Western companies that are pulling out of Russia in response to Moscow’s invasion of Ukraine are facing pressure in the country, after President Vladimir Putin endorsed a plan to nationalize assets left behind and the country’s prosecutor general said it would scrutinize labor issues related to their withdrawal.
Mr. Putin on Thursday backed a plan floated earlier this week by a senior member of his dominant United Russia party. Andrei Turchak, the secretary of the general council of the United Russia party, said earlier this week that Russia should nationalize the operations of Western companies exiting the country. The comments were made as a number of Western companies said they would either temporarily halt operations or pull out of Russia for good.
Such a move by Russia would help prevent job losses and maintain the country’s ability to produce goods domestically, said Mr. Turchak.
Washington warned against any nationalization. “Any lawless decision by Russia to seize the assets of these companies will ultimately result in even more economic pain for Russia” and may invite legal action, White House press secretary Jen Psaki tweeted Thursday.
In deciding to exit Russia, many Western companies have already accounted for the possible long-term loss of assets, in many cases warning of write-downs related to their businesses there. Such a move would hit companies very differently. For some, it would entail a relatively light financial burden—for instance, the loss of leases on real estate. For others, with operations that include expensive manufacturing equipment or logistics assets, like warehouses and fleets of trucks, the hit could be heavier.
BP, among the first big companies to say it would leave Russia, said it was relinquishing its nearly 20% stake in Russian oil producer Rosneft. The stake was valued at around $14 billion at year-end, and BP has said it doesn’t expect to recoup any of that.
“We’ve effectively walked away from our business in Russia,” BP nonexecutive director John Sawers said at a recent Wall Street Journal CEO Council event. Mr. Sawers said the value of BP’s Rosneft stake is currently “close to zero.”
The United Russia party dominates Russia’s rubber-stamp parliament and is unwaveringly loyal to Mr. Putin. In comments Thursday, Mr. Putin appeared to endorse the idea during a televised cabinet meeting, saying that the government should “introduce external management” of companies that are leaving Russia and then transfer these enterprises to those who want to work.
Andrei Turchak, the secretary of the general council of the United Russia party, said Russia should nationalize the operations of Western companies exiting the country.
Photo: Alexander Ryumin/Zuma Press
Separately, the country’s prosecutor general’s office Friday said companies will be closely monitored to ensure companies that have said they are leaving are complying with labor laws. It didn’t specify any steps it was planning to take. More than 300 foreign companies have said they are leaving or temporarily suspending work in Russia, according to the Yale School of Management.
The planned departures of many companies have left thousands of workers in limbo. Many companies, particularly many retailers and manufacturers, have said their decision to exit or pause operations was temporary and related to the disruption that sanctions have had on supply chains.
One of the most vulnerable countries to any Russian nationalization is Germany, the biggest foreign investor in the country, according to Ernst & Young, followed by China and the U.S.
Over the past two decades, German companies undertook 418 projects in Russia, more than any other European country, EY said. EY said manufacturing remained the most attractive sector for foreign investment in Russia, but in 2020 half the investment from Germany and the U.S. was in Russia’s agricultural sector.
The auto industry has provided among the biggest Western investments in Russia over the past 20 years. Since Russia’s invasion of Ukraine, auto makers around the world have stopped production and frozen business with Russia.
Germany’s Mercedes-Benz Group AG holds a 15% stake in Russia’s Kamaz automotive group. Mercedes is in the process of transferring the stake to Daimler Truck Holding AG , the truck maker that was spun off and split from Mercedes. Daimler Truck has suspended all business with Kamaz until further notice.
A spokesman for Mercedes said the company hadn’t received “any official note about expropriations” but said it was monitoring the situation closely.
In 2021, fellow German car maker Volkswagen AG produced about 118,000 cars at its plant in Kaluga, Russia. It also contracts assembly of VW brand and Skoda vehicles to a Russia company, GAZ Group, in Nizhny Novgorod, which produced 52,300 vehicles last year, VW said. VW also produced about 96,100 engines in Kaluga last year. VW didn’t immediately respond to a request for comment about the expropriation threats.
Another big European investor in Russia is French car maker Renault SA . The company has taken control of Russia’s AvtoVAZ, which makes Lada cars, and derives about 8% of its earnings before interest and taxes from Russia, according to research by Citi. Renault operates three plants in Russia, which could be forfeited if Moscow expropriates foreign-owned assets.
A spokesman for Renault said the company didn’t have any comment.
German industrial company Siemens AG said Friday that it stands by its earlier position on freezing new business in Russia and ensuring sanctions compliance for its continuing local service and maintenance-related activities.
“No formal notifications have been received from Russia” on nationalization, a spokesman said. “It doesn’t make sense to speculate at this stage.”
Write to Evan Gershkovich at [email protected], William Boston at [email protected] and Georgi Kantchev at [email protected]
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