Moldovan minnow takes Kazakhs to court OCTOBER 4, 2010 tags: Ascom, Expropriation, Kazakhstan, Moldova Kazakhstan’ propensity for embroiling foreign oil companies in expropriation battles appears undimmed. It’s latest punch-up, with privately-owned Moldovan oil company Ascom, is set to end up in a Stockholm arbitration court, after the company seeks compensation for hundreds of millions of dollars worth of oil and gas assets allegedly expropriated by the Kazakh government. The state took over Ascom’s stakes in the Borankol and Tolkyn oil and gas fields in the pre-Caspian basin in July of this year, 11 years after the Moldovan group acquired the assets. Ascom, owned by tycoon Anatoli Stati, bought two prospective Kazakh producers, Kazpolmunai (KPM) and Tolyknneftegas (TNG) and invested heavily in drilling new wells and building infrastructure at the two fields – spending an estimated $1 billion, with a further $500mn paid in fees and taxes to the state. With $531 million in bonds it issued on the projects due to mature in 2012, Ascom needs to get its money back. The Kazakh government began its campaign against Ascom two years ago, after the oil company announced a significant find in its Tabyl Block in July 2008. In September 2008, Ascom received seven offers to purchase its fields, including one from KazMunaiGas, in the first phase of a trade sale process. Ascom then decided to engage in negotiations with the most competitive bidders. There then followed what Ascom says has been a systematic campaign of harassment and illegal treatment of the company — believed to have been triggered in part by a letter from Vladimir Voronin, former president of Moldova, to [resident Nursultan Nazarbayev of Kazakhstan on the 6 October 2008. The letter made a number of accusations against Stati, considered a political rival to Voronin. Ascom says the company’s Kazakh investments have been subjected to sustained harassment, culminating the abrupt cancellation of the subsoil use contracts held by Ascom’s local operating companies, KPM and TNG, and the illegal seizure of its Kazakh assets in July 2010. Ascom’s case – which now has political support from Moldova’s government – rests on the fact that the expropriation was in violation of the international Energy Charter Treaty. The request for intervention by the Arbitration Institute of the Stockholm Chamber of Commerce reflects its status as designated jurisdiction under the terms of that treaty. The decision to take the legal route marks a break with recent tradition by much larger oil companies engaged in Kazakhstan such as Eni and BG, which have agreed under pressure to cede a 10% stake in the Karachagank gas field to Kazmunaigas. In August, the Kazakh Agency for Fighting Corruption and Economic Crime accused the Chevron-led Tengizchevroil joint venture of “unlawfully” producing $1.4bn of oil from the Tengiz field. Ascom, unlike the majors, has little to lose in taking on the Kazakh authorities — not least with half a billion worth of US dollar bonds maturing in a couple of years. Foreign investors of all descriptions will be keeping a close watch on the Stockholm legal process, in the hope of quelling Astana’s rampant resource nationalism. LEAVE A COMMENT from → Articles, News and Comment Asset-hungry Chavez suffers a setback SEPTEMBER 29, 2010 tags: Expropriation, Hugo Chavez, Venezuela Hugo Chavez suffered an electoral reverse on 26 September, with the opposition parties overturning the president’s two-thirds majority in the National Assembly. The Democratic Unity coalition’s securing of 65 seats in the 165 seat chamber could thwart Chavez’s ability to appoint judges and key officials to push through laws – including the expropriation of private business interests, which has become something of a fetish for the Venezuelan leadership in recent years. Already this year, reports Venezuela’s industrial trade association Coindustria, the government has expropriated a record 174 companies, the majority in the oil and gas sector. Caracas-based economic consultancy Ecoanalitica estimates that the government is spending 11% of its GDP on nationalisation. The latest confiscation is Seguros La Previsora, a major insurance company. Chavez’s strategy is simple. Having failed to get the state’s own insurance provider up and running, reports Business News Americas, the government is using the infrastructure of expropriate La Previsora as the heart of state-owned insurer Bolivariana de Seguros and Reaseguros. The government pocketed La Previsora in December last year, a move rubber stamped in the National Assembly in August – allegedly due to “criminal activity”. Chavez’s expropriation modus operandi should be familiar to those who have witnessed Russian efforts to choke private business interests over recent years. In June, the Caracas authorities took over a medium-sized bank, Banco Federal, citing a risk of fraud. Hardly a coincidence, then, that the bank happened to be owned by a director of the opposition TV channel Globovision. Having lost his two-thirds majority in parliament, Chavez may find it trickier to bamboozle the opposition and drive through expropriations. But don’t expect the Venezuelan leader to soft-pedal; with