual obligations towards its – previous – subsidiaries in Germany.
If gas storage facilities or the oil refinery in Schwedt are to be the object of the expropriation, the act of expropriation alone does not ensure that the storage facilities are full and the refineries continue to operate. In order to legitimize the expropriation, a coherent overall concept should ideally be required that also includes a possible replacement procurement of the necessary storage gas, for example from the nearby Netherlands.
The expropriation would also have to be proportionate overall. It would have to be both appropriate and necessary to achieve the objective of general interest, and the intensity of that interference would have to be proportionate.
>>Read here: Gazprom gives up its German subsidiary Gazprom Germania
With regard to gas storage, the priority application and compulsory enforcement of the new gas level obligation could represent an alternative if the corporations do not comply or do so poorly. Supervisory measures according to paragraphs 65 et seq. of the Energy Industry Act are also possible.
However, it is difficult to assess whether such a procedure would be equally suitable for achieving security of gas supply, i.e. would have the same clout as expropriation in terms of time and content.
Since the gas sector to be protected is a particularly critical infrastructure, the legislature should ultimately have a lot of leeway for its assessment.
Irrespective of the more or less drastic economic forecast that is made in the event of a gas supply stop, it does not seem appropriate in view of the economic and private interests that need to be protected in the current unpredictable overall situation to force the state to wait any longer.
As far as the oil refineries are concerned, the purchase of the shares in the companies by the state or third parties, such as Western oil companies, would be a possible milder means. A fictitious purchase price would probably be significantly higher than the expropriation compensation to be paid under Article 14 (3) of the Basic Law.
But that alone is not sufficient for constitutional justification. Rather, a (priority) “private” acquisition is ruled out simply because of the completely unreliable and dazzling behavior of the Russian side when dealing with the German subsidiaries.
The legislature would have to pass an expropriation law
Expropriation also requires a separate and sufficiently specific legal authorization. As far as the withdrawal of ownership rights from gas storage facilities or oil refineries is concerned, it has so far been lacking. However, it is up to the (federal) legislature to quickly pass an expropriation law (“legal expropriation”) if there is a corresponding political consensus.
Otherwise, an administrative expropriation at least of gas storage facilities by the responsible energy authorities of the federal states could make possible Section 45, Paragraph 1, No. 2 of the Energy Industry Act. It permits (“necessary”) expropriation to secure the energy supply.
The problem, however, is that this standard authorizes the seizure of property for the purpose of setting up and expanding energy systems – typically it is about farmland for overhead power lines. However, the standard does not explicitly authorize the expropriation of these energy systems themselves.
However, the wording of the standard is broad (“other energy supply projects”) and could also include the expropriation of gas storage facilities. But that would always be breaking new legal ground.
Finally, for an expropriation or for a definition of content and limitations that is below this threshold but may be subject to “compensation”, appropriate compensation must be paid to the companies or individuals affected.
The compensation clause is intended to compensate for disadvantages that (may) arise as a result of expropriation. However, it should be considered whether the fact that the Russian parent companies of Gazprom Germania and Rosneft Germany – or the Russian government ultimately behind them – are currently regulating themselves to a large extent in relation to the operators of highly critical energy infrastructures held in Germany should not have a “compensation-reducing” effect – to act contrary to treaty and international law.
Ultimately, ownership of Russian-operated gas storage facilities and oil refineries does face some legal pitfalls. However, these do not seem insurmountable as long as there is political will.
The authors:
Sven Joachim Otto is honorary professor for the legal and economic aspects of the transformation of infrastructure systems, especially in the field of energy, at the Ruhr University Bochum and co-director at the Institute for Mining and Energy Law there.
Johann Christian Pielow is Professor of Economic Law at the Ruhr University Bochum and Managing Director of the Institute for Mining and Energy Law at the Ruhr University Bochum.
More: Expropriation not ruled out: Gazprom and Rosneft under surveillance.