The German concern Siemens has filed a lawsuit against two subsidiaries of the Russian industrial monopolist Rostec for transporting two gas turbines for electricity production from Russia to occupied Crimea, demanding it return the turbines to their original destination, Taman. EU sanctions prohibit providing energy equipment to the peninsula which Russia occupied in 2014. Siemens is claiming that the transfer of turbines to Crimea happened against its will, that it had been misled by its Russian partners, did not intend to break sanctions, and is therefore a victim of Russian treachery. But how credible is the claim? This report investigates the open source evidence. Apart from providing the facts, we also offer our interpretation of the events in the boxes starting with “EP:”. You can also watch a video about this investigation.
The international scandal which started when Siemens gas turbines were spotted in occupied Crimea on 29 June 2017 is gaining intensity. The equipment is planned to be the heart of the two electricity stations now under frantic construction to give the energy-dependent peninsula a stable power supply. It is also prohibited under EU sanctions, which ban companies from participating in energy projects in the peninsula which Russia took over in its 2014 landgrab.
In the best traditions of crisis management, Siemens announced it is taking “decisive steps” to regulate the situation. As well, Siemens has insisted it is a victim of the treachery of its Russian partner, which according to Siemens moved the turbines from the nearby Taman peninsula to Crimea against its will, has even taken the case to court, and is reportedly calling to widen the EU sanctions blacklist in connection with the scandal.
However, the open source evidence shows that Siemens’ victimhood is possible only if the company has done away with critical thinking and analysis of the local market. Even if the company’s management was (which is highly unlikely) unaware that they were helping to power Russia’s Anschluss, it is undeniable that Siemens, while wading in murky waters, did not develop a realistic mechanism to prevent the crime.
As a preface, we must point out the incredible naïveté of Siemens in assuming that Russia, after occupying its neighbor’s land, will willfully abide by the sanctions the international community slapped on it in response. No less naive is believing that the state-owned monopoly Rostec, the leader of which is under EU sanctions for intending to build power stations in Crimea, is to be trusted in promises not to use the Siemens turbines for this end.
The premise on which Siemens agreed to do business with Rostec was shaky in itself: it all started from a secret contract which bypassed the tender system required for all state companies, for a station that the Russian government never planned to build prior to the annexation of Crimea, making it highly probable that the company took the decision to deliberately violate sanctions from the very beginning.
But even if, after the abovementioned, we assume Siemens was acting out of naive goodwill, many things don’t add up.
First, there was the miraculous multiplication of Rostec subsidiaries. In the beginning, there was the OAO Technopromexport which announced it was building two stations in Crimea with a total capacity of 940 MW, but then purchased four gas turbines for precisely the same 940 MW capacity for a station in Taman which they were not building, and the only certain thing about which was the government’s plan for its 660 MW capacity (later decreased to 450 MW, screaming out the question how 940 MW turbines will be used in it if it ever gets built).
Then there appeared the cloned OOO Technopromexport, which without any announcement took over the Crimea 940 MW construction and got busy with hundreds of tenders for this purpose, but ordered the core energy-generating equipment, steam turbines, for – you guessed it – a 940 MW unit to be used in Taman.
The Crimean power stations themselves, at the proposal of the Russian government, were planned specifically for four 235 MW turbines which Russia couldn’t get anywhere except for Siemens.
Then, there were the OOO and OAO Technopromexport-s’ steps, insane from the business viewpoint: spending hundreds of millions of euros of what appears to be internal funds to purchase equipment which was unlikely to ever pay off, but which was quite likely to be incompatible with the projected Taman station, from what was known from the vague state plans to have one at all. But the equipment was a perfect fit for the Crimean power stations being constructed with mostly federal funds. And then not a single company submitted a proposal for the Taman power station contest.
Then, OOO Technopromexport’s contractor, the Russian Research Institute of Automatics, part of Rosatom, announced in their yearly report that they will deliver automated control systems for the 940 MW turbines in Crimean power plants, not the imaginary stations (now there were two of them) in Taman like it was written in the tender they won.
And the OAO Technopromexport’s sudden bankruptcy, which could only happen if its mother Rostec decided to let it sink. Afterwards, OAO Technopromexport tried to auction off the turbines at a price twice higher than they are worth because they didn’t have enough money to participate in the Taman contest – an ironic move, since it had sold them to its clone OOO Technopromexport half a year back. But after that, the turbines were delivered to Taman anyway, and in November 2016 OAO Technopromexport called the police to demand Siemens deliver the magic sauce making the turbines operational.
By this time that Siemens changed its tactics of complacency and as of March 2017 had still not delivered the magic sauce making the turbines operational, but still assured the press that they “have no reason to believe” the turbines would be used in Crimea. This didn’t stop the turbines from traveling to the prohibited land across the 10 km of water that separate Taman from it, despite Siemens’ cries that their contract with the Russian monopoly’s daughter prohibits this.
Apparently, the only preventive mechanism Siemens envisioned was the contract itself and the reliance on the goodwill of its sanctioned partner. This was obviously not enough.
It is hard to imagine how all of the above could have taken place without Siemens’ knowledge. Now, thanks to either its negligence or active cooperation, the German turbines are in Crimea. They are more than likely to be “hacked” and switched on even without German assistance, helping Vladimir Putin to secure his occupation of Ukrainian land, and continue with the repressions, intimidation, kidnappings, and torture of anybody who doesn’t agree with his policies.
The investigation in a nutshell: Siemens’ Crimea sanctions break – a case of criminal negligence | #SiemensGate
The latest events
- 6 July: Siemens denied its turbines are in Crimea, saying they have “no reason to believe that the gas turbines mentioned in the news articles are destined for Crimea.” Russia’s technology giant Rostec said it bought the turbines on the secondary market and that they are not turbines by Siemens.
- 7 July: Siemens set up a taskforce to investigate the matter
- 8 July: Reuters published information that the firm hired into install turbines in Crimea, ZAO Interautomatika, is partly owned by Siemens.
- 8 July: the remaining two Siemens turbines are delivered to Crimea through the port of Feodosiya. They are delivered with the same ship company as previous two. Media reports about the incident appear on 13 July.