the economy under pressure and his popularity eroding, more populist measures may be in the pipeline. Chavez’s problem might be in finding any assets left worth plundering. LEAVE A COMMENT from → News and Comment An expropriation in the heart of darkness SEPTEMBER 20, 2010 tags: Africa, DR Congo, First Quantum London-listed, Canada-based resources group First Quantum Minerals is preparing to takes its legal battle against the Democratic Republic of Congo (DRC) over the seizure of its mining interests in the central African state to Washington DC’s International Centre for Settlement of Investment Disputes (ICSID), as it seeks to overturn the DRC government’s decision last month to nationalise one of the largest mines. That move appears a classic case study of a resource play expropriation, with the Congo government snaffling a prime asset to sell onto a rival concern and – in the process — extract more money to senior regime figures. The Congo government seized the Frontier asset in late August, citing “suspected wide-scale misconduct”, with the DRC Mining registry handing over the exploitation permit to state-owned mining company SODIMICO, which has been granted Frontier’s titles, forcing First Quantum to leave the mining title areas. The state-led assault on First Quantum’s Congolese mining interests has fanned out from the seizure last year of its copper mining asset at Kolwezi. In September 2009, Congolese state troops occupied the $765m Kolwezi Tailings project, the government claiming that the project, still under construction, violated Congolese law, though without provided a clear explanation of why. On 30 August 2010, First Quantum’s Frontier permit was also withdrawn – another example of expropriation of its property, the Canadian company suggests. What’s more, it sees the move as clear retribution for the commencement of arbitration relating to the Kolwezi project, which was acquired by London based Eurasian Natural Resources Corporation (ENRC) – 40 percent owned by Kazakh investors – on 19 August. First Quantum is already engaged in legal action against a subsidiary of ENRC, a FTSE 100 mining group, in the British Virgin Islands for buying Kolwezi for $175m. The company believes that the expropriation of the Kolwezi Project was orchestrated by certain interests within the DRC government and third parties, the latter alleged to include Israeli mining tycoon Dan Gertler, reported to have sold a controlling stake in the project to ENRC. Gertler is alleged to have high level contacts to DRC President Joseph Kabila. ENRC had announced on 20 August its purchase 50.5 percent of the outstanding common shares of Camrose Resources Limited which through its ownership of the Highwinds Group has a 70 percent interest in the Kolwezi project. However, one day previously, a tribunal constituted by the International Chamber of Commerce (ICC) in Paris issued a procedural order to prohibit the DRC and state miner La Generale des Carrieres et des Mines (Gecamines) from taking any action to transfer or allow the transfer of the Kolwezi Project tailings permit. First Quantum has now trained its fire on ENRC, dispatching a letter to UK’s Financial Services Authority complaining that ENRC did not disclose in its acquisition announcement that the Kolwezi assets remained under dispute. ENRC maintains that the Kolwezi Project tailings permit was transferred to the Highwinds Group prior to August 19, and takes the position that the ICC international arbitration process has no bearing on its acquisition of the Kolwezi Project tailings permit. It also believes itself justified in pursuing the transaction on the basis that the withdrawal of First Quantum’s rights to the Kolwezi Project was confirmed by the DRC Courts – a potentially problematic defence given that Kinshasa’s court system is hardly a beacon of independence. The dangers involved in handling potentially wrongfully acquired assets have been highlighted by the growing investor pressure on ENRC independent director, Sir Richard Sykes. UK pension fund Standard Life, which owns a small holding in ENRC has indicated that Sir Richard may have showed poor judgment in buying up the Kolwezi rights. The DRC expropriation strategy has its roots in government’s review of mining contracts dating back to 2007, when it determined that all mining concessions handed out had problems associated with them. Yet even by the ham-fisted standards of the DRC, the attempted expropriation at Kolwezi looks badly thought out. First, the assumption that First Quantum would simply walk away from the project, despite having invested an estimated $450m looks flawed. Second, the Congolese have also taken on a larger foe in the shape of the World Bank, whose International Financial Corporation was a co–investor in the Kolwezi deal. With the Canadian authorities, the ICC, the ICSID, and now European investors involved, the Congolese have chosen to take on a potentially formidable alliance. The press headlines could make for grim reading for ENRC over coming months, amid City threats to “blackball” Sir Richard Sykes over his involvement. Sir Richard’s position is that the dispute is a matter between the DRC government and First Quantum, as