JKX Oil & Gas Initiates Arbitration against Ukrainian Government
Wednesday, February, 18, 2015
Invoking the Energy Charter Treaty provisions agreed to between the United Kingdom and Ukraine, JKX Oil & Gas has filed for arbitration between itself and the Ukrainian government in its effort to recover $180 million it paid to that country in rental fees associated with its production of oil and gas for the last four years.
JKX has cited ‘treaty violations’ that have resulted in the losses. Chief among these violations according to JKX is Ukraine’s 2014 order that industrial users of natural gas in the country can only purchase it from the state-owned Naftogaz. JKX maintains this is in violation to treaty provisions requiring Ukraine to treat foreign investors in a 'fair and equitable' manner.
An emergency arbitrator appointed by the Stockholm Chamber of Commerce has issued an emergency order requiring Ukraine to stop imposing royalty charges of more than 28% on JKX’s oil and gas production in Ukraine (Ukrainian law allows the government to impose a royalty of up to 55%). So far, Ukraine has ignored the emergency order, and JKX has stated it will pursue its interests in this matter in arbitration, in international courts, and in the Ukrainian court system as well. The Ukrainian government has not yet issued any statement on the issue. Undoubtedly the government, having survived a revolution and engaged in an ongoing civil war against Russian-backed rebels in the east, is struggling to maintain solvency and the JKX case is being closely watched by international investors.