EU says pay for Russian gas in euros to avoid violating sanctions

European Union flags fly outside the European Commission headquarters in Brussels, Belgium, April 10, 2019. REUTERS/Yves Hermann/File Photo

BRUSSELS (Reuters) – European Union companies may be able to get around Russia’s demand to receive gas payments in rubles without breaching sanctions if they pay in euros or dollars and then switch to Russian currency, the European Commission said on Friday.

Companies will also need to look for additional terms on transactions, such as a statement that their contractual obligations have been completed once the non-Russian coins are deposited.

Moscow has warned Europe that it risks cutting off gas supplies unless it pays in rubles. In March, it issued a decree proposing that energy buyers open accounts in Gazprombank to make payments in euros or dollars, which will then be converted into rubles.

The commission said companies should continue to pay the currency agreed upon in their contracts with Gazprom – 97% of it in euros or dollars.

“Companies with contracts providing for payments in euros or dollars should not respond to Russian demands. This would be in contravention of applicable sanctions,” a commission spokesman said.

In an advisory document sent to member states on Thursday, the commission said Russia’s proposal risks violating EU sanctions because it would put the actual completion of the purchase – once payments are converted into rubles – in the hands of Russian authorities.

However, the commission said that the Moscow decree does not necessarily prevent a payment process that complies with EU sanctions against Russia over the conflict in Ukraine.

Brussels said in the document that there are options that may allow companies to continue to pay legally for gas.

“EU companies can require their Russian counterparts to fulfill their contractual obligations in the same way they were before the adoption of the decree, that is, by depositing the amount due in euros or dollars,” the document said.

However, the procedures for securing exemptions from the requirements of the decree are not yet clear.

The document said that before making payments, EU operators can also make a clear statement that they consider their contractual obligations completed when they deposit euros or dollars with Gazprombank – as opposed to what happens later, after the payment is converted into rubles.

“It is desirable to obtain confirmation from the Russian side that this procedure is possible under the rules of the decree,” the document said.

The commission’s advice is not legally binding, but an attempt to guide the discussion as member states work to determine how to continue paying for Russian gas.

The document said the EU sanctions regime does not prevent companies from opening accounts with Gazprombank, or doing business with the bank to try to find a solution.

(Reporting by Kate Abnett) Editing by John Chalmers and Ross Russell

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