Russia might be preparing to return annexed shelf deposits to Ukraine

Author : Olena Holubeva

Respondent : Svitlana Nezhnova

Source : 112 Ukraine

Chairman of the board of Chornomornaftogaz company on international arbitration connected with oil and gas assets in annexed Crimea
10:50, 6 March 2018

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112 Agency

Tell us more details about the cases in the international arbitration connected with oil and gas assets in annexed Crimea.

Now there are two cases in the proceeding. The first is conducted by Ukraine’s Ministry of Foreign Affairs within the framework of the United Nations Convention on the Law of the Sea of December 10, 1982, at the Permanent Arbitration Court in The Hague (Netherlands). September 14, 2016, the notice of arbitration, the lawsuit and the grounds on which it was based, were sent to the Russian Federation. December 22, 2016, the Arbitration Tribunal was formed, which included judges from South Korea, Algeria, Mexico, Great Britain, and Russia. As part of this process, May 12, 2017, the first procedural hearings took place, the results of which led to the establishment of procedural deadlines. February 19, 2018, Ukraine filed a memorandum describing the claims of Ukraine to Russia, and until November 19, 2018, Russia must file its counterarguments. Also, until May 19, 2018, Russia has time for objections.

Related: Ukraine did not receive $20 billion in gas transit since 2009, - Naftogaz

February 19, Ukrainian Ministry of Foreign Affairs has published a statement that Ukraine filed a memorandum in arbitration proceedings against the Russian Federation under the United Nations Convention on the Law of the Sea. The memorandum proves that Russia has violated Ukraine's sovereign rights in the Black and Azov seas, as well as in the Kerch Strait. Since 2014, the Russian Federation has deprived Ukraine of the ability to exercise its rights of the maritime state, for its own needs, exploiting the sovereign resources of Ukraine, usurped the right of Ukraine to regulate its own maritime territories, the Foreign Ministry said. It also noted that blatantly flouting international law, Russian Federation steals energy and fish resources that belong to Ukraine and its people, among other things, it causes physical harm to Ukrainian fishermen, blocks the entry of vessels into Ukrainian ports in connection with the illegal construction of the Kerch bridge. Ukraine asks the arbitral tribunal to stop the violation of the UN Convention on the Law of the Sea and to confirm Ukraine's rights in the Black and Azov Seas, as well as in the Kerch Strait, including obliging the Russian Federation to respect the sovereign rights of Ukraine in its waters, to stop the theft of Ukrainian resources and pay compensation for the damage caused, the Foreign Ministry said.

The second process was initiated by Ukraine’s Naftogaz together with six other companies of the group (Chornomornaftogaz, Ukrtransgaz, UkrGasVydobuvannya, Ukrtransnafta, Gaz Ukrainy, Liqvo). The suit was filed in October 2016 by the international law firm Covington & Burling from the Naftogaz group and is considered by the Permanent Court of Arbitration in The Hague in accordance with the UNISTRAL regulations of 1976. Covington & Burling represents the interests of Ukraine (on the suit of the Ministry of Foreign Affairs) in The Hague, and it is very important that the evidence base is unified. The collection of the evidence base for the conduct of international courts against the Russian Federation is provided by the "Chornomornaftogaz". To collect the facts on the illegal production of natural gas on the shelf of the Black and Azov Seas, the misuse of the property of Chornomornaftogaz, we conduct monitoring missions on the Black Sea shelf. We visit the fields where Russia conducts its mining. The facts of their illegal activities are recorded in the presence of representatives of law enforcement agencies. Acts are signed by the law enforcers on the ship. The materials are attached to the evidence base in international arbitrations. We have also recorded the stay of Russian warships near the fields.

