Naftogaz files arbitration against Russia to recover $2.6 bln for Crimea assets lost

National Joint Stock Company Naftogaz of Ukraine and six of its subsidiaries initiated arbitration proceedings against Russia seeking to recover damages arising from the Russian Federation`s seizure of company`s assets in Crimea following the 2014 annexation of the peninsula, according to Naftogaz`s press service.

”On Monday, October 17, 2016, NJSC Naftogaz of Ukraine and six of its subsidiaries commenced anarbitration against the Russian Federation to recover damages arising from the Russian Federation`s unlawful seizure of the group`s assets in Crimea,” the company`s statement reads.

Naftogaz has preliminarily estimated the group`s damages at $2.6 billion, the press service said.

Naftogaz has filed the arbitration under the Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the encouragement and mutual protection of investments, more commonly known as the Russian Federation-Ukraine Bilateral Investment Treaty.

Naftogaz reports that in 2014 the Russian Federation engaged in a widespread and well-orchestrated scheme to deprive Ukrainian companies of their property, without payment of compensation.

”Naftogaz owned some of the most valuable energy assets in Crimea and was among the Russian Federation`s chief targets. The Russian Federation`s actions violated the Russia-Ukraine bilateral investment treaty, which requires the Russian Federation to respect and protect Ukrainian-owned assets, including those in Crimea,” the statement reads.

Specifically, the Russian Federation`s scheme involved, among other actions, taking steps to formally nationalize Naftogaz`s oil and gas assets in Crimea, including by sending armed men to commandeer Naftogaz`s drilling platforms, and ultimately transferring almost all of Naftogaz`s Crimea-based assets to a Russian state-owned company, according to the press service.

As UNIAN reported earlier, in spring 2014, Russia carried out the annexation of the Crimea and the illegal seizure of assets located there, including energy ones.

In December 2015, Naftogaz of Ukraine hired the U.S. law firm of Covington & Burling to protect the company`s interest in litigation concerning lost shelf assets in the annexed Crimea. At that time, Naftogaz estimated damages due to the loss of its assets at UAH 15.7 billion.

In mid-February 2016, Naftogaz provided Russia with a formal written notification of a dispute for violations of the bilateral investment treaty between the two states.

According to Naftogaz`s financial statements for 2015, Naftogaz group, namely its subsidiary Chornomornaftogaz, lost about 2 billion cubic meters of natural gas annually.

It is also noted that before the annexation Chornomornaftogaz owned 18 hydrocarbons fields, four jack-up rigs, 24 floating facilities, and used the gas transport system consisting of over 1,196 km of main pipelines, including 286 km of the offshore pipeline, and other assets.

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