From 1999 to 2023: A forced nationalization in Kazakhstan, an award under the Energy Charter Treaty in Sweden, and a subsequent multijurisdictional strategy designed to frustrate the payment of the Award.
The Swedish Supreme Court (Högsta Domstolen) dismissed Kazakhstan’s claim to appeal the January 2023 decision of the Svea Court of Appeal that confirmed that claimants of the Tristan Award can collect $75 million held by Kazakhstan in Sweden.
The Appellate Division of the Supreme Court of New York unanimously upheld the Court’s previous dismissal of a series of false claims brought by the Republic of Kazakhstan against Argentem Creek Partners (ACP) and its CEO, Daniel Chapman.
The Appellate Division explained that the evidence related in all respects to the same fraud claim Kazakhstan has been pursuing around the world for over a decade. The Appellate Division further held that even if the collateral estoppel doctrine did not foreclose all of Kazakhstan, the claims still fail as a matter of law.
Kazakhstan launches a new suit in Washington D.C. against the Statis, seeking a jury trial to set aside an initial ruling enforcing the $500 million Award.
In March 2018, following an application by the Statis to confirm the award in the U.S., the Federal District Court in D.C. ruled that the Award was valid and enforceable as a binding U.S. judgement. The court rejected the fraud allegations brought forward by Kazakhstan.
Kazakhstan files an appeal in the New York Supreme Court calling for the reversal of the August 2022 decision that dismissed the Republic’s lawsuit against Daniel Chapman and Argentem Creek Partners.
In his ruling, Judge Andrew Borrok described Kazakhstan’s main argument as “an impermissible collateral attack of a confirmed arbitration Award,” adding that “there can be no action for aiding and abetting fraud without an underlying fraud.”
The Gibraltar Supreme Court dismissed the claim brought by the bankruptcy manager of Tolkynneftegaz LLP (TNG) against the Stati Parties. This represents the latest failed attempt by the Republic of Kazakhstan to obstruct payment of the Tristan Oil arbitration Award. The case was dismissed on the basis that it was abusive to use another country's legal system to enforce one's own tax regime. The court further found that Gibraltar was not the appropriate forum for this claim.
The Svea Court of Appeal in Sweden ruled that approximately $75m of cash held in a Swedish bank on behalf of the National Bank of Kazakhstan belongs to the Republic of Kazakhstan and may be collected by the owners of Tristan Oil.
Kazakhstan and the National Bank had asked the Svea Court of Appeal to set aside the attachments, arguing that the attached assets did not belong to the Republic of Kazakhstan and were located in England not Sweden.
After evidence was presented to the court contradicting Kazakhstan’s claims, the Swedish court concluded that the properties belong to Kazakhstan, are located in Sweden, and fall under Swedish law relating to the enforcement of arbitration awards. The court also ordered Kazakhstan and the National Bank to pay legal costs of $1.5m incurred by the claimants.
The Supreme Court of the State of New York grants a motion to dismiss a lawsuit filed by the Republic of Kazakhstan against Daniel Chapman and Argentem Creek Partners. Judge Andrew Borrok describes Kazakhstan’s main argument as “an impermissible collateral attack of a confirmed arbitration Award,” adding that “there can be no action for aiding and abetting fraud without an underlying fraud.”
The ruling also states that the arbitration Award was obtained in Sweden and that the Award could only be set aside by a Swedish court, noting also that a US court had recognized the Award and that those findings were “entitled to full faith and credit.”
The Stati parties file an appeal against a June 14 decision by the Hague Court of Appeal that cancelled the attachment of shares worth around $5.2 billion held by Kazakhstan’s sovereign wealth fund JSC Samruk-Kazyna in KMG Kashagan BV.
The Hague Court of Appeal cancels the attachment of sharesworth around $5.2 billion held by Kazakhstan’s sovereign wealth fund JSC Samruk-Kazyna in KMG Kashagan BV.
The Hague Court of Appeal reversed its previous finding that the shares were not immune from attachment on the basis that they did not have an immediate public purpose. The Stati parties state their intent to appeal the judgement.
Lawyers for Argentem Creek Partners and its CEO Daniel Chapman file a motion to dismiss the claims brought by Kazakhstan in its Third Amended Complaintin the Supreme Court of New York.
