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Factbox-What is the EU’s stance on Russia’s roubles gas payment demand?

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© Reuters. FILE PHOTO: A 3D printed Natural Gas Pipes are placed on displayed EU and Russian flags in this illustration taken, January 31, 2022. REUTERS/Dado Ruvic

By Kate Abnett

(Reuters) -The European Commission said on Tuesday opening accounts in roubles at a Russian bank to pay for gas would breach the bloc’s sanctions against Moscow, after releasing updated guidance on how companies can legally keep buying Russian fuel.

Russia halted gas supplies to Bulgaria and Poland in April after they refused to meet its demand that European buyers start paying for Russian gas in roubles – raising fears that other states could be next.

Countries and companies have for weeks been demanding clarity on how they can proceed, with some firms facing payment deadlines this month.

The European Commission has said countries should not pay in roubles, and that complying with Russia’s request could breach European Union sanctions against Moscow over its invasion of Ukraine.

However, Brussels has also outlined options that may allow EU buyers to continue paying for Russian gas without breaching sanctions.

The following explores the issue.

WHAT DOES RUSSIA’S DECREE SAY?

In March, Moscow issued a decree proposing that energy buyers open accounts at Gazprombank to make payments in euros or dollars that would then be converted to roubles and paid to gas supplier Gazprom (MCX:GAZP).

The decree said Gazprombank would open special “K” type accounts for gas payments from foreign buyers. An EU company would transfer foreign currency into one such account, and then a Russian bank would convert the payment to roubles and transfer the roubles to another “K” account belonging to Gazprom.

The decree said the buyer’s obligation would be considered fulfilled only when the roubles arrived in Gazprom’s account.

CAN COMPANIES KEEP BUYING GAS?

The European Commission sent updated advice to the EU’s 27 member countries on the issue on Friday.

The guidance said EU companies can pay for Russian gas without breaching sanctions, but only if they do so in the currency agreed in their existing contracts. Nearly all – 97% – of the supply contracts EU companies have with Russian gas giant Gazprom are in euros or dollars.

Companies must also make a “clear statement” that when they pay euros or dollars, they consider their obligations under existing contracts to be fulfilled – as opposed to after Russia has converted the payment into roubles, the guidance said.

The Commission’s latest guidance said EU companies are allowed to open accounts with Gazprombank to make payments in this way. That confirmed earlier advice it had shared with EU countries in April.

However, a Commission spokesman said on Tuesday opening accounts in roubles at a Russian bank to pay for gas would breach the bloc’s sanctions.

“It goes beyond the indications which we give to the member states of what was allowed under the regime,” the spokesman told a regular press briefing, when asked about opening rouble accounts.

That has raised further questions about how European companies can pay, because Russia’s decree calls for buyers to open two accounts to enable the currency conversion – one for each currency.

WHY COULD RUSSIA’S PROPOSAL BREACH EU SANCTIONS?

The Commission has consistently said that fully complying with Russia’s decree – under which the EU buyer’s contractual obligation would not be considered complete until the euros are converted into roubles, in a transaction potentially involving the central bank – would breach EU sanctions.

By declaring its obligations finished once it deposits euros or dollars, a European company could therefore avoid being involved in any dealings with the Russian central bank.

It isn’t clear if Russia would accept the workaround suggested by the Commission. President Vladimir Putin’s decree had said a transaction would only be deemed complete after the foreign currency was converted to roubles.

Factbox-What is the EU’s stance on Russia’s roubles gas payment demand?

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