- 10 July: Siemens acknowledged that at least 2 from 4 turbines it delivered to Russia “were moved to Crimea against its will”
- 11 July: Siemens sues 2 daughters of the Russian technology giant Rostec for moving two turbines to Crimea in Moscow Arbitration Court, rethinks “some Russian business”
- 12 July: German government tells Siemens to explain how its turbines ended up in Crimea
- 12 July: Forbes published the details of Siemens’ lawsuit against OAO and OOO Technopromexport, in which Siemens states the details of a contract between these 2 subsidiaries of Rostec, one of which sent the turbines to Crimea. Siemens wrote that if it knew that if it knew that the turbines would to to Crimea, it “obviously, would not conclude such a deal.”
- 12 July: OOO Technopromexport, the company building the stations, is to become an energy company, sell electricity generated by the stations, and use it to pay back the loan it received from the RNKB bank for constructing the stations, Kommersant reported.
- 12 July: the European Commission had commented on the Siemens case that “implementation and enforcement of EU restrictive measures rests with the member states” and that “the Commission is in touch with the German competent authorities on this particular case,” Reuters reported.
- 13 July: Russia detained Roman Fillipov, CEO of turbine maker Power Machines, on suspicion of attempted divulgence of state secrets.
- 14 July: Siemens thinking about leaving ZAO Interautomatika, its joint venture in Russia which had previously been reported to be involved in installing the turbines in Crimea
- 15 July: Moscow Arbitration Court leaves Siemens’ lawsuit without motion until 21 August, citing incomplete documentation: the submitted claim did not have a letter of Power of attorney
- 15 July: Russian Energy Minister Aleksandr Novak says Siemens had not addressed the Ministry regarding leaving business projects in Russia
- 20 July: Roman Fillipov left his post in a “mutual agreement” with the firm
- 20 July: German newspaper WirtschaftsWoche publishes an article based on its sources that at the end of September 2016, a meeting between Russian President Vladimir Putin, his speaker, German Foreign Minister Sigmar Gabriel, and the German ambassador to Moscow Rudiger von Fritsch, where Putin promised the German side that the Siemens turbines would not end up in Crimea.
- 21 July: in an official statement, Siemens confirms all 4 turbines are in Crimea, having been “locally modified and illegally moved to Crimea against clear contractual agreements,” and announces it is withdrawing from Interautomatika, is going to terminate its licensing agreement with Russian companies on the installation of combined cycle power stations, is halting delivery of power generation equipment from existing contracts to state-controlled customers, and will develop another controls mechanism which includes installing equipment only by Siemens personnel.
- 24 July: Reuters reported, citing sources in Brussels, that Germany is urging the EU to add up to four additional Russian nationals in its sanctions blacklist in connection with the turbines scandal.
- 27 July: EU gives initial OK to blacklist several more Russian nationals over turbines imbroglio, Reuters reported.28 July: OAO Technopromexport admits that the turbines in Crimea came from Siemens, claims Siemens was offered to buy them back in 2016 but refused.
The power stations being built in Sevastopol and Simferopol were planned to meet Crimea’s energy deficit. The peninsula received 80% of its required energy supply from mainland Ukraine. After Russia occupied Crimea in 2014, Ukraine cut off the power supply, after which the peninsula experienced permanent blackouts. As an emergency measure, Russia brought in mobile diesel generators left over from the Olympiad in Sochi and laid an underwater power cable across the Kerch strait to deliver electricity from the proximate Krasnodar Krai (which was itself a region with an energy deficit). However, the power cable could get damaged, and the diesel generators were not intended for permanent use. An unstable power supply will decrease the support of the occupied peninsula for the Russian government. Therefore, finding a solution to meet Crimea’s energy needs (1.43 GW at peak consumption, and 1.1 GW at average consumption) became top priority. However, to build new stations, Russia must have their technological core – the gas turbines, which, when taken together with steam turbines (this combination is called the combined cycle gas turbine), gives a cost-effective and efficient method to produce electricity from gas.
However, the EU and USA slapped economic sanctions on Russia due to its occupation of Crimea, prohibiting companies from taking part in powering the occupied peninsula. Russia doesn’t produce the large-capacity turbines necessary for the construction of a large power station. There were two options to power Crimea – to either use imported gas turbines of 90-100 MW to construct large power stations or set up many smaller power stations with Russian gas turbines of 25-50 MW capacity, which would make the project 40% more expensive. Russia’s Energy Ministry insisted on using large turbines, and the construction of two power stations, in Sevastopol and Simferopol, with a 235 MW capacity was approved on the state level.
The cost of building the new power stations was estimated at RUB 71 bn (€1.4 bn, as of 24.04.2014), of which RUB 25 bn (€405 mn, as of 3.04.2015) was to come from the state budget. The remaining RUB 46bn were to be financed from bank loans. These loans were apparently found only on 20 October 2016, when Crimea’s largest bank RNKB provided a RUB 23.7 bn loan; at that time, insiders said that the government was funding more than 65% of the cost of the stations.
A combined cycle gas turbine (CCGT) consists of two parts: the gas turbine itself, which has a higher efficiency for producing electricity from a given quantity of gas, and which Russia does not manufacture above the capacity of 32 MW, and the steam turbine with a low efficiency of 30%, which it does manufacture, and shipped to Crimea to work in conjunction with the Siemens turbine.
Russia does not manufacture large-capacity gas turbines because most of its stations were built in the 1960s-1980s, when gas and coal were abundant and there was no urgent need for increasing the efficiency of the turbines. In Europe, the situation was different, and the more efficient gas turbine technologies were developed, as well as the CCGT. Nowadays, Russia is 100% dependent on the import of high-capacity gas turbines, and most were built by Siemens.
The CCGT unites the steam turbines and gas turbines into one technological cycle, increasing the overall efficiency to 60%. This video gives a good overview of how the CCGT works:
The scandal which broke out is around the Siemens SGT5-2000E gas turbine.
Rostec, a Russian state-controlled corporation created in November 2007 which is regarded as a Russian monopoly in the fields of military and industrial technologies and in dual-use goods. Rostec, within the defense and high tech industries, is similar to Gazprom and Rosneft in the energy sector. Under US sanctions starting from 12 September 2014.
OAO “Vneshneekonomicheskoye obyedineniye Technopromexport” (OAO Technopromexport) (“Open joint stock company ‘External economic union Technopromexport'”) – a subsidiary of Rostec and company which purchased the turbines from Siemens. Was announced as the company that will build power stations in Crimea. Under US sanctions since 12 December 2015. Registered in 2006. Went bankrupt in 2017. 100% of shares belong to Rostec. [Company fact sheet] [List of tenders] [Bankruptcy documents]
OOO “Vneshneekonomicheskoye obyedineniye Technopromexport” (OOO Technopromexport) (“Limited liability company ‘External economic union Technopromexport'”) – a subsidiary of Rostec. Company which purchased turbines from OAO Technopromexport. Registered on 8.05.2014.
