Introduction
Trade restrictions: goods for petroleum refining and goods for energy sector
Ban of participations in enterprises in Russian energy sector
Financial restrictions
Further developments
The Swiss Federal Council's Ordinance on Measures in Connection with the Situation in Ukraine of 4 March 2022, as amended (the Ordinance) contains an extended set of measures and restrictions against Russia, which affect the energy sector in various ways.
The Ordinance defines the "energy sector" as a sector that includes the following activities:
- the exploration, production, distribution within Russia or extraction of crude oil, natural gas or solid fossil fuels, refining of fuels, liquefaction of natural gas or regasification;
- the production or distribution within Russia of solid fossil fuels, refined petroleum products or gas; or
- the construction of facilities or installation of equipment for energy and power generation, or the provision of services, equipment or technology for activities related thereto.
Civil nuclear activities are not covered by this definition, but remain to be subject to the Swiss Nuclear Energy Act and its implementing ordinance, which sets forth various licensing requirements.
Trade restrictions: goods for petroleum refining and goods for energy sector
The Ordinance bans any sale, supply, export or transit of goods used for petroleum refining (as further specified in Annex 4 to the Ordinance) to any person or entity in, or for use in, Russia (including the provision of services of any kind, such as financial services, brokering, technical advice and financing). This covers, for example, various hydrocracking installations, hydrogen technologies and thermal installations.
The Swiss State Secretariat for Economic Affairs (SECO) may, after consultation with certain other competent agencies, grant exemptions from these prohibitions, provided that this is necessary for the urgent prevention or containment of an event that is likely to have serious and significant effects on human health and safety or on the environment. In justified cases of urgency, these activities set out above may be effected without prior authorisation, provided that the exporter notifies SECO within five working days, including of the relevant reasons.
Additionally, the Ordinance bans any sale, supply, export, transit or transport of goods for the energy sector (as further specified in Annex 5 to the Ordinance) to or for use in Russia, including its exclusive economic zone and continental shelf (including the provision of services of any kind, such as financial services, brokering, technical advice and financing). This covers, for example, various types of pipes, tools, instruments and machines used in the energy sector. There are, however, three exemptions from these prohibitions. More specifically, they do not apply to the sale, supply, export, transit or transport of goods, or the provision of technical assistance or financing related to goods necessary for:
- the transport of fossil fuels, including, but not limited to coal, petroleum and natural gas, from or through Russia to Switzerland or the European Economic Area (EEA); or
- the urgent prevention or mitigation of an event that is likely to have a serious and significant impact on the health and safety of people and the environment.
Also, these prohibitions do not apply to insurance and reinsurance in favour of a company established or registered under Swiss law or the law of an EEA member state in respect of its activities outside the Russian energy sector.
As in the case of goods for petroleum refining, SECO may, after consultation with certain other competent bodies, grant exemptions from these prohibitions, provided that:
- this is necessary to secure the energy supply of Switzerland or an EEA member state in the event of an imminent or existing serious shortage; or
- the goods or services are intended for the exclusive use of organisations owned or controlled in whole or in part by an organisation incorporated or registered under Swiss law or the law of an EEA member state.
Ban of participations in enterprises in Russian energy sector
The Ordinance further bans with respect to legal entities, companies or organisations established or incorporated under the laws of a state outside Switzerland or the EEA, which are operating in the Russian energy sector:
- the acquisition of new or the expansion of existing participations;
- the provision of or participation in loans, credits or other financial resources, including equity;
- the establishment of joint ventures; and
- the provision of investment services that are directly or indirectly related to the activities specified in the bullet points above.
SECO may, after consultation with certain other competent authorities, grant exemptions from these prohibitions, provided that the activities:
- are necessary to secure the energy supply of Switzerland or an EEA member state in the event of an imminent or existing serious shortage or to transport fossil fuels, in particular coal, oil and natural gas, from or through Russia to Switzerland or EEA member states; or
- be made exclusively for the benefit of a legal entity, company or organisation operating in the Russian energy sector, which is owned by a company or organisation incorporated or registered under Swiss law or the law of an EEA member state.
Participants in the energy markets should be aware that energy trading may involve various financial instruments, and in particular energy derivatives – that is, financial contracts whose value depends on one or several underlying energy assets, which are suitable for mass trading and do not constitute cash transactions.
The Ordinance sets forth various financial restrictions that may affect trading with energy derivatives, subject to certain exemptions such as SECO approval in case of particular hardship or for the purpose of fulfilling existing contracts or safeguarding national interest (as applicable). More specifically, this includes the following restrictions:
- Funds (which includes derivatives) owned or controlled by the natural persons, entities and bodies listed in Annex 8 to the Ordinance are blocked, and it is prohibited to transfer funds or provide funds directly or indirectly to such persons and entities.
- It is prohibited to sell transferable securities denominated in Swiss francs or in euros, which were issued after 12 April 2022, or units in collective investment undertakings invested in such securities, to Russian citizens, residents, banks, companies or organisations.
- It is prohibited to fulfil contractual claims if they are attributable to a contract or transaction the performance of which has been directly or indirectly prevented or impaired by measures taken under the Ordinance and other ordinances relating to the situation in Ukraine. This provision applies to claims of all Russian individuals, entities and organisations, including their agents.
As a result of the Russia-Ukraine conflict, energy markets have experienced high price volatility to an unprecedented extent since the end of 2021. This led to higher liquidity requirements of companies active in energy trading (in particular in the wholesale energy markets). Thus, to ensure that Switzerland's electricity supply remains secured even if the situation worsens, the Federal Council decided on 13 April 2022 to examine a rescue package for system-critical electricity companies, including a temporary bailout fund.
According to the Swiss Federal Council, the requirements shall be very strict in order to avoid disincentives. In particular, the requirements shall include transparency obligations, market-based interests, a ban on dividend distributions and collateral in the form of pledged shares. In the longer term, a number of additional measures are planned to make the Swiss electricity sector more resilient. These include regulations to ensure that important functions such as electricity production can continue to operate at all times as well as a law on the integrity and transparency of wholesale electricity and gas trading, including specifications on the liquidity and capital resources.
The Federal Council will now conduct a brief consultation with the most important electricity companies. In case of urgency, a federal law covering the aspects set out above would have to be discussed in the Swiss Parliament in its 2022 summer session in a special procedure and be enacted as a matter of urgency.
Furthermore, the Federal Council communicated that, based on current findings, Switzerland's energy supply security for this year is secured. However, the price volatility in the energy markets poses a risk to the supply security in the 2022/23 winter season. The Federal Council has therefore instructed the Federal Department of the Environment, Transport, Energy and Communications and the Federal Department of Economic Affairs, Education and Research to ensure in cooperation with the Swiss Competition Commission that the Swiss gas industry can jointly procure gas, gas storage capacity, liquefied natural gas (LNG) and LNG terminal capacity as quickly as possible. The involved authorities will submit further modalities to the Federal Council by the end of April 2022.
For more information please contact Marcel Meinhardt or Patrick Sattler at Lenz & Staehelin by telephone (+41 58 450 80 00) or email ([email protected] or [email protected]). The Lenz & Staehelin website can be accessed at www.lenzstaehelin.com.