The motion argues that New York law provides the Court with multiple, independent grounds to dismiss Kazakhstan’s frivolous lawsuit with prejudice.
The filing suggests the suit is a further attempt by Kazakhstan to relitigate the underlying arbitral award and “downplays or ignores” the decisions of several courts, including in Sweden, the US, the Netherlands, and Italy, which have rejected its arguments.
The motion notes the role of Karim Massimov, Kazakhstan’s former Prime Minister, and Timur Kulibaev, the son-in-law of Kazakhstan’s First President, in initiating “a sham criminal investigation of the Statis… resulting in Kazakhstan developing a pre-textual and arbitrary reason to expropriate the Statis’ assets and causing hundreds of millions of dollars in damages.”
The Stati Parties file an appeal against the November 16, 2021 Brussels Court of Appeal decision which upheld a challenge, brought by Kazakhstan, against the enforcement of the $544 million Energy Charter Treaty Award. The cassation appeal is based on the grounds that the Belgian Court of Appeals exceeded its legal authority and failed to give proper recognition under Belgian law to the binding effect of the Swedish court judgments.
A federal judge in New York grants the Argentem parties motionto compel arbitration against plaintiff Outrider thereby dismissing them from Kazakhstan’s vexatious litigation against U.S. investors. The claim was part of Kazakhstan’s efforts to enlist Outrider in its efforts to obstruct payment of the ECT Award.
The Supreme Court of Italyrejected an appeal brought by Kazakhstan against recognition of the $544 million Award on the grounds that it was procured by ‘fraud’. Kazakhstan had argued that the Swedish arbitration panel making the original Award and subsequent appeals heard by Swedish judges had not considered its fraud allegations.
The Italian Supreme Court confirmed the appeal court’s finding that this was not the case and that “it appears ex actis that both the Stockholm Court of Appeal and the Swedish Supreme Court were aware of the appeal against the Award for reasons that substantially resemble those that have now been brought before the Court.”
The Swedish Supreme Court uphelda $90 million freeze on Kazakhstan National Fund’s assets in Sweden. The court ruled that the seized assets representing part of Kazakh National Fund are not protected by sovereign immunity as a matter of international and Swedish law. The Swedish Supreme Court remanded the case to the Svea Court of Appeal for further consideration with respect to other outstanding questions.
The Brussels Court of Appeal issued a decision upholding the challenge brought by Kazakhstan against the enforcement of the $545 million Energy Charter Treaty Award in Belgium. The ruling is limited to the Belgian jurisdiction only and does not affect the validity of the award in Sweden.
The Stati Parties warn Kazakhstan of their intent to initiate a fresh Energy Charter claim against the country over its refusal to honour a fully adjudicated Award. Instead of honouring its obligations under international law, Kazakhstan is pursuing an ‘international strategy of frivolous and abusive litigation’ the notice letter says. The Stati Parties claim that Kazakhstan should be held responsible for the ‘dozens of millions of dollars’ incurred over the years in legal fees and expenses related to enforcement of the Award.
The Stati Parties petitioned the Washington D.C. federal district court for an emergency attachmentof the former residence of the Republic of Kazakhstan’s ambassador in the District of Columbia, arguing that it is now used for commercial rather than diplomatic purposes.
The motion asks for an order that the property cannot be sold for the next 180 days and, if the property were to be sold that the proceeds are paid into a designated court escrow account.
Lawyers for Argentem Creek Partners have today re-filed a motion to dismiss, following Republic of Kazakhstan’s decision to amend their original complaint last month.
The Brussels Court of Appeal has rejected Kazakhstan’s challenge to a $530 million attachment of assetsheld via its National Fund with BNY Mellon in Brussels.
The asset attachment, originally at a value of $22.6 billion, is an enforcement measure against Kazakhstan’s continued failure to pay more than $500 million awarded to the Stati Parties by a Swedish arbitral tribunal in 2013. The Stati Parties later agreed to limit the attachment to $530 million, reflecting the approximate value of the Energy Charter Award at the time. The attachment value has since grown with interest to over $540 million.
