Russia’s opportunity to reform its economy is disappearing.
When Russian President Vladimir Putin decided to attack Ukraine, at the same time he condemned the country’s economic destruction.
The war in Ukraine may end sooner or later, but the confidence of Western investors and companies in Russia’s current regime will not return. The escape of Western companies from Russia entails the idea that they will stay away as long as Putin rules. The longer this lasts, the more certain the Russian economy will be destroyed.
Russia is a declining resource economy that needs far more Western know-how than it wants to admit. The world is moving towards zero-emission energy production, and Russia should be in a hurry to modernize its economy. Russia would need help with that. Now this still open window closes as the west retreats and does not return in time.
Russia has been an important market for many Western companies – especially in the energy sector. The operations of these companies in Russia have been reasonably secure and predictable, as they have operated in a strategic field for Russia. Now this bandage turns into a hanging rope. In the energy sector, agreements with Russia must be concluded with the state and local government. Agreements with the regime after the Putin war are written in blood.
Sanctions against Russia have sensitized consumers in the West. The irritation of the Finns forced Fazer to stop operating in Russia, even though the company originally planned to stay. Valio and Paulig will also be gone. Reputation damage is also a real danger for companies in the energy sector. The Teboil group, owned by the Russian Lukoil, is well aware of this.
Fortum is the giant of Finnish companies in Russia. Fortum has about 7,000 employees and 12 power plants in Russia with its subsidiary Uniper. Fortum has made relatively little progress so far, as its consumer products are not as easy to boycott as chocolate bars.
The company’s – seemingly bad – argument is that it has an obligation to supply electricity and heat to consumers in Russia. A slightly better explanation is that if Fortum leaves, operations will continue under the leadership of a Russian player, nothing will change and the balance sheet value of the Russian operations of EUR 5.5 billion will be written down. There may be many other off-balance sheet liabilities on top of that.
Fortumin Revenues from operations in Russia have been roughly the same size as dividends to the state owner, ie taxpayers. Now, this “transfer budget” of 500 million looks pretty ugly, whether the explanation looks better or worse.
The author is the editorial editor of HS
#Columns #Western #companies #return #Putins #Russia
