Italy requests clarification of the Commission's ruble-for-gas regulations

Italy's green transition minister, Roberto Cingolani, desires a transition in which utilities may pay in Russian currency without breaching sanctions.

Italy wants the European Commission to explain out clearly how firms may pay for Russian gas without violating sanctions imposed during Ukraine's invasion, Italian Prime Minister Mario Draghi said Monday.

"It’s very important that the Commission expresses a clear legal opinion on whether paying in rubles is a breach of sanctions or not," Draghi said after a Cabinet meeting. "‘Because if there is not clarity or a line of conduct then it is clear that each company or each country will do as it believes fit.”

His remarks were in response to Italian Minister of Energy Security Roberto Cingolani's statement that European energy firms should be permitted to temporarily comply with Russian requests to pay for gas in rubles.

“I think at the moment the understanding is not complete from the point of view of legal issues and implications. I think it would be good for a few months, at least, to allow companies to go ahead and pay in rubles, while we understand the legal framework and implications," he said, adding that he wants “a speedy and very clear pronouncement from the European Commission” confirming that oil and gas companies can pay in rubles for the time being.

Draghi clarified that Italy's position "is that of Germany, France and everyone else. We will follow the indications of the European Commission in this regard, there is no distinction between Italy and the others."

Meanwhile, Rome is preparing for a probable Russian gas shutdown by implementing energy-saving measures and perhaps extending the life of coal-fired power stations.

The Kremlin has asked that energy businesses from "hostile nations" — which includes all EU members — pay for gas in rubles to support the Russian currency's value.

Businesses are required to open euro and ruble accounts with Russia's Gazprombank, and the Russians will consider the gas payment complete only when the rubles are deposited.

The European Commission has advised businesses against opening ruble-denominated accounts, claiming that doing so would violate Russia's sanctions for invading Ukraine. According to its guidance, utilities can pay in euros — which would be considered final under existing contracts — and then Russia can convert them to rubles later.

For the time being, the Kremlin is insisting that businesses adhere to its system. Last week, Russia's state-controlled Gazprom cut off gas supplies to Poland and Bulgaria for refusing to comply with Moscow's demand.

However, Cingolani, Italy's minister for the green transition, stated that it might take months to fully grasp the legal ramifications, putting oil and gas corporations in a pickle.

“I believe oil and gas companies cannot risk paying and then being accused of having broken sanctions, but at the same time they cannot risk ... not paying in rubles,” he said. “These are long-term contracts, the costs would be extremely high.”

His proposed workaround is similar to the Commission's. The EU energy company would regard the euro payment as the final transaction while Russia could instead consider the ruble payment after conversion. But he acknowledged such an approach might be “optimistic.”

“In this process there are gray areas, which could constitute a breach of sanctions. However you do it there is a problem.”

European Energy Commissioner Kadri Simson on Monday confirmed that the Commission will "issue more detailed guidance on what companies can and cannot do within our sanctions framework."

Contingency plans

Meanwhile, Cingolani's government is developing contingency preparations in the event that Russia suspends gas deliveries to Italy. Russia supplies the country with around 29 billion cubic meters of gas per year, or 40% of its total demand.

Cingolani stated that Italy is on "pre-alert," the lowest of three crisis levels specified in the country's national gas emergency plan, which entails "continuous observation and monitoring." He briefed the Cabinet on Monday afternoon on several eventualities.

At the moment, there are "no plans for controlled blackouts for industry," he said, but if the situation worsens, there are "contingency plans" to save energy this winter. “For now we are thinking of weaker measures, temperature restrictions, coal-fired energy production, which was being phased out, will keep working for a year or two," he said, as well as boosting renewables.

He said the government would issue guidelines asking people to turn down air conditioning in private homes, something he said was happening anyway because of high prices. The measures “are not draconian. If necessary we can do more, with a stronger effect. I hope we don’t need to.”

Italy is scrambling to boost gas supplies, with state-controlled energy giant Eni signing contracts with African countries. With those deals, Italy's energy diversification is “complete,” said Cingolani, adding that Italy would be independent of Russian supplies by the end of next winter.

Even if the war ends, Rome has no plans to go back to such an overwhelming reliance on Russian supplies, he said.

"We have learned that it is not smart to have strong dependence on one country," Cingolani said. "I knew this and I said it ahead of time, but paradoxically we are working to resolve it only because there is a war. That is a sad thing, appalling. I would have liked to do this difficult job in peacetime, rather than driven by a war.”

By fLEXI tEAM