Related: Gas conflict with Gazprom: Naftogaz increases security of gas-transport system

In her previous interviews, Svitlana Nezhnova said that the representatives of the Russian Federation are trying to exert psychological pressure on the mission participants. The flag of the Russian Federation is placed on the "Chornomornaftogaz" ships; they trained their weapons towards the participants of the mission, launched combat aircraft at low altitude. One of the planes flew so low that the mission participants could see the pilot in the cockpit. Once the mission's ship was surrounded by Russian ships and began to squeeze out towards occupied Crimea.

Since the beginning of the annexation, Russian invaders have extracted 7.2 billion cubic meters of gas and 222.6 thousand tons of gas condensate and oil in the occupied peninsula and the shelf of the Black and Azov Seas. (2 billion cubic meters of gas and 57.1 thousand tons of gas condensate and oil were produced in 2014, 1.84 billion cubic meters of natural gas, 61.1 thousand tons of gas condensate and oil in 2015, 1.67 billion cubic meters of gas and 53.4 thousand tons of gas condensate and oil in 2016, 1.62 billion cubic meters of gas and 51 thousand tons of gas condensate and oil in 2017).

Tell us more about Naftogaz’s consideration of the claim of in The Hague, and what are the claims brought against it?

The composition of the arbitration has already been formed: Judge Ian Binni, Chief Legal Counsel, Royal Counsel (presiding judge); judges: Dr. Charles Poncet, Professor Maja Stanivuković.

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Russian side did not appoint its representative, claiming that "a bilateral agreement between Ukraine and Russia cannot be the basis for the formation of arbitration in order to satisfy claims of the plaintiff." Russia has also reported that it "does not recognize the jurisdiction of the international court at the Permanent Arbitration Court" on this suit.

Despite this, in September 2017 the Ukrainian side filed a full package of documents. This process is conducted on the basis of the Agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation on the promotion and mutual protection of investments. This case touches the issue of compensation for expropriation of land and maritime infrastructure to the Naftogaz. And it is quite extensive: there are three onshore operating deposits: Semenovske, Zadornenske, and Dzhankoyske (Russia also produces gas there). In addition, there is underground storage Hlibovske, a capacity of which is one billion cubic meters of gas (and there is a possibility of reconstruction to 3 billion cubic meters). This repository was annexed by Russia together with more than 600 million cubic meters of gas owned by Naftogaz of Ukraine. Also, part of the GTS on the territory of the occupied Crimea belongs to the ground infrastructure illegally nationalized by Russia. The claims are reduced to the amount of compensation previously estimated by the experts - $ 5 billion. During the review of the claim, the amount of the preliminary assessment can be changed. The marine infrastructure includes 90 offshore gas and oil wells, 8 offshore stationary platforms, 8 block-conductors, 370 km of offshore gas pipelines, 31 floating crafts, 4 of which are drilling platforms. Five boats were purchased shortly before the annexation of Crimea, including 2 modern drilling platforms. One of the drilling rigs is used by Russians in the Odesa field.

Related: Gas crisis: Ukraine’s gas stocks drop to 9.642 bcm within week

At the time of annexation, the new drilling rigs (the so-called "Boyko towers," gas platforms that Russians appropriated during the annexation of Crimea – Ed.) were under the flags of Panama, but we have put the Ukrainian ones. Evidence of ownership was received in October 2014. Thus, we deprived the Russian Federation of the opportunity to rent them out.

Ownership rights to the drilling platforms belong to the rightful owner - Ukrainian "Chornomornaftogaz". For this reason, the recent statements of the Prosecutor General's Office that they will be sold were surprising. In order to understand the current situation, "Chornomornaftogaz" appealed to the Prosecutor General's Office of Ukraine with a request to clarify to the rightful owner, on what grounds the Attorney General made a statement about the planned sale.

February 2, Prosecutor General Yuriy Lutsenko reported on the court's decision, according to which drilling platforms "Peter Godovanets" and "Ukraine" were transferred to the National Agency of Ukraine for the detection, search and management of assets, obtained through corruption.

When will the hearings on the suit of Naftogaz in The Hague begin?

Its consideration is scheduled for May 2018. We have every chance to witness this historical process.

