Siemens sees itself as a victim in the Crimean affair
Mikhail Bushuev
July 11, 2017
Gas turbines made by German industrial giant Siemens and meant for mainland Russia have ended up in Crimea, in direct violation of sanctions put in place when the Crimean peninsula was annexed from Ukraine.
Image: picture alliance/dpa/U. Baumgarten
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An official report is still pending, but it is clear that there has been a violation of EU sanctions in Crimea. Now the Siemens Group, which is based in Germany, is on the offensive. In Moscow, it filed a complaint against its Russian partner company and, according to news agencies, against its own joint venture.
The Siemens Group has had to put up with a lot of criticism in the past few days. On July 5, Reuters reported that two turbines produced by the Siemens Group had been illegally shipped to Crimea. They were unloaded in Sevastopol where they are to be used for a gas turbine power plant. The EU does not recognize the Crimea as part of Russia. After the annexation of the Ukrainian peninsula by Russia in 2014, Brussels imposed a far-reaching embargo on supplying goods and services to Crimea.
Actually, the case involves four SGT5-2000E gas turbines which were produced by a German-Russian joint venture, in which Siemens holds a 65 percent stake, and which were originally meant for a power plant in the Russian city of Taman on the Black Sea. According to the contract with a subsidiary of the Russian state-controlled company Rostec, the turbines were only allowed to be installed in Taman.
How did the turbines reach Crimea?
The suspicion that the Russians wanted to circumvent the sanctions first became apparent in mid-2015. Vedomosti, a Russian business daily, reported that the order for the Taman power plant was a ploy. The turbines would later be secretly taken to Sevastopol.
In the Crimea there has been a shortage of electricity since the annexation, because supplies from the Ukrainian mainland have been cut off. One of the promises of the Russian government was to quickly remedy the shortage. But in Russia today no one can build gas turbines of this size. There are hardly any alternatives to Siemens' turbines. Supposedly Rostec asked an Iranian producer which operates with a Siemens license for similar turbines. But that deal went sour because "agreement could not be reached on several technical and commercial issues," Rostec said.
Dispute between Siemens and Rostec
The Russian end customer and the German producer have very different stories about the gas turbines. In a press release from November 2016, the Russian partner accused Siemens of delaying the delivery of individual parts for the turbines. At the same time Rostec, which is led by Sergey Chemesov, a friend of Russian President Vladimir Putin, threatened that Siemens could be thrown out of the Russian market.
Siemens on Tuesday told DW that only in September 2016 did it recognize the first reliable signs that the Russian side was considering breaching the contract. Siemens headquarters in Munich told DW: "When we saw that the construction of the power plant in Taman had been put on hold, we stopped all deliveries."
Gas turbines being manufactored in a Siemens factory in BerlinImage: picture alliance/dpa/U.Baumgarten
Operate at your own risk
The Siemens gas turbines in Crimea will now most likely be installed in the power plant with some additional Russian components without any guarantee from the German manufacturer. "Normally, Siemens guarantees its own expertise in installation and maintenance, but we will not do it this time," says the company. When asked if the turbines would work anyway, it said that this is like contemplating the future of a car if you have nothing but a motor.
For the installation and maintenance of the gas turbines in the Crimea, the Russian side asked for a new joint venture with Siemens. But Siemens says they are not interested.
What are the consequences for Siemens?
The turbine affair has now also reached the political level: "The gas turbines on Crimea are from Russian production," claimed a spokesman of Putin on Monday. And the state-owned company Rostec is spreading the idea that the turbines, which are now on the peninsula were "bought second hand" and "modernized by specialized Russian companies." At Siemens, however, they doubt that there is any market for used equipment of this kind.
Siemens, on the other hand, is defending itself against the impression that it was being sloppy or naive. "We did not ignore the risk that our products could reach the Crimea, but have actively worked against it," a group representative told DW. Therefore, Siemens does not believe that the possible indirect infringement of the EU embargo will bring problems for the Munich-based group. The original contract does not fall under the provisions of the sanctions and Siemens is in close contact with the German authorities because of the affair, said a company representative. When asked whether Siemens was afraid of falling into disfavor with the Kremlin, it only said "we have to wait and see."
Siemens: From the telegraph to the internet
Siemens founder Werner von Siemens was born 200 years ago. Back then, networked cars and industrial robots weren't even science fiction. But the company has always been on the cutting edge of technology.
