22nd Apr 2019

Giant lawsuit to open new front in EU-Russia relations

A €23 billion legal claim against the Russian state over the break-up of oil company Yukos will test EU-Russia energy relations and Russia's fitness to rejoin the international "political family," the plaintiffs say.

Yukos' main shareholder, GML, has brought forward the legal challenge, arguing that Russia violated a major international energy pact - the Energy Charter Treaty (ECT) - by snatching Yukos assets back in 2004.

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  • Yukos oil tanker - does the ECT rule-book apply in Russia? (Photo: Flickr)

The ECT is binding on Russia because it signed the charter even if ratification never took place, GML says, with the first hearing in the legal arbitration to take place in The Hague on 17 November.

If GML wins, it may end up enforcing payment by using European courts to grab the foreign assets of Russian state-owned energy company Rosneft.

The case could also set a precedent for Western firms such as British Petroleum and Shell, which have struggled to protect their investments in Russia's energy sector in recent years.

GML director Tim Osborne told EUobserver that Russia's behaviour in the ECT arbitration will affect its ambition to become a respectable trade partner, with Moscow's reputation already damaged by the Georgian war.

"Russia is very keen to portray itself as a responsible member of the political family, and if it wants to join the WTO and the OECD and other rules-based organisations, at some stage it's going to have to abide by those rules," he said.

The case will also test the EU's commitment to the energy charter in the face of a more pragmatic approach to Russia.

The EU helped negotiate the original ECT, which was designed to protect Western firms willing to make badly-needed investments in the cash-poor Russia of the 1990s. But EU officials opted not to make the charter part of a draft new EU-Russia treaty, fearing that unrealistic demands in the energy sector could set back negotiations for years on the broader bilateral pact.

"The Russians are making every effort to portray the ECT as a lame duck, a still-born instrument," Mr Osborne said. "The EU and Russia can't unilaterally change a multinational treaty. There are plenty of other countries which are signatories."

"The [EU] can help our case immensely by stating Russia is bound by the ECT," he added. "A statement by the people who negotiated it that says they believe Russia is bound, as the UK government has said and as other European governments have said, would be helpful."

The philanthropic Mr Nevzlin

The break-up of Yukos on tax evasion charges was seen in the West as a political attack on its CEO, Mikhail Khodorkovsky, in a watershed event for private property rights in the new Russia.

Mr Khodorkovsky, portrayed in Western media as a liberal reformer, no longer owns GML shares and remains in prison in Siberia. His former business partner and GML-majority shareholder, Leonid Nevzlin, lives in Israel and has ceased to be politically active, focusing on philanthropic projects instead, GML's Mr Osborne said.

Both Mr Nevzlin and Mr Osborne fear to step foot in Russia, with Mr Nevzlin sentenced in absentia on charges of organised murder and Mr Osborne feeling "bullied" by Russian suspicions that he engaged in criminal activity as part of his Yukos work. GML itself is registered in the UK.

But the view from Russia is different, with Mr Nevzlin noted for connections to anti-Kremlin exiles in London and his reputation marked by the in absentia murder trial.

Mr Nevzlin met with ex-KGB agent Alexander Litvinenko in Israel in 2006 to discuss research into Kremlin action against ex-Yukos executives. The murder charges against him include the killing of Yukos critic Vladimir Petukhov, who was shot dead on Mr Khodorkovsky's birthday on 26 June 1998.

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