The relationship between OAO and OOO Technopromexport is unclear. On OAO Technopromexport’s official site, OOO Technopromexport is not mentioned. Both OAO and OOO Technopromexport are not mentioned on Rostec‘s official site. Despite this, they have the same registration address, and the contacts for OOO Technopromexport have emails at the domain tpe.ru, belonging to OAO Technopromexport. 99% of shares belong to RT Energo (100% shares of which are controlled by Rostec), 1% – to OAO Technopromexport. [Company fact sheet] [List of tenders] [List of procurement plans]
Power Machines – a St.Petersburg company with which Siemens signed contracts in 2007 and 2008 to transfer German technology and the right to manufacture gas turbines. Today 100% of Power Machines is owned by a Cyprus company Highstat limited, the controlling interest of which is owned by Russian billionaire Alexei Mordashov, a close friend of Putin.
Siemens Gas Turbines Technology (SGTT) – a joint company with 65% of shares belonging to Siemens and 35% to Power Machines (via a holding company “Siemens Gas Turbines Technology Holding B.V.” registered in The Hague, Netherlands). Founded in 2011 after a failed attempt by Siemens to take over a controlling stake in Power Machines. Its first plant for the assembly and servicing of gas turbine units was opened on 18 June 2015 near St. Petersburg. Power Machines’ annual report for 2014 stated:
“The development of the gas turbine business of Power Machines is conducted in close partnership with Siemens. The Russian-German joint venture is engaged in research and development of new gas turbines, the localization of production in Russia, assembling, sales, project management and maintenance of gas turbines.” The SGTT is the successor of Interturbo.
ZAO Interautomatika – a company specializing in electrotechnical processes. 45.72% shares owned by Siemens, 36.94% by OAO VTI, the All-Russian Thermal Engineering Institute, and 17.34% by OAO Technopromexport. Is a participant of a tender submitted by OOO Technopromexport to develop automated control systems of the two power plants in Crimea on 29 January 2016 (tender later canceled). According a Reuters publication on 8 July 2017, it has been hired to help install the turbines in Crimea, after which Siemens announced it was withdrawing from the company.
GTE-160 (a gas turbine with the nominal capacity of 160 MW) is a old license name for the SGT5-2000E, which was slightly modified for Russian conditions. Earlier Siemens built these turbines in a joint venture Interturbo with the Leningrad machine-building factory. SGTT sells and services the GTE-160. When the SGT5-2000E is mentioned here and elsewhere, the GTE-160 is meant.
These turbines are combined cycle gas turbines (CCGT), meaning that it unites the steam turbines efficiency and gas turbines into one technological cycle. The total capacity of these units is 235 MW. It consists of 160 MW nominal capacity of the gas turbine + 75 MW capacity of steam turbine.
11 August 2014 – the Russian government decides (decree #790) to build two gas power plants in occupied Crimea and one – across the Kerch Strait, in Taman, and that the cost of the “objects” in Crimea would be RUB 19.8 bn (€413.9 mn), to be financed from private investors (attachment 4 in the 2014 version of the decree, positions 3.2 and 4). The document does not contain any costs planned for power plants in Taman.
(The government order #2004 issued on 8 October 2015 makes it clear that the new power plants in Crimea are to be built in Sevastopol and Simferopol, to have a capacity of 470 MW each, and to be constructed over 2015-2018.)
11 August 2014 – The EU adopted sanctions which prohibit specifically “to sell, supply, transfer or export equipment and technology related to the creation of infrastructure in the sectors of transport, telecommunications and energy as well as regards the exploitation of oil, gas and mineral resources.”
21 August 2014 – Technopromexport (not clear whether OAO or OOO) becomes the first company which “announced its desire to build power plants in Crimea,” the specialized energy site tesiaes.ru reported specifying that the two plants would have a total capacity of 700MW and would cost RUB 45bn (€908.4 mn). The site noted that according to unofficial data, many other Russian energy companies were afraid of possible international sanctions and that Technopromexsport announced that it would apply to Russian banks to give loans for the construction and that the state Sberbank and VTB were among the candidates.
The same day, Vedomosti, citing its sources, reported that it was Russia’s Ministry of Energy that made the proposed to Technopromexport to build the plants. An employee of the company told the outlet that the participation of the state corporation in this project was agreed in a meeting of President Vladimir Putin and Rostec general director Sergei Chemezov on 13 August, and an Energy Ministry official confirmed that such a meeting had been in preparation. Technopromexport will invest in the project itself, a person close to the company told the outlet. An Energy Ministry employee told that the Russian budget didn’t have enough money for powering Crimea, which is why the Ministry searched for investors among Russian energy companies, suggesting to move power units under construction to Crimea from regions which got too much of them due to miscalculations in federal programs. However, the energy companies refused to move the units, fearing international sanctions. Some companies Vedomosti questioned said moving their such power units is impossible. Vedomosti’s source in the Energy Ministry supposed that Technopromexport will return the investments and pay back credits by increasing prices for its consumers from other Russian regions. A financial expert estimated that final electricity price for Russian consumers will increase by 0.4% to pay for the construction.
12 September 2014 – Rostec head Sergei Chemezov was placed under EU sanctions for Technopromexport’s plans to build energy plants in Crimea.
22 September 2014 – The Russian outlet RBK reported that Vneshekonombank (under US sanctions since 16 July 2014) would give a RUB 44.6 bn (€900.3 mn) loan to OAO Technopromexport under a state guarantee for the construction of “energy generating objects” in Crimea. The bank did not disclose the conditions of the credit, officials declined to comment.
8 October 2014 – the first mention of specifically OAO Technopromexport as the company that will construct the Crimean power plants was made by director of the infrastructure development department of the Russian Ministry in Crimean affairs Yevheny Kataev, RIA Novosti reported. He said that their total capacity will be 880MW, 220 of which will be generated in Sevastopol and 660 – in Simferopol.
October 2014 – February 2015 – according to Süddeutsche Zeitung citing a Siemens employee, in this period, the Siemens management addressed the German Federal Government to clarify whether there would be any issues with Siemens turbines being sent to Taman. The Government had no objections, but that they had to be sure the equipment doesn’t go to occupied Crimea.