The Amsterdam District Court denied a $118 million damages claim brought by the National Bank of Kazakhstan(NBK) against the Stati Parties.
NBK claimed it had suffered severe losses after rulings in a Dutch court and a Belgian court in 2017 led to the attachment of sovereign assets held by BNY Mellon worth $22.6 billion.
The court dismissed the claim in its entirety, arguing that “in this case there is no question of an unlawful attachment leading to risk liability,” and that “it cannot be held that the Stati parties abused their powers”. It also ordered NBK to cover the Statis’ legal costs.
- Lawyers acting for Argentem Creek Partners filed a motion in the United States District Court for the Southern District of New York seeking to dismiss Kazakhstan’s suit, as well as a separate motion to compel Outrider to submit its claims to arbitration.
- The motion to dismiss is available here.
- The motion to compel arbitration is available here.
In a letter, lawyers acting for Argentem Creek Partners request dismissal of Kazakhstan’s civil complaint filed in the Supreme Court of the State of New York against the firm and its CEO.They argue that the case is part of Kazakhstan’s continuing attempts to re-litigate the SCC award despite the rejection of its fraud allegations by courts around the world, including the U.S. District Court for the District of Columbia.
A Judge in the U.S. District Court for the District of Columbia declines a bid to halt Kazakhstan’s litigation initiated in New Yorkagainst Argentem Creek and its CEO last year, finding that a court in New York may be better positioned to determine whether Kazakhstan’s claims are precluded.
The Judge previously enforced the arbitral award in 2018 and confirmed again that Kazakhstan is still subject to this valid and binding arbitration award in the United States, and that Kazakhstan’s previous complaint alleging fraud and RICO violations had failed even to state claim, and so had been dismissed.
The Court Of Cassation of Luxembourg concludes that the lower court incorrectly examined evidence in the award enforcement proceedings, and decides that the case should be re-heardby a different panel of judges at the Luxembourg Court of Appeal. The attachments of Kazakhstan’s assets in Luxembourg remain in place.
Magistrate Bowler of the United States District Court in Boston has affirmed her Report and Recommendation which finds that State Street Corporation, asset manager for one of Kazakhstan’s sovereign wealth funds, should be compelled to produce certain documents, emails, details of SWIFT payments and other financial records relating to the management and custodianship of Kazakhstan National Fund assets.
The Magistrate’s Report and Recommendation was originally issued in November 2020, but State Street did not immediately comply and instead sought clarification and reconsideration.
The Luxembourg District Court stays proceedings on the validity of the attachments of various Kazakh state assetsobtained by the Stati Parties pending the outcome of the criminal proceedings initiated by Kazakhstan in Luxembourg. The attachments in question are estimated to be worth US$550 million and include Kazakhstan’s 40% shareholding in Eurasian Resources Group (ERG) and frozen dividends owed by ERG to Kazakhstan among further receivables. In the meantime, the attachments continue to remain fully in place as a security measure under the award.
Kazakhstan amends its civil complaint in New York against Argentem Creek Partners and its CEO, adding Outrider Management as a plaintiff to the case. Outrider, a small distressed-debt investor based in California, had purchased Tristan Notes with a face value of nearly US$ 48 million between 2009 and 2014 and sold the last of its notes in 2016.
The Supreme Court of the Netherlands sets aside the Amsterdam Court of Appeal’s decision on the attachment of Kazakhstan’s stakein the international consortium developing the Kashagan oil field, held via Kazakhstan’s sovereign wealth fund Samruk-Kazyna, and refers the case back to a lower court (the Hague Court of Appeal) for further consideration. Meanwhile, the Kashagan shares attachment, valued at $5.2 billion, remains fully in place.
Kazakhstan induces TNG’s bankruptcy manager to file a further claim in Gibraltar against the Stati Parties in a renewed attempt to dispute the award decision. In this claim, Kazakhstan again alleges conspiracy, fraud and deceit; similar allegations which had already been dismissed by multiple courts in Europe and the USA.
The federal district court in Washington, D.C. compels Kazakhstan once again to provide discovery of its assets on a worldwide basis– including assets of various Kazakh state instrumentalities such as NBK and Samruk-Kazyna.
