Finnish energy concern Fortum files a lawsuit due to the loss of control over assets in the Russian Federation

The Finnish energy concern Fortum decided to file a lawsuit against the Russian Federation in international arbitration, hoping to return investments in its assets in Russia, which it considers lost. Fortum estimates the amount of claims to be “several billion euros” and expects the lawsuit to start at the end of 2023. According to Fortum, the Russian authorities violated international treaties on investment protection when they transferred its Russian structure PJSC Fortum under the control of the Federal Property Management Agency and replaced its general director. The trial will take several years, lawyers say, and even in the event of a victory, getting the money back will be extremely problematic.

Fortum file lawsuits against Russia in international investment arbitration to recover investments of “several billion euros,” the Finnish company announced on July 13. The concern wants to recover from the Russian Federation the value of shares in the Russian structure of PJSC Fortum (98.23% of Fortum), which came under the temporary management of the Federal Property Management Agency in April. The trial could begin at the end of 2023.

Fortum claims that the lawsuit is caused by “hostile actions of the Russian Federation”, which violated the rights of the shareholders of PJSC Fortum.

On April 25, Russian President Vladimir Putin signed decree on the introduction of external management in Fortum. The next day, the board of directors of Fortum, at the request of the Federal Property Management Agency, dismissed the general director Alexander Chuvaev and elected the new head of the company – the chief power engineer of Bashneft-Dobycha (part of Rosneft), Vyacheslav Kozhevnikov.

Fortum believes that Russia has violated its obligations under international bilateral investment treaties with the Netherlands (ratified in 1991) and Sweden (ratified in 1996), which provide for the protection of the rights of foreign investors. According to these agreements, Fortum can apply to international arbitration or ad hoc arbitration (created for a specific case under the rules of the UN Commission on International Trade Law).

The net assets of Fortum at the end of 2022, according to the company’s financial statements, amounted to 95.8 billion rubles, says Matvey Taits from Sinara investment bank.

In the spring, the Federal Property Management Agency explained that the regime of temporary external management does not deprive the owners of their assets. However, the Finnish concern Fortum decided to completely write off Russian assets, recording an impairment loss of €1.7 billion. They also claimed that management “applied unsuccessfully for permission to sell assets to both Russian and foreign buyers.”

The Russian Federation has been a defendant at least 27 times in proceedings initiated by various foreign investors, says Stanislav Dobshevich, Counsel and Head of Dispute Resolution Practice at Better Chance Law Firm. The most famous case against the Russian Federation is the case of ex-YUKOS shareholders, initiated in 2005. In 2014, the Hague Arbitration partially satisfied the claims, awarding the plaintiffs $ 50 billion, but the issue of recognition and enforcement of this decision is still being considered in Dutch state courts.

It is difficult to assess the prospects of Fortum’s lawsuit at this stage, but usually proving violations of investment protection standards is not an easy task for an investor, says Stanislav Dobshevich.

Fortum is likely to attempt to justify the indirect expropriation of its investment as well as the violation of the standard of fair and equitable treatment provided for in bilateral investment agreements. On average, the duration of international investment arbitration is five years, another one or two years may be spent on enforcement proceedings. “Foreclosure of state property after winning arbitration is an even more difficult task for an investor than the victory itself,” says Stanislav Dobshevich. “A significant amount of state property abroad is subject to immunity, which protects it from investor encroachments.”

Polina Smertina, Anna Zanina