22 December 2014 – In an interview to Kommersant, Energy Minister Aleksandr Novak said that apart from 2 power plants in Crimea with a total capacity of 880MW, a power station in Taman with a capacity of 660MW will be built to “increase the reliability of energy supply to Crimea,” and the contest for it will be announced as soon as there will be a corresponding law and decree on the mechanism of returning investments.
What is more, the construction of power stations is usually planned at least three years ahead and calculated meticulously. The Russian government planned to cover the energy deficiency of the Krasondar Krai by constructing additional blocks of the Rostov nuclear power plant, which was also the main source of electricity for the underwater power bridge to Crimea. A gas power plant in Taman was never on the table before the occupation of Crimea – it would never solve the problem of energy deficit in the region. This could be a reason why Siemens couldn’t agree to take part in a public tender – it would cause many questions already.
13 February 2015 – At the public hearings dedicated to the construction of the power plant in Sevastopol, director of the Sevastopol branch of OAO Technopromexport Petr Yekimenko announced that the first unit of the Sevastopol power plant will be finished in September 2017, the second one – in March 2018, regnum.ru reported. He provided details of the project which was developed by OAO Technopromexport. Also, he said the project is based on suggestions of the Russian Energy Ministry to have each of the power plants consist of two units, each with a capacity of 235 MW, placing the total capacity of the two plants at 940MW.
10 March 2015 – OAO Technopromexport signs contract #53201500008 with Siemens Gas Turbines Technology to produce and deliver SGT5-2000E gas turbines for their further use in the projected power station on the territory of Krasnodar Krai (project “Taman”). On 12 July 2017, forbes.ru wrote, citing the materials of the lawsuit which Siemens is filing in the Moscow Arbitration Court against OAO and OOO Technopromexport, that the sum of the contract was close to €213 mn, the price of one gas turbine was €27.95 mn, but other services such as increased seismic resistance and additional equipment was also ordered.
The contract envisioned the production of 7 turbines, four of which were delivered. The contract specifically mentioned a prohibition to use the equipment in Crimea and noted that the turbines are to be used in the Taman peninsula. OAO Technopromexport guaranteed that the gas turbines won’t be used on power stations connected to the Crimean power grid.
Energy expert Mykhailo Honchar told Euromaidan Press that this is the first indication that Siemens had taken the course to deliberately violate sanctions. The station where the turbines were supposed to used officially, Taman, did not figure in any Russian energy development plans before, specifically because such an illogical construction it would not fix the energy deficiency problem of the region: for 10 years already, the plans were to build additional energy units at the Rostov nuclear power plant. The construction of a new power plant is usually panned at least 3 year ahead. Siemens’ participation in such a dubious venture would raise many questions already.
Speaking to Vedomosti on 26 April 2016, Dietrich Moeller, the head of the Russian branch of Siemens, answers questions as to how Siemens was to guarantee that the turbines will not be sent to Crimea. Specifically, Moeller states that they “not only checked everything, but in the contract itself included all the possible conditions for these turbines to go only to the station in Taman, up to canceling the contract and other things.” He added that these turbines are physically large, 15 meters long and 5 meters in diameter, so “it’s visible from space where the turbines are located.”
Answering the journalist’s question of how the turbines can be produced while there is still no contest for the construction of the power station itself, Moeller answered that there is nothing surprising in this and that it’s a common practice to order the base equipment first and then conduct a contest for a station and only then build it.
Does Siemens have a mechanism to counteract the scenario in which Rostec will try to ship the turbines to Crimea? “Then the contract will be annulled. Siemens has a right to refuse it. This contract contains so many conditions for export control that we feel comfortable ever under the sanctions regime,” Moeller said.
10 April 2015 – OAO Technopromexport is still officially building the stations in Crimea. A letter from the Russian Energy Ministry directed to the Federal Grid Company of Unified Energy System, the largest electricity transmission company grid in Russia, and OAO Technopromexport asks the two companies to submit weekly reports (including videomonitoring) to the Ministry on the construction of “key investment projects” of the Crimean federal energy supply district, among which are high-voltage cables across the Kerch Strait and in the Taman peninsula, as well the two power stations in Sevastopol and Simferopol, each with a 235 MW capacity, that OAO Technopromexport is to build.
30 June 2015 – Vedomosti publishes an article where it, citing its sources (a federal official and person close to one of the sides of the deal) states that Technopromexport purchased the turbines for occupied Crimea. Another source tells that the turbines will be first sent to Taman but that this is just a trick to avoid sanctions and that they will be later shipped to Crimea (see our English-language article based on this report). As well, a source of Vedomosti notes that the technical maintenance of the plants will not be affected by the sanctions, as replacement parts could be “easily purchased” from Siemens in China or Iran, while maintenance servicing can be procured in Russia.
2 July 2015 – Siemens responds to media allegations of its turbines being destined for Crimea in an official statement which says “we have no reason to believe that the gas turbines mentioned in the news articles are destined for Crimea.”
- Two power stations are being built in occupied Crimea with the precise parameters of the turbines you sold by the company you sold them to. Russia does not produce the turbines that the technical parameters of the station require.
- Meanwhile, there Russian government has planned a power station in Taman, where the turbines are officially supposed to go, with a capacity 30% smaller than the capacity of the turbines, but there has been no contest, or technical and investment plans.
- There is no realistic mechanism developed to prevent the turbines from ending up in Crimea.
There is no way that the Siemens management could have not known about these details.
1 August 2015 – construction of the two gas power stations with a capacity of 940 MW began in Crimea, according to Crimea’s self-proclaimed “Energy Minister” Sergei Yegorov.
21 August 2015 – OOO Technopromexport makes its very first tender: four steam turbines together with four generators and auxiliary equipment which will work as part of the combined cycle (gas and steam) unit CCGT-235 MW. The technical documents for this tender specify that the steam turbines will work on the base of gas turbine units with the capacity of 165 MW. The steam turbines were to be delivered to the Taman peninsula, and the maximum price was set at nearly RUB 4.2 bn (€56.4 mn).
Three companies applied for the tender, one of them is “OOO Siemens Gas Turbine Technology,” however, this is a different company than the abovementioned St.Petersburg one – it’s located in the Czech Republic (ID 60268577). It was disqualified.