The Judge also rebukes Kazakhstan and its legal counsel for the breaches of the previous U.S. court orders regarding discovery:“Don’t get me wrong, the Republic of Kazakhstan had every right to litigate the petition to confirm the arbitral award, and they had every right to appeal my decision. But those proceedings are over. These are post-judgment proceedings. And the Republic of Kazakhstan and its counsel needs to get that into their heads because the level of intransigence that we’ve seen to date is not acceptable and it officially ends today.”
The Amsterdam Court of Appeals grants recognition with respect to the award, dismissing all of Kazakhstan’s challenges to the award (including based on the fraud allegations).
Kazakhstan files a civil complaint in New York against Argentem Creek Partners and its CEO, alleging that they had been involved in a criminal conspiracy together with the Stati Parties.
The Swedish Supreme Court upholds the award for the second time, dismissing Kazakhstan’s application to overturn the December 9, 2016 ruling of the Svea Court of Appeal filed on the basis of alleged new evidence. The award is therefore once again confirmed to be final, binding and non-appealable for all intents and purposes.
The High Court of Justice in London rejects NBK’s US$ 530 million debt claim against BNY Mellon for the latter’s refusal to release the National Fund assets frozen as a result of the parallel Belgian enforcement proceedings, by agreeing with the Stati Parties that the decision with regards to BNY Mellon is to be determined by the Belgian courts in due course.
The Svea Court of Appeal in Sweden dismisses Kazakhstan’s second challenge of the awardfiled on the basis of alleged new evidence. The award is therefore again confirmed to be final, binding and non-appealable for all intents and purposes.
The Brussels Court of First Instance grants recognition with respect to the Award, dismissing all of Kazakhstan’s challenges to the award (including based on the fraud allegations).
The Luxembourg Court of Appeal grants recognition with respect to the award.The Court finds that Kazakhstan has failed to prove the existence of any fraud. This decision is binding and enforceable as a matter of Luxembourg law notwithstanding any further appeals.
The Stati Parties file a motion for sanctions and contempt before the federal district court in Washington,C. given Kazakhstan’s repeated breaches of its discovery obligations stemming from previous U.S. court orders in the local award enforcement proceedings. This matter is currently stayed pending Kazakhstan’s compliance with its discovery obligations.
A District Court in Stockholm dismisses Kazakhstan’s and NBK’s separate appeals against various attachment orders made by the Swedish bailiff concerning Kazakh state property in Sweden.
The assets in question represent proceeds of shareholdings and related economic rights in various Swedish listed companies owned by Kazakhstan as part of the savings portfolio of the National Fund. These proceeds are currently blocked in the Swedish bailiff’s escrow account in the sum of SEK 790,284,526 (approximately US$ 95 million) pending final resolution of the Swedish award enforcement proceedings before the Swedish Supreme Court.
The U.S. Court of Appeals for the District of Columbia Circuit confirms the previous court ruling from March 23, 2018 that the award is valid and enforceable as a binding U.S. judgment.The ruling states that: “We find that it was not an abuse of discretion for the District Court to deny Kazakhstan’s motion because the District Court based its ruling on multiple valid grounds. We further agree with the District Court that Kazakhstan improperly presented new facts in its motion for reconsideration that it had not introduced in its original motion to supplement.”
As a result of this ruling, any non-state immune Kazakh state assets on U.S. soil become amenable to attachment and foreclosure by the Stati Parties.
The federal district court in Washington, D.C. dismisses Kazakhstan’s complaint against the Stati Parties filed pursuant to the U.S. Racketeer Influenced and Corrupt Organizations (RICO) Actby describing this lawsuit as “ill-advised” and “an improper use of the auspices of this Court to revive and prolong a dispute that is over”.
The Rome Court of Appeal recognizes the Award in Italy, dismissing all of Kazakhstan’s challenges to the award(including based on the fraud allegations).
The Court of Appeal in England allows the Stati Parties to discontinue the English award proceedings for recognition of the award, after the High Court had initially granted Kazakhstan’s application for a trial based on the fraud allegations.
The Brussels Court of First Instance rejects Kazakhstan’s and NBK’s appeals against the original attachment orderwith respect to the National Fund assets held by BNY Mellon granted on October 11, 2017. With the Stati Parties’ consent, the Court reduces the attachment value from US$ 22.6 billion to US$ 530 million given the then size of the award.
