Yahoo | 7 May 2019
Dutch court upholds $5.2 billion asset freeze on major Kazakhstan oil field
NEW YORK, May 8, 2019 /PRNewswire/ — On May 7, 2019, the Amsterdam Court of Appeal issued a judgment upholding an earlier decision by the Amsterdam District Court allowing an attachment in favor of Anatolie Stati, Gabriel Stati, Ascom Group S.A., and Terra Raf Trans Traiding Ltd (together, the Stati parties) with respect to the Republic of Kazakhstan’s shareholding in the Dutch entity KMG Kashagan B.V. held via the Kazakh sovereign wealth fund Samruk-Kazyna.
Through its stake in Kashagan, which has a nominal value of approximately US$5.2 billion, the Kazakh State participates in the international consortium relating to the Kashagan oilfield, one of the largest offshore oilfields in the Caspian Sea. Other members of the consortium include Eni, Royal Dutch Shell, Total, ExxonMobil, China National Petroleum Corporation, and Inpex.
In its Judgment dismissing the appeals brought by Kazakhstan and Samruk, the Amsterdam Court of Appeal held that despite Samruk ostensibly being a separate legal entity from Kazakhstan, it "lacks factual-economic independence, in the sense that Samruk cannot invoke its legally separate nature vis-à-vis the Republic of Kazakhstan to formulate its own policies, deviating from the policies of (those politically responsible in) the Republic of Kazakhstan, and adopts the latter’s policies as its own."
The court further held that "regardless of the (formal) purpose" behind Samruk’s incorporation, Samruk "in any event (also) functions as an instrument to shield a significant amount of the assets of the Republic of Kazakhstan from its creditors by means of Samruk holding shares in state participations, which would, if Samruk were allowed to invoke its legally separate nature against a creditor of the Republic Kazakhstan, be out of reach for such a creditor, even though it is the Republic of Kazakhstan which (among other things) ultimately controls the assets of Samruk and the use which is made thereof." The Dutch court also found that because the purpose of the attached shares was commercial in nature, Samruk was not entitled to rely on the state immunity defense.
Anatolie Stati, CEO and shareholder of Ascom Group, one of the claimants to the action, said : "We welcome the latest judgment of the Amsterdam Court of Appeal, which confirms the pro-arbitration policy adopted by Dutch courts." Stati added : "The decision entitles us to proceed with the foreclosure process with respect to the Kashagan shares, which we expect to be completed by early 2020. We also intend to seek to attach further property owned by Samruk in other jurisdictions on the basis of this decision. In the meantime, investors in Kazakhstan should take note of the country’s repeated failure to honor the investment protections that it claims it provides to foreign investment."
The Dutch court’s ruling is the latest development in the Stati parties’ long-running battle to enforce the award for Kazakhstan’s violations of the investor protection provisions of the Energy Charter Treaty. In December 2013, a tribunal constituted under the auspices of the Stockholm Chamber of Commerce found that Kazakhstan violated its international obligation to treat the Stati parties’ investments fairly and equitably and awarded the Stati parties more than US$500 million in damages, legal costs, and interest. The award has since been fully upheld by two tiers of the Swedish judiciary, including the Swedish Supreme Court.
In aid of its efforts to obtain recovery under the award, the Stati parties have to date secured multiple attachments of Kazakhstan’s state property worth approximately US$6 billion before various courts in the Netherlands, Belgium, Sweden and Luxembourg.
The claims originally arose out of Kazakhstan’s seizure of the Stati parties’ petroleum operations in 2010. The Stati parties acquired two companies in 1999 that held idle licenses in the Borankol and Tolkyn fields in Kazakhstan. They invested more than US$1 billion over the ensuing decade to turn the companies into successful exploration and production businesses. By late 2008, the businesses had become profitable and had yielded considerable revenues for the Kazakh state. Just as the Stati parties expected to start receiving dividends, more than half a dozen government agencies carried out multiple burdensome inspections and audits of the companies’ businesses that resulted in false accusations of illegal conduct directed at the Stati parties and their Kazakh companies, including criminal prosecutions of their general managers on false pretenses. Kazakhstan’s actions challenged the Stati parties’ title to their investments, subjected them to hundreds of millions of dollars in unwarranted tax assessments and criminal penalties, and ultimately led to the seizure and nationalization of their investments by Kazakh authorities in July 2010.