The tender was won by Power Machines, but there is no corresponding agreement in the official Russian state tender system zakupki.gov.ru to the present day. The competitor of Power Machines, the Ural turbine factory, complained then that the contest was unfair: “The turbines offered by Power Machines aren’t now exploited in units, but turbines of the Ural turbine factory are working in four energy units in Russia,” Kommersant quoted him.
57 in Moscow (related to office supplies and car rental and purchase)
1 in St.Petersburg:
- tender placed 31 March 2016, won by OAO Technopromexport; the position is “storing gas turbines” in between December 2015-June 2016);(EP: apparently, after OAO Technopromexport sold the turbines to OOO Technopromexport on 16 October 2015, the latter needed to pay for storage. Since the two companies are virtually clones, this could be a creative way to funnel money from the state budget. The period December-June 2016 coincides with the dates of the actual supply of the turbine elements (more about that in the information here for 15 October 2016)).
6 in Taman:
- the delivery of “4 steam turbine units, generators, and auxiliary equipment” (tender placed 21 August 2015, execution planned September 2016);
- delivery of supplementary equipment to the 4 steam turbine units (tender placed 28 August 2015, execution planned March 2017);
- delivery and installation of ventilation equipment (tender placed 8 September 2015, execution planned April 2018);
- 2 purchases for the “development, delivery, installation, supervision, commissioning of the software and hardware complex of the turbine complex” in “Taman- 1 and Taman-2” (tender placed 31 March 2016). The technical characteristics of this tender say nothing about the producer of the gas turbine unit with a 176.8 MW capacity turbogenerator – exactly the parameters for the stations in Crimea – while specifying that the producer of the steam turbine is Power Machines;
- “Insuring property” in Krasnodar Krai (this item was added to the plan as a correction on 29 December 2016, i.e. 3 days before the year ended. The announcement was planned to take place December 2016, execution planned July 2017; however, another tender for insuring property of the Simferopol and Sevastopol power plants was placed on 18 April 2017, with a tenfold higher price).(EP: this could either mean that OOO Technopromexport was actually planning to keep the turbines in Taman for some time, or it was a maneuver to create visibility that the turbines were still in Taman).
This means that OOO Technopromexport, from the date of its inception, had 3 purposes:
- management of its Moscow office (8% of all tenders)
- construction of the Simferopol and Sevastopol power plants (91% of all tenders)
- purchase and installation of 4 steam turbines in Taman, insurance of property in Krasnodar Krai (6 out of 730 tenders)
- storing gas turbines in St.Petersburg (1 out of 730 tenders)
Despite OAO Technopromexport being the company officially constructing the power plants in Sevastopol and Simferopol, all the construction there was done by OOO Technopromexport, an eponymous company with the same registration address and contact information which is also a subsidiary of Rostec, but to which there are no references on the website of OAO Technopromexport.
- All of a sudden, the construction of the plants in Crimea had been taken away from Siemens’ client OAO Technopromexport, and are now being built by its eponymous clone OOO Technopromexport.
- This clone OOO Technopromexport, while building the two power stations in Crimea, purchased the core power equipment not for them but for a non-existent power station in Taman, namely – steam turbines built by Power Machines, the minority shareholder in a joint venture with Siemens. These turbines precisely match the parameters of the stations being constructed in Crimea by OOO Technopromexport, as well as the parameters of the gas turbines produced by Siemens, and which Russia can’t get from anywhere except from Siemens?
- While the parameters of the 940 MW steam turbines OOO Technopromexport purchased for Taman were a perfect fit for the stations they were building in Crimea, they were too powerful for the government’s vague plans for the station in Taman, which then aimed for a capacity of 660 MW. The construction of the Taman power plant had not started; moreover, even the contest was not yet announced.
- Because of the Russian government’s vague plans for a power plant in Taman, there was yet no investor for it, no project, and no plan for returning the investments. The Russian government had announced it was allocating €405 mn for Crimean project (out of a total €1.4 bn), not for Taman. Therefore, the money for both OOO Technopromexport’s €56.4 mn purchase of four steam engines for the hypothetical station in Taman, as well as OAO Technopromexport’s €213 mn contract with Siemens for the four gas turbines, could only have come from the internal reserves of those companies. There is now little demand for constructing high-capacity stations in Russia, after a recent federal program had supported the construction of many power stations and energy blocks. Aleksei Presnov, the managing partner of the “Energy analysis agency,” had told BBC (article published 21 July 2017) that after the construction of many new turbines, Russia has a 30-40 GW excess power generation, and the demand for new turbines is close to zero. Apart from Crimea and Taman, that is, because of the unexpected new electricity demand that came with the occupation of Crimea in 2014. Under these conditions, the investments of both OAO and OOO Technopromexport margined on sheer madness from the business viewpoint: digging into their pockets to purchase expensive gas and steam turbines with a larger capacity than was required for the vague Taman station project for which no plans of a contest were announced yet, with no investment return plan, and no market to sell the excessive turbines to. The only way for Siemens to be ignorant of the abovementioned circumstances is for it to do no research of the Russian market and its clients whatsoever, which is hard to believe for a global technological giant operating in over 200 countries.
28 August 2015 – The official launch of the construction of the Sevastopol power plant, according to its passport at the construction site. The end date is 1 March 2018. For the first time officially, OOO Technopromexport is noted as the developer. There was not any announcement, anywhere, that the construction of power plants in Crimea has been overtaken by another company.
9 September 2015 – the Russian Ministry of Energy issues instruction #627 “On the confirmation of the scheme and program development of the United Energy System of Russia for 2015-2021,” which describes in detail the planned expansion of Russia’s energy infrastructure by 2021. Page 60, in particular, specifies that there will be two power plants with a 470 MW capacity each built in Crimea. There is nothing said about the construction of a power plant in Taman, six months after Siemens concluded a contract for “Taman.”
16 October 2015 – according to forbes.ru, which on 12 July 2017 got familiarized with the materials of the lawsuit which Siemens is filing in the Moscow Arbitration Court against OAO and OOO Technopromexport, OAO Technopromexport concluded a €129.18 mn contract with OOO Technopromexport to deliver four gas turbines, the technical parameters of which matched the turbines which were purchased from Siemens Gas Turbine Technology (the price that OAO Technopromexport paid for four turbines to Siemens was €111.8 mn, meaning they made a €17.38 profit by selling them to their clone).
