Uniper wants to return investment in power assets in Russia

The German concern Uniper may file a claim against the Russian Federation in international arbitration in the hope of returning its investments in electricity assets. Uniper believes that the transfer of its Russian structure, Unipro PJSC, to the management of the Federal Property Management Agency violates the agreement between the USSR and Germany on the protection of investments and the Energy Charter. Similar claims have already been filed in arbitration by the Finnish Fortum, whose assets in the Russian Federation also fell under external management. However, the proceedings will last for years, and possible success in arbitration does not guarantee the return of funds, lawyers say.

Uniper sent the authorities of the Russian Federation an official notification of a dispute arising due to the introduction of external management in the Russian structure of Unipro PJSC (83.73% of Uniper), follows from the annual report of the German company (.pdf). A further step could be filing claims against the Russian Federation in international investment arbitrations. “Uniper assesses the actions taken by Russia in relation to its stake in Unipro PJSC as a violation of obligations under the bilateral investment treaty between Russia and Germany and under the 1994 Energy Charter Treaty (ECT),” the document says.

“Unipro” located under the external management of the Federal Property Management Agency from April 25, 2023 by decree of Vladimir Putin. After the decree was issued, the board of directors of Unipro elected a new head of the company, who became the director of the energy department of Rosneft, Vasily Nikonov. The decree also included 98.23% of PJSC Fortum (now Forward Energo), which belongs to the Finnish Fortum. On February 27, Fortum filed claims in international arbitration, considering the actions of the Russian authorities a violation of obligations under bilateral investment treaties with the Netherlands and Sweden.

Lawyers note that Uniper may refer to several standards in its requirements. Firstly, “for violation of the national regime,” clarifies Ilya Rachkov, a partner at the NSP law office, that is, “for the fact that Russia took away assets from foreigners, but did not take them away from Russian investors who are in a similar situation.” The company may talk about a “violation of the standard of equal and fair treatment”, a violation of the “legitimate expectations of a foreign investor”, etc.

The amount of possible compensation for expropriation of assets is determined by market value, the assessment of which will most likely be based either on the “comparable companies method” or on the “discounted cash flow method,” says Ilya Rachkov. According to Denis Krauyalis, an adviser in the dispute resolution practice of Tomashevskaya & Partners, compensation will be calculated “at the real value of Uniper’s investments” plus interest for the period of non-payment of compensation.

Russia, according to lawyers, will refer to the fact that such a transfer of assets does not constitute expropriation. “

However, international investment arbitrations have already encountered similar arguments from the Russian Federation in other cases (including the YUKOS case). But the agreements speak not only about expropriation, but also about “measures equal in consequences to expropriation or nationalization” (the agreement between the USSR and the Federal Republic of Germany of 1989) or about “measures having consequences similar to nationalization or expropriation” (ECT),” points out Mr. Rachkov.

According to Denis Krauyalis, “the dispute will be initiated in arbitration at the Chamber of Commerce and will last more than three years.” Ilya Rachkov believes that the dispute could last up to ten years: “For example, the claim of ex-YUKOS shareholders against the Russian Federation was filed in 2004, and only in 2014 did the arbitration make a decision on the merits.” Execution of the decision also takes a long time. Mr. Rachkov recalls that in the YUKOS case against the Russian Federation, the plaintiffs have been trying to recover compensation from Russia for ten years, and Russia has been trying to overturn the arbitration decision in the state courts of the Netherlands.

Polina Smertina, Anna Zanina