Igor Kolomoisky
Does Kolomoisky have a chance of winning, and why could a Ukrainian passport cost the billionaire dearly?
Cypriot companies that are minority shareholders of Ukrnafta have filed a lawsuit against the Ukrainian state for $4,674 billion. According to media reports, the Ministry of Justice received a formal lawsuit from three Cypriot companies. The claim consists of $2,063 billion, which Ukrnafta minority shareholders are seeking for lost dividends; $932 million in penalties; and $1,679 billion in share value loss.
The plaintiffs—Littop Enterprises Limited, Dridgemont Ventures Limited, and Bordo Management Limited—are controlled by PrivatBank co-owners Igor Kolomoisky and Gennady Bogolyubov ( read more about him in the article "Gennady Bogolyubov: What is Privat's other half keeping quiet about ? " ) and own 43% of Ukrnafta's shares. The state, represented by Naftogaz of Ukraine, holds a controlling stake of 50% plus one share.
Ukrnafta is the largest oil producer in the country. In 2015, the company reduced oil production by 10,5%, or 185,410 tons, to 1,577,360 tons compared to 2014. Revenue amounted to UAH 28,7 billion.
The Ministry of Justice told DS that they have no official information about the lawsuit, nor has the agency's position on the matter yet. According to DS, the matter is merely a receipt of the lawsuit. The lawsuit was filed under the so-called Energy Charter Treaty. Specifically, the grounds for the lawsuit include: violation of the Fair and Equitable Treatment (FET) regime; violation of obligations to prevent measures of an "unreasonable and non-discriminatory nature" against investors; violation of obligations to provide investors with "constant protection and security" of their investments; violation of obligations to create legislation that would ensure effective protection of investors' rights; violation of investors' rights to appoint key persons to the company's management at their own discretion; and expropriation of investments.
What exactly is Privat Group dissatisfied with? Back in 2015, when its founders' intention to sue became known, it was stated that the private shareholders were dissatisfied with the violation of their rights in the execution of the shareholder agreement governing Ukrnafta. It was concluded in 2010 between the group and the Cabinet of Ministers. It stipulates that management cannot be changed without the group's consent. Meanwhile, in the summer of 2015, Naftogaz of Ukraine decided to hold a shareholders' meeting, the main issue being the replacement of the company's CEO, who was later selected through a competitive process. The management change itself became possible after parliament passed a law in early 2015 increasing the quorum for shareholders' meetings from 60% to 50% plus one share.
The most prominent dispute under the Energy Charter Treaty is currently between Naftogaz of Ukraine and Russia's Gazprom. In October 2014, Naftogaz of Ukraine filed a lawsuit in the Stockholm Arbitration Court to review its gas transit contract with the Russian gas monopoly and seek compensation for insufficient gas volumes pumped through Ukraine. In June 2014, Naftogaz also filed a lawsuit against Gazprom with the Arbitration Institute of the Stockholm Chamber of Commerce. A decision on these cases is unlikely to be forthcoming anytime soon.
Lawyers interviewed by DS say that in the 26 years of Ukraine's independence, there have been only two cases in the Stockholm Arbitration Court based on the provisions of the Energy Charter Treaty in which a final decision was made and where the defendant was the Ukrainian state.
In 2008, the Latvian company AMTO lost a lawsuit related to an investment in a company performing construction work at the Zaporizhzhia Nuclear Power Plant. And in 2011, the Arbitration Institute of the Stockholm Chamber of Commerce awarded the Ukrainian state over $4,5 million out of the more than $35 million claimed in the lawsuit filed by Remington Worldwide Limited (United Kingdom). In 1999, the Zaporizhzhia Nuclear Power Plant purchased $33 million worth of power equipment from NPO Electroceramika (Russia), but the Russian side subsequently failed to receive full payment for it. Ukraine lost this lawsuit, and in 2012, it was legalized in Ukrainian courts.
Another lawsuit against the Ukrainian state was filed in early 2015 in the Stockholm Arbitration Court by JKX Oil & Gas, whose shareholders, incidentally, also include Messrs. Kolomoisky and Bogolyubov. This lawsuit is currently pending arbitration proceedings.
In the Ukrnafta case, lawyers interviewed by DS are inclined to believe that the parties can agree to an out-of-court settlement. This is precisely what happened in the Remington v. Ukraine case. "Furthermore, such a settlement may not be made public unless both parties agree, otherwise there is a risk of a second lawsuit for disclosure of confidential information," says Evgeniy Blinov, partner at Eterna Law and head of the international arbitration practice.
The Ministry of Justice's strong legal position also supports a settlement. "In such investment arbitration claims, one of the key requirements is that the injured party must be a foreign investor," Blinov adds. Meanwhile, according to information leaked to the media, three Cypriot companies—minority shareholders of PJSC Ukrnafta, listed as plaintiffs—have admitted that they are controlled by Ihor Kolomoisky and Gennady Bogolyubov, who, in addition to holding Israeli passports, also hold Ukrainian citizenship.
Given that lawyers view the settlement as the most favorable option, it's likely Ihor Kolomoisky will capitalize on it. Of course, it's unlikely he'll be able to reverse the situation with Ukrnafta. This is especially true since the Ministry of Energy and the company's shareholders have apparently already agreed to prepare for Ukrnafta's rehabilitation process, with the goal of restructuring and paying off the tax debt (the final decision is expected at the shareholders' meeting on July 7). However, PrivatBank currently faces more pressing concerns—primarily the fate of PrivatBank. Yesterday, the bank's board chairman, Oleksandr Dubilet, stated that the recapitalization issue had already been resolved. A few days earlier, Valeria Gontareva stated in an interview that a recapitalization program had been signed with PrivatBank and a shareholder commitment had been signed. Overall, it appears a compromise has been reached for the bank, although PrivatBank is not actually compliant with NBU regulations.
On the other hand, the issues of Ukrnafta's restructuring and Privatbank's capitalization are still not fully resolved, and the lawsuit in the Stockholm court will become a sort of Sword of Damocles that will hang over the Ukrainian authorities for several years, making them more accommodating. Despite the Ministry of Justice's favorable position, it's unlikely anyone will take the responsibility of claiming that Ukraine is in a 100% winning position. This means that certain details of the trial will emerge every time clouds begin to gather on the horizon for Ihor Kolomoisky.
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