Companies | Fortum seeks billions of euros in damages from Russia

Fortum seeks billions of euros in damages from Russia.

Fortum says that it has sent a notification to the Russian government, according to which the company considers that Russia has violated the obligations of the investment protection agreements between the Netherlands and Russia and Sweden and Russia.

According to Fortum, the notification is part of the first phase of the arbitration procedure, which is estimated to start at the end of the current year.

Fortum says in its announcement, that it will demand damages, the value of which corresponds to the value of Fortum’s Russian subsidiary PAO Fortum’s shares and Fortum’s investments in Russia. Claims for damages rise to “several billions of euros”.

Fortum believes that the Russian authorities are preventing the company from using its shareholder rights.

Fortum’s general counsel by Nora Steiner-Forsberg according to international arbitration procedures are typically years-long processes. Now the process has officially started through the notification.

Next, there is a six-month period, during which negotiations can take place. In practice, the process starts properly only after that.

The parties to the dispute are the Russian state and Fortum. Later, it will be determined where the arbitration court will be held and who will decide the dispute in the arbitration court.

The other side of the dispute is the Russian state, which is waging its war of aggression in Ukraine. Do you really believe that you will receive money from Russia?

“We will use all legal means to ensure that we receive full compensation. We assume that sooner or later we will be fully compensated for the damage caused,” says Steiner-Forsberg.

He points out that, on a general level, it can be stated that the Russian state has funds in the West that can be used.

Steiner-Forsberg says that a claim for damages is not just a formal claim in any case. He says that the company has an obligation to its shareholders to uphold its rights.

Fortum has invested a total of approximately six billion euros in Russia. The figure covers both acquisition and subsequent investments. Managing director Markus Rauramo told in Maythat the investments have been largely financed by the cash flow from the Russian business.

“When you calculate the investment made in the acquisition of the Russian operations, the dividends received and the net financing items, the net cash loss to Fortum and the cost of our Russian venture, the total is about two billion euros,” Rauramo said in May.

Rauramo said at the time that the company is preparing to defend its rights based on international legislation.

Steiner-Forsberg now states to HS that the final amount of the claim for damages is only determined as the process progresses, and the amount does not automatically correspond to, for example, the amount of write-downs or investments.

Fortum now says in its press release that the background to the arbitration is “hostile actions by Russia”. According to Fortum, these actions culminated in the Russian president Vladimir Putin to the decree, on the basis of which the Russian authorities took over Fortum’s Russian subsidiary PAO Fortum and fired the CEO of PAO Fortum.

HS told in April, that masked and armed troops arrived at Fortum’s Russia unit during lunchtime. They directed the employees and the management of the subsidiary to different premises. A meeting was organized in the presence of the authorities, where the managing director of the subsidiary was replaced.

In Finland, Fortum found out about the change in the management of its subsidiary from a press release.

Is there currently any kind of contact on the Finnish end of Fortum with the new management of your subsidiary?

“No information passes between the companies. Only legal reclamation letters,” says Steiner-Forsberg.

Fortum announced in connection with its first interim report of the year that the Russian operations will be completely excluded from the balance sheet.

The company said that due to the loss of control, the Russian operations will no longer be consolidated into the Fortum Group, and the Russian operations will be written down in their entirety in the interim report for the second quarter of 2023.