EXPLAINER-How a German ‘climate’ fund decided to help Russia dodge US sanctions

Band Thomas Escritt and Sarah Marsh

BERLIN, February 10 (Reuters)A German politician set up a state-backed foundation with Russian energy company Gazprom last year to help Moscow avoid U.S. sanctions on a pipeline to carry Russian gas to Europe.

The move adds to questions about whether the United States and Germany are on the same page on the $11 billion project — a crucial question as the two great democracies lead NATO allies in a pushback against Russian President Vladimir Putin.

In 2019Washington has imposed sanctions on those involved in laying the pipeline, Nord Stream 2. The United States has argued that the line, which is being built but not yet pumping gas, is a tool for Russia to support aggression against Ukraine.

A major gas pipeline linking Russia to Europe currently passes through Ukraine, but Nord Stream 2 passes directly into Germany under the Baltic Sea. By allowing Russia to cut Ukraine off from Europe’s energy supply, Washington says the pipe will weaken Kiev and make it more vulnerable to Russian invasion.

Germany rejects US sanctions, saying Nord Stream 2 is primarily a commercial project that diversifies Europe’s energy supply. Senior German politicians from both major parties have said the US objections are self-serving: Washington wants to sell more gas to Germany.

Russia has repeatedly said the project is commercial, not political, that it will help ease power shortages in Europe and lower gas prices; he says the penalties are unfair and serve as a tool against competitors.

Despite the sanctions, the line was completed in 2021.

By December, Moscow had amassed more than 100,000 troops on Ukraine’s borders. He denies planning an invasion. US officials say an attack could occur within days or weeks.

What is the foundation?

The Klima- und Umweltschutz (Foundation for Climate and Environmental Protection) was established in January 2021, when the pipeline was nearing completion, by the government of Mecklenburg-Vorpommern, the eastern German region where Nord Stream 2 touches Earth. An initiative of Social Democrat Prime Minister Manuela Schwesig, the Foundation says it will strengthen the role of renewable energy and gas as a transition technology to cleaner fuels.

Where does the money come from?

The regional government has injected 200,000 euros ($230,000) into the Foundation, according to the region’s public audit office. The Foundation was also endowed with 20 million euros from Nord Stream 2 AG, a Swiss-based company owned by Gazprom PAO GAZP.MMaccording to a company spokesperson.

Nord Stream 2 said it would donate an additional €2 million to the Foundation each year. All profits made by the commercial arm will also go to the endowment of the Foundation, in accordance with its charter.

What does the Foundation do?

It is a philanthropic fund that supports environmental projects, which according to its statutes also has a commercial component. The commercial arm carries out its activities related to Nord Stream 2.

Its website lists the environmental projects it has supported: for example, it states that it gives every kindergarten in the state a free tree for children to plant plus 500 euros, and organizes contests so that children brainstorm ways to make schools more climate-friendly, promising scholarships to winners.

Its charter states that the Foundation’s secondary objective is to ensure that the Nord Stream 2 gas pipeline is completed, “independent of outside efforts”.

The Foundation may acquire, manage, own, provide, or lease land, tools, and machinery that assist it in achieving any purpose, including the completion of the pipeline, the charter states.

“We think it’s right to build the pipeline,” Schwesig said. told reporters in January 2021.

She and others have argued that Germany needs an energy source that does not depend on goodwill between Russia and Ukraine. Advocacy for the pipeline in the state parliament last January, Schwesig noted US sanctions were self-serving.

“Nobody working on the construction of the pipeline is doing anything wrong,” she said. “Those who do something wrong are those who try to shut down the pipeline at the last minute…That’s why we expect our federal government to firmly push back against sanctions.”

Former Finance Minister Olaf Scholz – now Chancellor – has rejected US sanctions as interference in Germany’s affairs.

Who else supports the Foundation?

Schwesig’s Social Democratic Party (SPD), which leads Germany’s governing coalition and has traditionally advocated close relations with Russia, is the bedrock of political support for the foundation, but a Christian Democrat opposition politician sits also on its board – reflecting broad public support for Nord Stream 2 in Mecklenburg-Vorpommern.