“If LlC Siemens Gas Turbine Technology knew that the four gas turbines are being purchased for their further use in the construction of power stations in Sevastopol and Simferopol (which is prohibited by the EU sanctions), Llc Siemens Gas Turbine Technology would, obviously, not conclude such a deal,” is written in the materials of the lawsuit, in which Siemens demands to either return the four turbines or to reimburse the full cost of the supplied equipment.
This contract is not available in the government tender registry zakupki.gov.ru.
However, the materials of OAO Technopromexport’s bankruptcy case (The act on recognizing / not recognizing the debtor’s transaction as invalid №1632044 of 17 February 2017) include information about the contract. Its number was #00000000022150140002/5401150059, and the total price of all the units was not €129.18 mn like Forbes wrote, but €152,432,400 (including VAT).
The actual supply of equipment from OAO Technopromexport to OOO Technopromexport, according to the abovementioned act, was the following:
|# of invoice
|date of invoice
|invoice sum (including VAT), RUB
|1 968 529 527.85
|2 074 745 213.40
|2 091 647 124.78
|2 000 231 072.43
|221 396 785.80
|217 137 155.88
|223 194 098.70
|215 852 049.80
|726 932 861.24
|559 167 817.96
|743 917 536.53
|566 611 630.77
|11 609 362 875.14
Positions #1-4 probably represent the gas turbines themselves; the remaining positions #5-12 represent the generators and auxiliary equipment. The act notes that purchases #4-12 were made without the consent of the Yuriy Kalakutin, the interim manager appointed to oversee the bankruptcy of OAO Technopromexport on 12.03.2016, which is why Kalakutin asks to invalidate them.
22 December 2015 – the USA slaps economic sanctions on OAO Technopromexport. As the company stated, this was the main reason its financial situation deteriorated and led to its bankruptcy.
Also, one must remember that a huge number of state-run companies in Russia are unprofitable. The bankruptcy of one of a major daughter of Rostec, the Russian state technology monopoly, can only mean that Rostec decided not to bail out OAO Technopromexport.
25 January 2016 – the Russian Energy Ministry decreased the estimated capacity of the projected station at Taman to 450 MW, the Ministry Head Aleksandr Novak told Kommersant.ru. As well, he noted that many Russian and foreign companies were interested. The contest was to be held on 9-16 June, and the results were to be announced on 1 July, according to the “Sistemnyie Operatory” platform.
29 January 2016 – OOO Technopromexport places two tenders (1, 2) to “develop and implement the software-hardware complex for the automated control system of power plants in Sevastopol in Simferopol. The technical documentation states that each station will include two energy units of 235 MW capacity, and will include a 176.8 MW gas turbine. On 9 February 2016, the examination protocol for this tender revealed that one of the bidders was ZAO Interautomatika, a company with 45.72% of shares owned by Siemens.
On 2 March 2016, these tenders were canceled “in connection with the necessity to change the “Terms of Reference.” They were continued on 31 March, when the identical project was submitted for a tender, with only the location changed – from Sevastopol and Simferopol to “Taman1” and “Taman2.”
February 2016 – the first bankruptcy proceedings for OAO Technopromeksport are initiated. The company is placed under monitoring from March 2016.
18 February 2016 – the Russian government announced a competition to build power plants generating in total a maximum of 450 MW + 10% in Krasnodarsky Oblast, where Taman is located. The technical limitations for the individual power generating units were quite broad, between 25 and 230 MW, meaning that the use of Russian middle capacity turbines was also possible (although this would be more expensive). The purpose of the new power station was to ensure the stable work of the energy bridge to Crimea.
31 March 2016 – OOO Technopromexport announced a tender to develop and deliver a software and hardware complex for the automated control system of two power plants in Taman, each with two units of 235 MW, i.e. matching the 940 MW technical parameters of the Siemens turbines. The tender was won on 13 May 2016 by the Russian Research Institute of Automatics, part of Rosatom (not yet sanctioned by the USA or EU). However, on 13.07.2016, ria.ru reported that Rosatom’s deputy director Ivan Kamenskikh said in an annual report of Rosatom that the Institute won the tender to deliver automated control system to power plants in Crimea, not Taman.
His confusion is easy to explain: the technical documentation for this tender and the one from 29 January 2016 (compare: 29.01.2016: Simferopol; Sevastopol; 31.03.2016: “Taman1“; “Taman2“) is virtually the same – only the names of the power stations and, in one pair, climatic characteristics have been changed (the climatic characteristics for Sevastopol and Taman1 are identical). Notably, the Simferopol and Sevastopol power station have a specific construction address, while “Taman1” and “Taman2” do not – as there was nothing being built and even no plans:
Moreover, “Taman1” even has an identical contract number and date as the Sevastopol power station, #53651400005/30N14 from 12 March 2015 (Simferopol had a slightly different one, #53651400006/35N14 12 March 2015. Both of these contracts are absent in the Russian state tender database Zakupki.gov.ru. “Taman2” doesn’t even have a contract number. All four tenders indicate the same project developer. But at the time, even a contest for the power stations in Taman had not been held, much less a project developed!
7 June 2016 – Maksym Bystrov, the head of the non-profit partnership “Soviet Rynka” (“Market Advice”) tells journalists that the Russian government is considering building the power plant in Taman without a contest, TASS reported. Bystrov also informs that three companies intend to participate in the contest.
24 June 2016 – the contest for the Taman power station was finished. However, no investor showed interest in it, although three companies passed the selection process, Vedomosti reported. Companies could have registered for the contest between 20 February – 1 June 2016 and were to submit their proposals between 20-24 June, according to peretok.ru.
In an announcement on their site from 20 September 2016, OAO Technopromexport explained it could not take part in the Taman power station contest because it wasn’t eligible to do so, as bankruptcy proceedings were already initiated against it.
20 July 2016 – in an interview to Reuters, Russian Energy Minister said that the Crimen bank RNKB, under Western sanctions, would give a loan to OOO Technopromexport for the construction of the Crimean power stations. The sum of the credit was not disclosed, but insiders hinted at RUB 30 bn (€430 mn). The credits are to be returned through surcharges on energy prices for Russian consumers in the zone to the east of the Urals.
16 September 2016 – OAO Technopromexport announces it will auction off the four SGT5-2000E gas turbines it got from Siemens with a starting price of €166.7mn, which is roughly €46.7mn for one turbine, almost €20 mn more than the €27.95 mn they bought them for from Siemens, according to the details of the lawsuit published by Forbes. The materials of the announcement state that the equipment was developed and produced for the climatic and seismic conditions of Krasnodar Krai, where the Taman peninsula is located. This auction ended without a single bid.
