8 kwietnia 2022 Christoph Barth  -  Sebastian Plötz ForeignInvestmentLinks

The curious case of Gazprom Germania – how the Ministry intervened in the transfer of critical infrastructure to a Russian company purportedly led by a DJ

On 4 April 2022, the German Federal Ministry for Economic Affairs and Climate Action announced its intervention in the indirect acquisition of the Gazprom Germania Group, a company that plays a key role in Germany’s gas supply. It did so by appointing the German Federal Network Agency (FNA) as fiduciary for the target’s parent company and transferring all voting rights in the company to the FNA.

The announcement came out of the blue, and it is the first time that the Ministry has used its powers for such an intervention. We summarise below the chain of events and explain the involvement of an alleged Russian DJ. The case clearly shows that the German foreign investment regime is a force to be reckoned with if investors do not comply with the rules – and action may be swift. 

What happened?

The Gazprom Germania Group, a major German energy player with a revenue of €12.7 billion in 2020, operates so-called critical infrastructure in Germany, including gas storage tanks and certain gas pipelines. It is controlled by Gazprom Germania GmbH, which is part of the wider Gazprom Group, a Russian state-owned enterprise. 

Between 25 March and 1 April 2022, the indirect acquisition occurred by means of the following steps:

  • In a first step, the Gazprom Group transferred all shares and voting rights in Gazprom Germania GmbH to the Russian-based company, Gazprom Export Business Services LLC (GPEBS). According to the Ministry, it is unclear whether the latter is actually affiliated with the Gazprom Group. 
  • In a second step, 0.1% of the shares in GPEBS and 100% of its voting rights were acquired by the Russian Joint Stock Company Palmary (JSC Palmary). Again, the Ministry has stated that it is unclear whether JSC Palmary is affiliated with the Gazprom group. Further, public sources seem to indicate that JSC Palmary’s CEO, who took control over Gazprom Germania Group, is a Russian DJ with no previous experience in the energy sector.
  • Immediately after these transactions, GPEBS issued a shareholder resolution announcing the voluntary liquidation of the entire Gazprom Germania Group. 
The Ministry’s intervention and its legal implications

Under the German FDI regime, generally a transaction involving German companies with activities in certain sensitive sectors will trigger a mandatory filing requirement if the purchaser acquires voting rights exceeding a certain sector-specific threshold. Operators of critical infrastructure such as Gazprom Germania fall under these provisions and any direct or indirect acquisition of 10% or more of the voting rights by non-EU/EFTA investors needs to be notified. 

Also, the German FDI regime includes dedicated rules on gun-jumping. A transaction completed prior to obtaining clearance is provisionally invalid and only becomes effective with the Ministry’s written clearance decision. Further, prior to clearance, the purchaser cannot exercise its voting rights. 

Nonetheless, the Ministry saw the need to implement additional measures – which had not been previously used in the context of a transaction – with immediate effect due to the imminent danger to the public order and security of Germany: 

  • All voting rights in Gazprom Germania GmbH are transferred to the FNA with immediate effect for fiduciary management. In particular, the FNA now has the power to remove or appoint board members and is authorised to issue instructions to the management.
  • Consequently, no shareholder of Gazprom Germania GmbH is allowed to exercise its voting rights in the company. 
  • The right to manage and dispose of any of the Gazprom Germania GmbH assets is restricted and is subject to the explicit approval of the FNA.

These measures are a result of the special circumstances that have arisen both in view of the Ukraine crisis, but also regarding Germany’s gas supply issues and its dependency on Russia. The Ministry explained that the fiduciary management was necessary for the following reasons: 

  • Gazprom Germania, as an operator of critical infrastructure, is of outstanding significance for Germany’s gas supply.
  • The new investor had failed to make the mandatory filing and infringed the gun-jumping rules. 
  • The Ministry considered that its ability to conduct a proper foreign investment control assessment would be jeopardised. In the Ministry’s view, the transaction posed a concrete and present danger to the public order and security of Germany which required immediate action. 
  • In the Ministry’s view, the fiduciary management was the most moderate measure given the circumstances, also taking into account that the new investor did not show any intention to comply with the German foreign investment rules now or in the foreseeable future. 
Key takeaways for investors

Ultimately, the Gazprom Germania case highlights that: 

  • The Ministry is monitoring the market thoroughly and it is therefore much more difficult nowadays for a deal to fly under the radar.
  • Further, the Ministry has significant powers under the German FDI regime and is willing to use them to prevent harm to the public order or security – especially in cases involving sensitive sectors or critical infrastructure. 
  • Investors should be aware of:

a) their notification obligations under the German FDI regime – including for internal reorganisations (see one of our previous blogs on the safe harbour for internal restructurings) – and

b) the existing rules on gun-jumping which allow for fiduciary management of the voting rights by public authorities and also for potential criminal sanctions of up to five years’ imprisonment.

  • Meanwhile, the European Commission has called upon Member States to make use of foreign investment control in the context of Russian and Belarusian investments into Europe and to scrutinise any such investments particularly closely. Further, in its communication of 6 April 2022, the Commission urged the nine Member States which do not yet have dedicated foreign investment regimes, to enact such regimes as quickly as possible. We expect that this call will be heard loud and clear.