he told the Daily Telegraph on 20 September. “If you want to be in copper and cobalt you have to go to the Congo,” he said. “It’s not like we went after stolen assets.” The horror, the horror, indeed… LEAVE A COMMENT from → News and Comment The Yukos battle continues SEPTEMBER 13, 2010 tags: bankruptcy, Legal cases, Rosneft, Russia, Yukos The latest front has opened up in Russia’s state-led assault on Yukos shareholders, with the Amsterdam Court of Appeal hearing an appeal on 9 September from the former Russian state administrator of the oil company, Eduard Rebgun, against Yukos daughter companies Yukos Finance BV and Yukos International. Rebgun is appealing the District Court’s ruling in October 2007 that the Russian bankruptcy order against Yukos was in conflict with proper judicial process and should not be recognised in the Netherlands. For this reason, the court said, the Russian administrator should not have had control over the company’s Dutch assets. Yukos was declared bankrupt in 2006 after it had received a retrospective tax demand of $25bn. Now Yukos’ former management is demanding restitution. As well they might: the massive tax demand imposed on Yukos by the Russian state amounted to a de facto expropriation, half of it consisting of fines and VAT on oil that was sold overseas. As Yukos lawyer Robert van Galen, of Dutch law firm Nauta Dutilh acidly noted in comments to the Netherlands’ Volkskrant on Friday, VAT isn’t even due on oil sold abroad. The Dutch hearing is only one front of a new battle that is also taking in a case before the European Court of Human Rights in Strasbourg, where Yukos’ former management is claiming that the Russian state stole property and therefore violated their fundamental rights. The stakes are high as Yukos’ former management is asking for Moscow to pay back an estimated $100bn owed to them. Yukos’ former management hope that the independence of the Dutch court system will continue to hold up. International courts have hitherto taken a dim view of efforts by the Russian authorities to take over other foreign assets of Yukos, with a British Virgin Islands court affirming its confidence in the Yukos management in a ruling delivered on 6 August – throwing out Russian state oil giant Rosneft’s naked attempt to expropriate the remaining Yukos assets. Back in June, the Dutch Supreme Court issued a final verdict ordering Rosneft to pay several hundred million dollars relating to loans for which it had defaulted. The three Dutch appeal court judges are likely to make a decision on this latest appeal sometime in early 2011. The judges bear a heavy burden of responsibility: shareholders everywhere must hope that the Netherlands’ independent spirit will sustain. LEAVE A COMMENT from → News and Comment ANC’s Malema moots SA land grab SEPTEMBER 8, 2010 tags: ANC, South Africa South Africa faces more internal political conflict following ANC Youth League president Julius Malema’s latest attempt to force the expropriation of land onto the political agenda. In an address to the league’s national general council in late August, he said that the South African constitution’s “willing buyer, willing seller” Section 25 should be dropped. “We’re going to take the land, but we’ll compensate,” he said. But this is unlikely to deliver adequate compensation, as he also added that “we will determine the price…” Malema’s plan looks like expropriation in all but name. “If you have 700 hectares of land and the government offers R1 million, you don’t have an option but to take that R1 million because that is what the state can afford.” Warming to his theme, he also told the council: “If you say that’s too little and you don’t want it, then we take the land and give you nothing. It’s called ‘expropriation with compensation determined by the state’.” The firebrand ANC youth leader is adamant that no negotiation would be allowed, leaving the current owners and occupants with no choice but to comply. While he isn’t advocating a Zimbabwe-style land grab, he hasn’t helped the cause of the country’s fragile unity. Where this leaves swathes of land owned by foreigners is unclear. Much of KwaZulu Natal’s coastline, for instance, is owned by Middle Eastern companies, rather than Afrikaner farmers that make easy targets for ANC propagandists. Agri SA (the farmers’ association) has voiced opposition to Malema’s call. “He disregards the constitution of South Africa whereby compensation should be agreed to by those affected or decided by law”, says Agri SA’s president Johannes Möller. The youth league will now push for a constitutional amendment in the forthcoming ANC’s national general meeting in Durban (September 20-24). In the background, a green paper on land reform and rural development is currently being prepared by rural development minister Gugile Nkwinti. It is intended to address three key issues: to de-racialise the rural economy; to boost the democratic and equitable allocation and use of land; and to ensure food security and growth of the agricultural sector. On reading the first issue, perhaps Malema knows something that his colleagues don’t?
Posted on: Wed, 04 Dec 2013 03:40:28 +0000
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