The sources of Kommersant connected this auction with Technopromexport’s desire to sell the turbines in order to use them in Crimea later on, which would technically allow Siemens to avoid breaching the sanctions regime.
20 September 2016 – Vedomosti reported that a Technopromexport representative told them that prior to the contest for the Taman power station, Rostec offered to give the right to build the station in Taman to Technopromexport, for which the latter signed a contract with Siemens in March 2015. He said that after the company was sanctioned in December 2015, its financial state deteriorated. Due to bad financial conditions, the company could not take part in the contest for building the power plant. Thus, a decision was made to sell the equipment it purchased from Siemens.
The conditions of the contract are such that purchaser of the turbines must guarantee that the equipment will not be used at power plants having a direct connection with the energy system of Crimea or on power stations, the sole purpose of which is the power supply of Crimea, Vedomosti reported.
Mark Karetin, a partner of the “Yukov and partners” legal firm, told the outlet then that the company which purchases the equipment will be able to transport it to Crimea, with the customer falling under the sanctions, but Rostec securing itself against claims.
21 September 2016 – a meeting between Russian President Vladimir Putin, his speaker, German Foreign Minister Sigmar Gabriel, and the German ambassador to Moscow Rudiger von Fritsch, was held in Moscow, where Putin have a “personal guarantee” to the German side that the Siemens turbines would not end up in Crimea, according to the German newspaper WirtschaftsWoche relying on its own sources. The newspaper cites the “end of September” as the time of the meeting; Sigmar Gabriel was on a working visit to Moscow on 21 September 2016.
10 October 2016 – A Siemens official in Munich told DW that the agreement between Siemens Gas Turbine Technology and Technopromexport envisions using the Siemens turbines only near stanitsa Rayevskaya in Krasnodar Krai (where Taman is situated). “The client, immediately before the product was shipped, gave a written confirmation that the turbines will stay in this location,” the Siemens representative said.
20 October 2016 – the Board of Directors of Crimea’s largest bank RNKB approved a RUB 23.7 bn (€345 mn) loan to OOO Technopromexport for the construction of two power stations in Crimea, interfax reported. The outlet’s source informed that over 65% of the funding for the stations would come from federal funds.
10 November 2016 – A statement on OAO Technopromexport’s website informed that the St.Petersburg police were conducting a pre-investigation check of Siemens Gas Turbines Technology for non-fulfulling contractual obligations to Technopromexport, namely, for “preventing the shipment of a part of the gas turbine equipment […] which is fully paid for by Technopromexport and is legally the property of the company,” which the legal service of Technopromexport qualified as “fraud,” “abuse of authority,” and “self-rule.” The commencement of criminal cases against Siemens Gas Turbine Technology and Siemens (itself) is possible, as is the prohibition of Siemens’ activities on the Russian market and inclusion of the company in the Register of Unfair Suppliers, OAO Technopromexport warned, reminding of the corruption-related scandals of Siemens in 2006.
11 November 2016 – a source of Kommersant told the outlet that the turbines were shipped to Krasnodar Krai on 28 October 2016 and are at this location. But the shipment of the second part of the order, auxiliary equipment without which the turbines can’t be assembled didn’t happen. After the first shipment, Siemens representatives asked for a confirmation that the equipment is situated in Taman, after which the Siemens delegation was permitted to visit the object. The outlet’s source noted that Siemens was offered to take back the equipment and return the money, but the producer didn’t agree to this. Siemens, the Main Directorate of Internal Affairs, and the Energy Ministry declined to comment.
29 November 2016 – an insightful yet anonymous commentator who appeared to be close to the course of OAO Technopromexport’s bankruptcy proceedings wrote under an article on Vedomosti that a representative of the company said at the proceedings of the Arbitration court in early November that the company did not own the turbines it tried to auction off on 16 September and that the auction was held to “monitor the market.”
27 December 2016 – Rostec chief Sergei Chemezov also told journalists that [OOO – ed] Technopromexport will finish building the Crimean power plants in mid-2018 instead of the planned late 2017 because of delays in providing equipment for the stations, TASS reported.Chemezov also said that Technopromexport has bought 4 turbines (Siemens turbines, according to Reuters) – two for the power station in Taman and two – for the one in Grozny (Chechnya). Rostec is ready to build the power plants and is waiting for the conditions of the contest to be announced by the Ministry of Energy, but if Rostec won’t build the stations, it will sell the turbines to the companies that will.
20 February 2017 – Rostec says it’s trying to get the turbines from Iran. Rostec chief Sergei Chemezov stated that Rostec could finish constructing the Crimean power plants if it concludes an agreement to import the turbines for them from Iran, Kommersant reported. Kommersant supposed that the Iranian turbines were ones produced by the Mapna company, also under a Siemens license. The legal experts the outlet questioned said that in this case, the sanctions risk for Germany would be much smaller, and would result only in a dispute between Siemens and Mapna.
16 March 2017 – Nikolai Rotmistrov, head of energy and gas production at Siemens in Russia, told Reuters that the company had delivered the turbines to Technopromexport and added that while Siemens has fulfilled “practically all” conditions of the contract, some of the parts had still not been delivered and are being held in the company’s warehouses in Germany, in breach of the contract’s terms.
17 March 2017 – in Appendix 1 of a tender by OOO Technopromexpert providing technical specifications for the insurance of the power stations in Sevastopol and Simferopol, detailing that the supplier of both the gas and steam turbines for the stations is Power Machines.
5 April 2017 – the Energy Ministry announced that the next contest for constructing the Taman power station will be held in August 2017.
6 April 2017 – OAO Technopromexport is declared bankrupt.
13 April 2017 – For the first time, Aleksandr Novak, Ministry of Energy Head, admits that there are problems with supplying equipment for the two power stations under construction in Crimea, and that the authorities haven’t settled on the method of obtaining turbines for these stations, kommersant reported. He also noted that they were considering purchasing equipment produced by third-party countries, Russian equipment, and equipment which was purchased before the sanctions regime and was being stored in Russia for these stations.
27 April 2017 – Alexei Chaliy, a Crimea lawmaker who in 2014 was one of the two most senior local officials under Moscow’s de facto rule, said that the power stations in Crimea “were designed for Siemens turbines,” and that he “warned there would problems” back in 2014, Reuters reported.
