Kyrgyzstan fights Russian hydro claim in Hong Kong. RusHydro is represented by Bryan Cave Leighton Paisner: Partner George Burn in London and counsel Yury Babichev and associate Tuyana Molokhoeva in Moscow

18.10.2018

A Russian state-owned hydroelectric company’s US$37 million investment treaty claim against Kyrgyzstan is underway before a Hong Kong-seated tribunal, as the Central Asian state faces a separate enforcement action in the Russian courts.

RusHydro’s claim is being heard by an UNCITRAL tribunal chaired by Slovakia’s Peter Tomka, a judge at the International Court of Justice, with Bulgarian Stanimir Alexandrov appointed by the claimant and British arbitrator Christopher Thomas QC appointed by the state.

The Hong Kong-seated arbitration is administered by the Permanent Court of Arbitration in The Hague. RusHydro is represented by Bryan Cave Leighton Paisner in London and Moscow, while Kyrgyzstan is using King & Wood Mallesons in London and Dubai and Kyrgyz firm Satatov Askarov & Partners.

The head of Kyrgyz state entity National Energy Holding confirmed the filing of RusHydro’s claim in comments to the country’s 24.kg News Agency published on 12 October. The notice of arbitration was issued in January this year and the tribunal held a first procedural conference in September.

The dispute relates to a 50:50 joint venture formed in 2012 between RusHydro and Kyrgyz state-owned company OJSC Electric Power Plants to build four hydroelectric power plants in the country’s central Naryn region. The joint venture, named Upper-Naryn Hydro Electric Power Plants , was funded by RusHydro, with the Kyrgyz partner providing the land for the plants.

Kyrgyzstan denounced the agreement in 2016, citing financing issues, before terminating it later that year.

RusHydro has brought the claim under an agreement between the Russian and Kyrgyzstan governments regarding the Upper-Naryn venture. The investor has also invoked the 2008 Eurasian Investment Agreement and the 2014 Protocol on Trade in Services, Formation, Functioning and Performance of Investment Activity to the Treaty on the Eurasian Economic Union.

The Russian company’s CEO Nikolay Shulginov is quoted in a 14 October Times of Central Asia article as saying that his company seeks the return of US$37 million it issued as a loan to the joint venture.

The paper also cites a Kyrgyz parliament statement that the Russian government had failed to solve the issue of financing the project and did not find sources of funding for 2016, leading to delays in construction.

GAR understands RusHydro rejects the Kyrgyz assertions in the Times of Central Asia article.

Russian costs on the project included building a camp for construction workers as well as concrete plants, water supply, access roads, bridges, sewage and purification networks and transformer substations.

In 2012, it was estimated the cost of the project would be US$425 million but this was increased to US$727 million by the end of 2013. The project was intended to take six years.

Kyrgyzstan looked for a new investor in the project and in 2017 concluded an agreement with Czech company Liglass Trading, under which the investor agreed to pay the US$37 million debt to RusHydro. That deal led to a public controversy, with Kyrgyz and Czech news outlets casting doubt on Liglass’ claims that it had experience with comparable hydro projects. The government eventually cancelled the contract with Liglass too, leading the Czech company to threaten to bring an arbitration of its own last September.

A new front opens in Turkish contractor’s enforcement battle

Meanwhile Turkish construction company Entes has applied to the Russian courts to enforce a US$16.6 million UNCITRAL award against Kyrgyzstan and its ministry of transport that was issued in 2015 under a contract for a road rehabilitation project.

The application was lodged in the Moscow Arbitrazh Court on 1 October. The Turkish company seeks to recover the US$16.6 million awarded in damages and legal costs along with interest at one month LIBOR plus 2% from 2006.

Entes already launched an action to enforce the same award in the US District Court for the District of Columbia on 26 September, where it is arguing that with compound interest the award is now worth almost US$2 billion.

Counsel to Entes in the Russian action, Dentons’ head of Russian arbitration and litigation Mikhail Ivanov, declined to comment on the filing in the United States, where Entes has turned to New York boutique Chaffetz Lindsey.

Kyrgyzstan is not yet represented in either proceeding.

Entes entered into a contract with Kyrgyzstan’s Ministry of Transport and Communications in 1999 to rehabilitate the 620-kilometre Bishkek-Osh Road, which traverses the country’s Tien Chan Mountains and connects its two largest cities, Bishkek and Osh.

The case was heard by a Bishkek-seated tribunal chaired by German arbitrator Michael Schneider of Lalive and including Turkish academic Turgut Öz and the late Sergei Lebedev of Russia as co-arbitrators. Lebedev was appointed by Jan Paulsson on behalf of Kyrgyzstan.

In March, Kyrgyzstan settled a US$75 million investment treaty arbitration brought by a Kazakh bank over an alleged corporate raid on its local subsidiary. The state is still fighting a US$210 million treaty claim brought by Canadian mining company Stans Energy, with hearings in that dispute held in April.

RusHydro v Kyrgyzstan

Tribunal

  • judge Peter Tomka (Slovakia) (president)
  • Stanimir Alexandrov (Bulgaria) (appointed by RusHydro)
  • Christopher Thomas QC (UK) (appointed by Kyrgyzstan)

Counsel to RusHydro

  • Bryan Cave Leighton Paisner

Partner George Burn in London and counsel Yury Babichev and associate Tuyana Molokhoeva in Moscow

Counsel to Kyrgyzstan

  • King & Wood Mallesons

Partner Andrei Yakovlev in Dubai, partner Meg Utterback in London and Shanghai, counsel Wilson Antoon, managing associate Chloé Bakshi and associate Viktoriya Krasyuk in London and associate Vladislav Zinovyev in Beijing

  • Satarov Askarov & Partners

Entes Industrial Plants Construction and Erection Contracting v the Kyrgyz Republic

In the Moscow Arbitrazh Court

Counsel to Entes Industrial Plants Construction and Erection Contracting

  • Dentons

Partner Mikhail Ivanov and associate Victoria Kosolapova in St Petersburg

Counsel to Kyrgyzstan

Not yet represented


In the US District Court for the District of Columbia

Counsel to Entes

  • Chaffetz Lindsey

Partner Andreas Frischknecht and associate Theodore Debonis in New York

Counsel to Kyrgyzstan

Not yet represented

 

In the UNCITRAL arbitration

Tribunal

  • Michael Schneider (Germany) (president)
  • Turgut Öz (Turkey) (appointed by Entes)
  • Sergei Lebedev (Russia) (appointed by Jan Paulsson on behalf of Kyrgyzstan)

Counsel to Entes

  • Akinci Law Office

Partner Ziya Akinci in Istanbul

Counsel to Kyrgyzstan

  • Partner Law Firm

Partner Mirgul Smanalieva in Bishkek

Cosmo Sanderson for Global Arbitration Review

Contact details

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