International companies exposed to Russia prepare for new sanctions

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Employees work at a LADA Izhevsk car factory, part of the Avtovaz group, in Izhevsk, Russia, on February 22.GLEB STOLYAROV/Reuters

On Tuesday, foreign companies with exposure to Russia were weighing contingency plans, with some debating whether to move production or find new supply chains to protect their businesses from new Western sanctions.

Automaker Renault Avtovaz, Finland’s Nokian Tyres, Coca-Cola soft drink bottler HBC and German retailer Metro all said they were monitoring the situation in Ukraine closely given this week’s escalation.

Britain on Tuesday sanctioned five Russian banks and three billionaires and Germany suspended gas pipeline certification in a first wave of restrictions. The EU and US are expected to announce measures with energy and technology potentially in the firing line, along with financial services and more individuals.

The White House has told the US chip industry, for example, to be ready for further restrictions on exports to Russia, including the potential blockage of Russia’s access to global electronics supplies.

Avtovaz, the automaker behind the Lada brand in which Renault has a 69% stake, said on Tuesday it was looking to secure different semiconductor supplies in case Washington cracks down on electronics.

“Of course, we are also studying the possibilities of finding alternatives in the event of sanctions,” Nicolas Maure, general manager of Avtovaz, told reporters in the Russian city of Izhevsk.

Russia depends on foreign chip supplies and a senior Russian auto industry source said it was concerned about how delivery times and new pre-orders could be affected.

Nokian Tyres, which has a factory and warehouse in Russia, said it had stepped up its risk management planning and was ready to move manufacturing of certain products between factories if necessary.

Coca-Cola HBC, which bottles soft drinks in 29 European and African countries and counts Russia and Nigeria as its two biggest markets, said it learned lessons from the 2014 Russia-Ukraine conflict.

Chief executive Zoran Bogdanovic said he was considering stockpiling ingredients to limit any disruption in Russia and also had plans for an alternative supply of raw materials.

“We looked at all types of scenarios and made sure we had contingency plans in place in the event of a disruption,” Chief Financial Officer Ben Almanzar said.

Swiss consumer goods giant Nestlé declined to comment on the sanctions and said the safety of its staff was its top priority. In 2020, Nestlé had six factories in Russia, including factories manufacturing confectionery and beverages. Its sales in 2020 were approximately $1.7 billion.

Danone, the world’s largest yogurt maker which controls Russian dairy brand Prostokvashino, said it was also focusing on the safety of its employees.

German retailer Metro, which operates in both Russia and Ukraine, said it was following current developments with concern.

“Our responsibility as a business in Russia lies primarily with our approximately 10,000 employees and 2.5 million customers,” Metro spokesman Gerd Koslowski said, adding that the same concerns applied to Metro in Ukraine.

Some companies, however, such as Germany’s HeidelbergCement, said they did not expect a major impact on their Russian operations, even if the conflict escalated.

“Our three Russian cement plants supply their respective local/regional markets and do not export outside of Russia,” a company spokesperson said.

Washington and Brussels imposed sanctions on Russia’s energy and defense sectors following Moscow’s annexation of Crimea in 2014. There is now speculation that these measures could be broadened and deepened , one possible option being to prevent companies from settling in US dollars.

Britain’s BP, the biggest foreign investor in Russia with a 19.75% stake in state oil giant Rosneft, declined to comment when asked about possible new sanctions.

The Anglo-Dutch oil company Shell owns 27.5% of the Sakhalin-2 liquefied natural gas project, which has an annual capacity of 10.9 million tonnes and is operated by Gazprom.

On Monday, Shell’s integrated gas manager Wael Sawan told reporters he would abide by all sanctions against Russia.

Norway’s Equinor, which has minority stakes in three Russian oilfields, said it had robust processes in place to ensure it complied with applicable sanctions.

German utility Uniper, which sees Russia as one of its most important markets, declined to comment.

Uniper has five power plants in Russia with a combined capacity of 11.2 gigawatts, supplying about 5% of Russia’s total energy needs and also imports Russian natural gas to Europe, according to its website.

“Generally speaking, so far energy production in Russia has been excluded from EU sanctions,” said Finland’s Fortum, which owns 76% of Uniper.

“We are of course monitoring the situation very closely and will assess the possible impacts of sanctions and possible counter-sanctions once they are announced,” he said.

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