According to your information, is the fake "Chornomornaftogaz" related to the Russian "Gazprom"?

No, Gazprom has distanced itself from them, it was afraid of sanctions.

Related: Gazprom's tricks with gas supplies to Ukraine

The annexation occurred in 2014. Why were claims for oil and gas assets in occupied Crimea were filed only now?

The claim was filed in September 2017. According to the arbitration rules, the proceedings did not begin at the time of filing the lawsuit, but when the Naftogaz filed an application ( in October 2016).

According to the Russian-Ukrainian bilateral agreement on the promotion and mutual protection of investments, the investor has the right to apply for the protection of his violated rights to arbitration only on the condition that he made efforts to settle the dispute through negotiations.

Before filing the lawsuit to arbitration, a lot of things should be prepared. It was necessary to reconcile the evidence base. "Naftogaz" had to determine the legal company that would lead these courts. That is how Covington & Burling (USA) was chosen. Such a case did not have direct and complete analogs. To apply the negotiation procedure in this particular case, it was required to adopt a separate resolution of the Cabinet.

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Are you working on some other lawsuits?

As far as we know, the Ministry of Justice also planned to apply to the ECHR. We gave them all the evidence base. About a month ago, we applied to the Ministry with an official request about what was happening with the claim but had not received a reply yet. We do not know what the Ministry of Justice is doing now with our evidence base and what proceedings are being conducted in the ECHR.

How do the existing sanctions bind the Russians and deter them from the large-scale looting of the Crimean deposits?

Sanctions are very effective. Now Russian, fake, "Chornomornaftogaz" uses the wealth. It is very convenient. It is easy for them to use stolen goods. In connection with the sanctions, the invaders cannot properly service the towers. The necessary investment for them is prohibitive. The sanctions limit their ability to attract investors to develop wells, use the high-quality foreign equipment.

Russians are constantly looking for a way out of this situation.

December 21, 2017, the Russian government approved amendments to Law No. 161 "On the Specifics of Legal Regulation of Relations in the Subsoil Use Regime in Connection with the Adoption of the Republic of Crimea in the Russian Federation and the Formation of New Entities in the Russian Federation." This bill provides that special permits for the use of subsoil on the shelf of the Black and Azov Seas will be sold at auctions (to the companies, 50 percent of the capital should belong to Russia). Now the document has been sent to the State Duma.

Related: Naftogaz prevents Russia's attempt to start gas crisis

I want to emphasize that all the companies that decide to encroach on the fields located in the Ukrainian economic zone on the shelf of the Black and Azov Seas will inevitably fall under sanctions.

In the article "Between Crimea and Odesa: Why Russia cuts gas production in the Black Sea" from February 15, the Russian agency RBC reported that according to the internal order of Boris Zimin, the general director of the Chornomornaftogaz (a company created by the Crimea's occupation authority) from November 23, 2017, "On the revision of the production and investment program," it was planned to preserve not only the Odeke deposit, but also the Golitsynske gas condensate field, located in the West Crimean shelf zone. The reasons for the decision were not mentioned in the document, the agency noted.

I do not rule out that the Russians are already preparing to transfer to Ukraine at least all the objects located beyond the 12-km zone around the peninsula. They follow the rules of their own game. This is the only way I can explain their logic in the abandonment of the Odeske and Golitsynske deposits. If I am right, then they have Shtormove, Arkhangelske, and several others deposits, and also the deposits on the land. Shtormove and Arkhangelske are quite low-yield deposits and cannot go in any comparison with Odeske. I believe that Russians have always understood that the shelf belongs to Ukraine. They have already built a gas pipeline linking occupied Crimea with the Krasnodar Territory. As far as I know, it has already been put into operation. The annual demand of Crimea is about 2 billion cubic meters of gas. Apparently, it is much cheaper to supply it from the Russian Federation than to produce gas on the shelf, especially in terms of sanctions.

Related: Poroshenko urges Ukrainians to save gas


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