Image: picture-alliance/dpa/J. Stratenschulte
It began with the pointer telegraph
In 1846 and 1847 Werner Siemens developed his electric pointer telegraph. It worked reliably and was superior to earlier devices. This innovation was the basis for "Telegraphen-Bauanstalt von Siemens & Halske," which he founded in Berlin on October 1, 1847, together with precision mechanic Johann Georg Halske. Ten craftsmen built the instruments in a Berlin workshop.
Image: Siemens AG
From workshop to factory
In the following decades, Siemens & Halske transformed from a workshop to a company with standardized mass production. It built steam engines and developed the first dynamo. Electrical generation was key to Siemens' further development, making not only dynamos, but arc lights and power engineering products.
Image: Siemens AG
Communication across the oceans
Siemens undertook ambitious projects. An attempt to lay a cross-Mediterranean telegraph cable failed in 1864, causing heavy losses. But the Siemens brothers, Werner, William and Carl, learned their lessons. In 1874-75 they successfully connected Europe with North America by telegraph, using the specially designed cable ship "Faraday." It was the first of 16 telegraph cables under the Atlantic.
Image: Siemens AG
Making horses obsolete
In 1879 Siemens & Halske demonstrated the first remotely powered electric train on a 300-meter circular test track in Berlin. They put this into regular service in 1881 in Lichterfelde, now part of Berlin, with the first electric tram, where they continued to develop the technology. Power was originally supplied through the rails, but later this was replaced by overhead cable.
Image: picture alliance/akg-images
An entrepreneur with a conscience
Werner Siemens (who in 1888 became the more noble "von Siemens") also made a name for himself with social initiatives. In 1872 he established a social insurance system for his company that provided widows, orphans and retirees with a pension. He officially left the company in 1890. Two years later, he died of pneumonia, aged 75.
Image: Getty Images
A new neighborhood
The company grew and grew. To allow it to expand, Siemens & Halske purchased a nearly uninhabited area north of what were then Berlin's boundaries in 1897. It began to concentrate its operations here, building new factories and residences. By 1914 an entirely new district had emerged - the "Siemenssstadt" or "Siemens City."
Image: Siemens AG
Forced labor under the Nazis
During World War II, Siemens employed forced laborers and concentration camp prisoners in its factories. At Ravensbrück concentration camp, north of Berlin, the company put thousands of women to work wrapping coils and building telephones. After the war, most of these facilities were destroyed and company property confiscated.
Image: Dr. Karl-Heinz Hochhaus
Move to Munich
Anticipating the Red Army's advance on Berlin, parts of the company's management moved to Munich, Mülheim and Hof in February 1945. In 1949, following the Soviet blockade of Berlin, Siemens & Halske transferred its headquarters to Munich, while West Berlin remained a secondary site. Siemens & Halske and its sister companies merged to form Siemens AG in October 1966.
Image: Getty Images/AFP/C. Stache
More products, more factories, more countries
Turbines, automation systems, railways, power plants, private communication systems, medical technology, washing machines - there's not much that Siemens doesn't make. By the early 1980s, it had plants in 37 countries. A decade later, two-thirds of sales were outside Germany.
Image: picture-alliance/dpa/D. Gust
Scandal at Siemens
Between 2006 and 2008, Siemens was the focus of the biggest bribery and corruption scandal in German industrial history. A court found it had paid around 1.3 billion euros ($1.4 billion) in bribes to secure lucrative foreign contracts. The affair cost Siemens 2.5 billion euros. Many of those involved were fired, and Siemens' top management was replaced.
Image: picture-alliance/dpa
Radical restructuring
In May 2014, new CEO Joe Kaeser put forward his plans to shake up Siemens. Industry sectors within Siemens were abolished with the aim of streamlining the company and making it more competitive. The company said it would focus on electrification, automation and digitization. The restructuring cost thousands of jobs.
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Big contracts, big deals
Germany's main railway Deutsche Bahn paid Siemens more than 6 billion euros to build its new fleet of ICE high-speed trains. It was the biggest contract in its history. Egypt paid Siemens a similar sum to build the world's largest gas-fired power plant. In 2014, Siemens hoped to take over French competitor Alstom, but it chose instead to enter a partnership with US-based General Electric.
Image: picture-alliance/dpa
Future networks
Industry 4.0 and the "internet of things" promise more intelligent, global networking of machines, storage systems and means of production. Growing digitalization and interconnection are transforming the entire industrial production process - a new challenge for Siemens.
