State-owned Finnish company Fortum Oyj has initiated ICC (International Chamber of Commerce) arbitration in Stockholm, Sweden against Vestas for terminating Russian wind project contracts.
Vestas’ termination of Russian wind project contracts was in order to comply with the European Union sanctions arising from Russia’s invasion of Ukraine, the turbine manufacturer said.
According to Fortum, both companies entered the contract before the Russian invasion of Ukraine and before 2022 energy related sanctions against Russia were in place.
It said in a statement: “The commercial dispute concerns projects to build several wind parks with more than 50 wind turbines in Russia for which Fortum had already made sizeable advance payments to Vestas.
“Vestas did not deliver on its contractual obligations and yet refused to repay the advance payments and other project-related costs.
“Fortum engaged in multiple discussions and negotiations with Vestas during several months with the goal to find a mutually acceptable solution.
“As the negotiations were not successful, Fortum was left with no other option than to resort to arbitration.”
Since the start of the invasion, the European Union has published a series of sanctions packages, which include comprehensive sanctions against the Russian “energy sector”.
Vestas claims that sanctions and export controls regulations issued in 2022 prevented it from delivering, installing and servicing wind turbines in accordance with its contracts with Russian customer WEDF, which is owned by Fortum.
Faced with this difficulty, Vestas said it invoked the sanctions-specific clause in each contract between itself and WEDF, which gave each party the unambiguous right to terminate the contracts if performance was impacted by international sanctions.
These clauses explicitly included sanctions against Russia, Vestas said.
In response, Fortum said that it “will vigorously defend itself against false claims by former business partner Vestas that it flouted sanctions against Russia in a commercial dispute between the two Nordic companies”.
After months of negotiation between the parties in an effort to find an agreement, Vestas terminated the contracts in late June 2022.
President and chief executive of Vestas Henrik Andersen (pictured) said: “We strongly believe the arbitration to be without merit, and we are astonished and dismayed a state-owned company from a fellow EU-country would openly question the sanctions against Russia and thereby the unity of EU countries.
“Member states and companies were aware from the outset that the sanctions would have financial consequences, also outside of Russia, and questioning whether sanctions apply can only benefit the interests of Russia and its sympathisers.
“We have approached political stakeholders to find a sensible resolution to the matter, which together with a public conversation around the arbitration’s broader impact on the perceived unity of EU member states hopefully will cause Fortum to reconsider its position.
“We will vigorously defend ourselves should this meritless arbitration continue.”
Fortum General Counsel Nora Steiner-Forsberg said: “As in all business partnerships, Fortum values cooperation and transparency, and has been ready to find a reasonable solution that is acceptable to both parties.
“As this has not been possible, we believe ICC arbitration is a fair way to settle this commercial dispute based on the facts.
“We are at a loss to understand why our long-standing business partner Vestas would suddenly question our adherence to EU sanctions in this case.
“There is absolutely no doubt about Fortum’s commitment to upholding and defending EU laws, EU sanctions, and ultimately EU unity.”
In May 2022, Fortum announced that it started a controlled exit from the Russian market, with a divestment of its Russian operations as the preferred path.
The divestment process has progressed and is ongoing, but requires approval by the Russian authorities, the company said.