The President of the Foundation is Erwin Sellering, member of the SPD, former Prime Minister of the State. Gerhard Schroeder, a former chancellor of the SPD and close friend of Putin, has headed Nord Stream’s shareholders’ committee since 2005. He also sits on the board of Russia’s top oil producer Rosneft and was appointed this month to join the Gazprom Board of Directors. Schroeder declined to comment to Reuters.

How will Germany benefit from the pipeline?

The pipeline would double the amount of gas Russia can pump directly to Germany. Russian natural gas accounts for about half of Germany gas needs. Gas keeps half of German households warm and is essential for manufacturing industries like ceramics in Europe’s biggest economy. Gas accounted for just over 15% of German electricity production last year, according to energy and water industry group BDEW.

What did the Foundation do to help build the pipeline?

He refused to answer the question.

In an account of its first year on its website, it said that to complete the pipeline, “unlawful threats from the United States had to be countered by a wide range of measures, which, for obvious reasons, cannot be subject to public explanation”.

The commercial arm, which carries out its activities related to the pipeline, is headed by a person designated by Nord Stream 2, in accordance with the Foundation’s statutes. The Foundation declined to tell Reuters who Nord Stream 2 had appointed to head the commercial arm.

Public records show that the foundation owns the blue ship, a general cargo ship built in 2006 under the Cypriot flag. Stationed in the Russian port of Murmansk for much of 2020, the ship entered the Baltic on July 1 last year and remained near the port of Mukran, about 30 km (18 miles) from the point of departure. Lubmin pipeline landing since then. No other ships are registered with the foundation.

A US State Department report to Congress last November said the Blue Ship was one of two ships that had engaged in pipelaying activities, on Nord Stream 2 or another sanctioned project.

The Blue Ship, however, was not sanctioned. The State Department said the shipowner was exempt from penalties. A 2021 invoice the sanctions enactment said European Union governments were excluded, as well as EU governments that did not operate as a business. The State Department did not elaborate.

The administration of US President Joe Biden renounced some sanctions on Nord Stream 2 in May 2021 as Washington sought to renew ties with Germany, after relations soured under former President Donald Trump.

How does the region benefit from the pipeline?

Several hundred local workers have been involved in its construction, “several hundred million euros” have been invested in the state so far compared to Nord Stream 2, and the pipeline operator plans to employ a 30 long-term workers, a spokesman for Gas for Europe (G4E), the German subsidiary of Nord Stream 2, told Reuters.

Mecklenburg-Vorpommern is home to much of Germany’s offshore wind capacity and the local government says it aims to use wind power to produce ‘green’ hydrogen which can in future be exported via the Nord Stream 2 line.

What does the rest of Germany say about the Foundation?

The Foreign Office declined to comment on the Foundation or its goals. Former Foreign Minister Heiko Maas, who was in office when the Foundation was established, said at the time that it was “a decision made in Mecklenburg-Vorpommern, it was not a decision of the federal government”.

The region’s public audit office criticized the Foundation. In a statement to Reuters, the office said the state gave it only partial information about the Foundation, did so late, and that the public money the state gave to the Foundation was only no longer under state control.

Some environmentalists argue that the support gas is harmful to the climate, noting that the gas emits carbon when burned. The German NGO Environment Aid called the Foundation a “service to Nord Stream 2 AG”.

What does the Foundation say about the Ukrainian crisis?

Its chairman Sellering told Reuters that the crisis is being used as an excuse by “significant forces” in the United States and Germany who have always opposed the pipeline, and who now, “before and independently of any action by Russia, are trying to put an end to Nord Stream 2.”

He said it would be unfair if Germany were forced to stop importing Russian gas while the United States continued to import raw materials from Russia.

If new sanctions are imposed on the pipeline, will the Foundation act to mitigate the impact?

The Foundation did not answer this question.

Nord Stream 2 pipeline routehttps://tmsnrt.rs/3HG351V

(Additional reporting by Jonathan Saul in London, Daphne Psaledakis, Timothy Gardner and Andrea Shalal in Washington DC, Andreas Rinke in Berlin, Jacob Gronholt-Pedersen and Stine Jacobsen in Copenhagen, Vladimir Soldatkin in Moscow; Editing by Sara Ledwith)

((Thomas.escritt@thomsonreuters.com;))

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James R. Rhodes