Russia to pay USD50 billion in historic Yukos case

The Hague’s Permanent Arbitration Court sentenced Russia to pay the historically high amount of USD 50 billion to oil company Yukos shareholders on Monday 28 July. This sum represents a compensation for the breaking up and nationalisation of the company in 2005. Most of its assets had been transferred to majority state-owned Rosneft, one of the companies that have been targeted by the United States’ latest sanctions against Russia. The ruling may have big consequences on Russia’s economic stability while the country is on the verge of recession.

A historic ruling

The decision given on Monday morning is the largest ever decided upon by an arbitration tribunal.  It brings to a close a 9-year procedure in court between Russia and shareholders of the former oil company Yukos, which belonged to Mikhail Khodorkovsky before being dismantled. The tribunal actually answered simultaneously three cases that had been started by shareholders of Yukos Oil Company - Hulley Enterprises Limited, Yukos Universal Limited and Veteran Petroleum Limited.

The holding company GML, which took the leadership of Yukos over from Khodorkovsky in 2005, had asked for a USD 100 billion fine in the case of an illegal expropriation. The impressive amount of financial compensation decided in The Hague can be explained by the importance of assets at stake, since Yukos was Russia’s largest oil company in the beginning of the 2000s. While expropriations breached the Energy Charter Treaty, the tribunal also found faults on behalf of claimants, which reduced the amount of damages awarded.

Political decisions against opponent Khodorkovsky

The ruling underlines that officials under Vladimir Putin’s mandate had illegally acted to bankrupt the oil giant, before selling it to Russia’s second largest oil company, Rosneft. It is run by Igor Setchine, a close ally of Vladimir Putin. It states that "Russian courts bent to the will of Russian executive authorities to bankrupt Yukos, assign its assets to a state-controlled company, and incarcerate a man who gave signs of becoming a political competitor." In addition, it directly involved Russian President Vladimir Putin by saying that "officials of the Russian Federation in close association with President Putin acted in implementation of the policy of the Russian Federation".

Yukos used to be controlled by Mikhail Khodorkovsky, once Russia’s richest man, and great opponent of Vladimir Putin. After he was arrested in 2003, he was convicted in 2005 of theft and tax evasion, and spent in total ten years in prison. Vladimir Putin had then declared : "A thief must be in jail." Only in December 2013 was he pardoned by Putin and released. His assets were sold while he was in jail and he should thus not benefit financially from the court’s decision.

GML director Tim Osborne declared today that the attack against Yukos had been “politically motivated”, a claim reinforced by Amnesty International and Western observers, who perceived Khodorkovsky as a political prisoner. The European Court of Human Rights (ECHR) had notably ruled on the inequity of his trials. One of GML’s lawyers reinforced this idea : “A superpower like Russia has been unanimously held accountable for its violation of international law by an independent arbitration tribunal of the highest possible repute,” he said.

Moscow to defend itself

The Russian Foreign Affairs Minister Sergei Lavrov reacted by saying that "the Russian side will no doubt use all available legal possibilities to defend its position." Nevertheless, the timing does not favour Moscow. Indeed, the ruling comes while Russia is under pressure by European and US sanctions, which threaten its economy. Rosneft saw its shares going down by 0.6% this morning, affecting the overall Russian shares index. The oil company, as well as natural gas exporter Gazprom may see their assets targeted since they were the main beneficiaries of Yukos’ expropriation. In relative terms, USD 50 billions represents 2,5% of Russia’s total GDP worth and 57% of its reserve funds. "This decision affects the assessment of the long-term financial stability of Russia and could become the basis for arguments for revising Russia's ratings by international rating agencies," said a Credit Suisse economist.

The European Union should also reinforce its sanctions in the coming days, following the recent crash of Malaysian Airlines plane MH 17. 

In parallel to The Hague Arbitral Court’s ruling, the ECHR should give a ruling on Thursday on another USD 38 billion in a “just satisfaction” suit filed by Yukos against Russia. If Moscow refuses to pay the fine, international law can orgnise the seizing of any state assets abroad.  

 

Sources : Le Figaro, Reuters, Bloomberg, The Telegraph, ITAR-TASS, The New York Times.
Photography : AFP

Author : Laura Gounon

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