6 June 2017 – OOO Technopromexport purchased four turbines for Crimea on the secondary market and modernized the equipment with the resources of Russian factories and engineering companies, a statement of the company said, ria.ru reported. As well, the statement stated that the turbines weren’t purchased in Iran, noting that project for Crimean stations was initially developed for gas turbines produced by the Iranian Mapna company, but “in the end, the parties didn’t reach mutual understanding on a set of technical and commercial issues and the contract was not concluded.”
8 June 2017 – The Siemens turbines are within custody of OOO Technopromexport. The company submitted two tenders on the site for state purchases revealing that it disposes of the four Siemens turbines, which were previously in custody of OAO Technopromexport which went bankrupt.
On 2 June, OOO Technopromexport placed a tender to check four “gas turbine modules of the TPE-180 series” for compliance with the technical regulations of the Customs Union. Sources of Kommersant were adamant that “TPE-180” was a codename for the four Siemens turbines, as OOO Technopromexport is an engineering company and does not have machine-building capacities.
On 8 June, OOO Technopromexport placed another tender to create technical documentation for four combined cycle gas turbines, each with the capacity 235 MW. According to the tender, each energy unit of 235 MW capacity is based on one module of the gas turbine generating of the TPE-180 type, which includes the Siemens gas turbine SGT-2000E, generator SGen5-100A (Siemens model), a steam turbine and its generator produced by Power Machines, a waste heat boiler produced by the Joint Stock Engineering Company ZIOMAR (part of Rosatom’s Atomenergomash). The specific supplier of the turbines is not revealed, Rostec and the Energy Ministry declined to comment. All the producers denied having agreements to supply equipment to Crimea, Kommersant reported.
29 June 2017 – the first photos and video of what appears to be Siemens turbines in Sevastopol are published online, Euromaidan Press reported. Reuters also published photos of the turbines at the same location from an independent source on 5 July 2017.
3 July 2017 – Rbc.ru reported that the Russian Ministry of Energy will limit the access of foreign producers to data about the usage of their equipment in Russia. First of all, this concerns the work of gas turbines. If foreign producers could have previously received direct access to data about the work of a turbine, the raw data will now be collected in Russian centers and will be sent abroad only after being processed.
“They should not have direct access to the turbine,” said Andrei Cherezov, the deputy head of the Energy Ministry. A source of Rbc.ru close to the Ministry assured the outlet that this is merely a general security issue which is not connected to Crimea at all.
The meaning of these maneuvers
All these maneuvers, apart from confusing observers, had a goal. Here is our hypothesis about it.
The likelihood of Siemens‘ deliberate participation in breaking sanctions is extremely high. The very fact that the contract they concluded with OAO Technopromexport was secret, skirted the required tender procedure, and only came to light thanks to the work of journalists at Vedomosti, leaves little space for Siemens’ innocence.
It is highly likely that an agreement between Russia and Siemens was made at the very top – the government’s plans to use specifically the Siemens turbines in Crimea were revealed even before Rostec’s daughter signed the contract with Siemens. Purely financially, this contract doesn’t make sense: for a global company like Siemens, €213 mn is a very small profit to gain from the international scandal associated with breaking sanctions. But politically, it makes perfect sense: after all, Germany is one of Russia’s main backers in the Nordstream-2 project, where Siemens could make huge profits, if it agrees with Gazprom. The turbines in Crimea were merely a small favor.
The miraculous multiplication of the Technopromexport-s, sale of the turbines in between them, and the Rostec-approved bankruptcy of one of its oldest and most internationally active subsidiaries, OAO Technopromexport, was apparently part of a plan to help Siemens evade responsibility for breaking sanctions. First, Russian law does not guarantee that OAO Technopromexport’s clone would be obliged to follow the anti-Crimea clauses of the original contract with Siemens. Second, Siemensreceived an empty bankrupt shell of a company which it could present as the criminal. Now Siemens can take “decisive steps” to no longer offer gas turbine services to Russian state customers, but it has nothing to lose – it has already installed them everywhere it could.
However, either Russia could not pull this off neatly, or Siemens suddenly changed its mind, and the original agreement went down the drain: Siemens didn’t deliver the magic sauce, Russia started searching for turbines in Iran, unsuccessfully, and finally dragged the turbines to Crimea anyway, while announcing they are from the unspecified “secondary market,” which is amusing since all the previous two-year attempts of Rostec to find a spare Siemens turbine just lying around somewhere in Russia were to no avail.
Despite soothing assurances that Russia can’t activate the German turbines in Crimea without Germany, this is less than credible. The Soviet Union was famous for its incredible ripoffs of western technology, one of the most striking examples of which was, perhaps, the development of Soviet computers with the help of designs stolen through Soviet spies sent to IBM, and the procurement of western computers through shell companies in third-world countries and friendly Communist parties. Hacking and reverse engineering is Russia’s specialty.
Siemens’ recent moves to sue its contractors and plans to call off the licensing agreement with Russia, although this step should have been taken much earlier, differ starkly from the strategy we observed starting from 2014, which was likely a calculation that a scandal, if it ever happens, will blow over, even if the journalists will make a fuss, and they will get a few reprimands from Berlin.
But after the European Commission said that it’s up to Germany to make sure their companies comply with sanctions, and the German government didn’t close their eyes, it was clear that the scandal will not blow over. After all, Germany is a country leading the EU in preserving sanctions against Russia, and this is an insult to irritate Angela Merkel personally. At the same time, Germany has spoken out against the additional sanctions proposed by the USA, and it turned out that the existing EU sanctions are far from being leak proof. Siemens is starting to suffer serious losses to its reputation. Its scenario didn’t work out.
Now, Siemens will pretend to the best of their ability that they are a victim of a treacherous Russian partner which hitherto had been totally trustworthy. Meanwhile, Russia will have solidified its violent annexation of Ukrainian land and ongoing attacks, sometimes deadly, against all those that disagree – with the help of reliable German technology.[hr]
Written with contributions by Tobias Weihmann and Mykhailo Honchar.
The original version of this document was amended to include contributions by Mykhailo Honchar, President of the Centre for Global Studies Strategy XXI (Kyiv), former Director for Energy Programmes of the Centre NOMOS (Sevastopol).
Note. All currency conversions were done based on the currency rate of the date of the transaction or publication
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