RUSSIA - The pension fund of bankrupt oil company Yukos is seeking compensation from the Russian Federation worth an estimated $450m (€305m).
Veteran Petroleum Limited (VPL) is one of three claimants, represented by law firm Shearman & Sterling, bringing a series of arbitrations against the Russian government over its expropriation of Yukos assets.
Originally the largest oil company in Russia, Yukos was owned by Mikhail Khodorkovsky, but the firm was declared bankrupt and the assets were sold at auction after he was convicted of fraud and sentenced to eight years in a Siberian jail.
VPL was established by Yukos as a plan for employees to help them relocate when they retired, through the provision of a one-off lump sum payment which would be sufficient for the worker to buy a house and start a new life.
The company was placed under the management of the Veteran Petroleum Trust, and a proportion of Yukos shares was transferred to VPL, with the instructions they would not be sold until they reached a certain price, and the resulting money would then be distributed to the workers.
Emmanuel Gaillard, head of international arbitrage at Shearman & Sterling, described the arbitration case - which is being administered by the Permanent Court of Arbitration at The Hague on the basis of the Energy Treaty Charter - as a straightforward investment claim for the two GML subsidiaries, but said it becomes more interesting for the pension fund.
He said: "In the normal course of affairs, if the shares were at a high price, this could have generated a significant amount for the workers. But we believe if we prevail the amount awarded should be linked to the value the shares, which could be in a range of up to $458m. This makes it more complex as the award will depend on the value of the shares."
If the arbitration is successful, proceeds would be distributed to the workers, but this would also require tracking down relevant employees and their families in a manner similar to that required through a class action process.
However, the initial jurisdiction hearing will not be heard until November, and only if the claimants are successful will the case pass onto the merit phase which involves evidence and witnesses, before finally reaching the enforcement stage of any compensation awarded.
Claim for all three arbitrations was initially stated as $33bn, however Gaillard believes this to be an undervaluation, as the $60bn valuation of some former Yukos assets, now owned by Rosneft, did not occur until Rosneft's IPO which was after the initial claim had been filed in 2005.
To halt the continuous updating the compensation figures, Gaillard said the claimants will provide evidence demonstrating the higher amounts during the merit phase, but admitted this section could last up to two years.
In addition, should claimants succeed in the merit phase any award against the Russian Federation will have to be enforced which can again take time.
Gaillard said: "This is an interesting case as it's the largest investment arbitration ever. But it is going to be a long process as it is very complex. But we will get there."
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