JKX files USD 180 mln court claim against Ukraine

Обзоры по компаниям и отраслям 16.02.2015 JKX Oil & Gas (JLX LN) commenced arbitration proceedings against Ukraine in the Stockholm arbitration court, the company reported on Feb. 16. JKX is seeking repayment of more than USD 180 million in rental fees that its Ukrainian subsidiary paid on production of oil and natural gas in Ukraine since 2011. JKX claims Ukraine failed to treat the company’s investments in a fair and equitable manner and breached the Energy Charter Treaty and bilateral international documents adopted by Ukraine. In addition, an emergency arbiter of the Stockholm court issued an emergency award on Jan. 14 ordering Ukraine to refrain from imposing royalties on the production of gas by JKX's Ukrainian subsidiary in excess of 28%, according to JKX’s release. The 28% gas production tax rate was applied in Ukraine in April-July 2014, after which Ukrainian parliament raised it to 55%. Alexander Paraschiy: JKX shareholders should be satisfied with the company’s attempt to protect its rights in Ukraine, where the state has imposed unfair tax rates. However, we believe it will be hard for the company to prove the state failed to treat JKX’s investments in a “fair and equitable manner,” as claimed in the press release. In 2005-2013, JKX invested USD 405 mln in the production and development of its Ukrainian assets, while it returned (in the form of EBITDA, less taxes paid) about USD 700 mln over the same period. To compare, JKX invested into its Russian assets USD 346 mln in 2008-2013, but incurred only losses. We do not believe it’s fair that JKX is trying to partially cover its failure in Russia by gaining compensation from the Ukrainian government.