The federal district court in Washington, D.C. rules that the Award is valid and enforceable as a binding U.S. judgmentfollowing an application by the Stati Parties to confirm the award on U.S. soil. In doing so, the U.S. court rejects the fraud allegations brought forward by Kazakhstan.
The Stockholm District Court upholds its previous decision from August 21, 2017 allowing the Swedish bailiff to levy attachments on Kazakh state property on Swedish soil by dismissing Kazakhstan’s challenges to the original ruling.
The Swedish Supreme Court upholds the Award for the first time and rejects Kazakhstan’s extraordinary review application against the Svea Court of Appeal judgment from December 9, 2016.
The Brussels Court of First Instance makes an attachment order as sought by Stati Parties.The said order was served on BNY Mellon as global custodian of Kazakhstan’s National Fund assets leading to BNY Mellon freezing US$ 22.6 billion in assets of the National Fund (comprising about 40% of the Fund’s entire portfolio).This attachment is believed to be the largest in legal history.
The Amsterdam District Court grants a US$ 5.2 billion asset attachment of Kazakhstan’s stake in the Kashagan oil field, held via the sovereign wealth fund JSC Samruk-Kazyna’s (Samruk-Kazyna) 50% shareholding in the Dutch entity KMG Kashagan B.V., as an enforcement measure under the award.
The Kashagan oil field is one of the largest offshore oilfields in the Caspian Sea. The international consortium that has developed the field includes Eni, Royal Dutch Shell, Total, ExxonMobil, China National Petroleum Corporation, and Inpex.
The Stockholm District Court allows the Stati Parties to attach any Kazakh state assets on Swedish soil as an enforcement measure under the award.
The bailiff in Luxemburg places a freeze on Kazakhstan’s 40% stake in Eurasian Resources Group, formerly publicly listed company ENRC, which was taken private in 2013 valued at £3.1 billion. In addition, dividends owed to Kazakhstan by ERG in the sum of US$ 48 million are frozen as a result of this attachment.
The Svea Court of Appeal in Sweden upholds the award in full by dismissing all of the challenges (including based on the fraud allegations) brought by Kazakhstan against the award and refuses the right to appeal its judgment to the Swedish Supreme Court.
The Tribunal holds that Kazakhstan has violated its obligations under the ECT and awards the Stati Parties damages of approximately US$ 500 million, plus costs and interest.
In its 414-page reasoned award the Tribunal holds that: “[Kazakhstan’s] measures, seen cumulatively in context to each other and compared with the treatment of the Claimants’ investments before the Order of the President of the Republic [Nursultan Nazarbayev] on 14/16 October 2008, constituted a string of measures of coordinated harassment by various institutions of [Kazakhstan]. These measures must be considered as a breach of the obligation to treat investors fairly and equitably, as required by Art 10(1) ECT”.
A sharing agreement between Tristan Oil’s bondholders and the Stati Parties is signed. This agreement stipulates that any future recovery under the then pending ECT arbitration shall be split with approximately 70% of the future award proceeds going to the bondholders, and the remaining 30% to the Stati Parties. The Stati Parties agree to take the lead in enforcing the future award.
In an effort to recover their substantial losses suffered as a result of the expropriation of their assets, the Stati Parties file a claim against the Republic of Kazakhstan under the auspices of the Energy Charter Treaty (ECT)before an international arbitration tribunal constituted under Swedish arbitration rules.
Kazakhstan strips KPM and TNG of their Subsoil Licences, and without compensation transfers their assets to Kazakhstan’s state-owned oil and gas company KazMunaiGaz.The ECT arbitration panel later finds that “it is indisputable that Kazakhstan directly expropriated [the Statis] investments.”
Following a further inspection of KMG/TNG premises conducted by the Financial Police, theStatis recommend that KPM’s and TNG’s middle management now leave Kazakhstan as concerns of further arrests grow.
On the order of Kazakhstan’s Prime Minister Massimov, at least seven further government agencies conduct unscheduled inspections of KPMand TNG together with the Financial Police. Ostensibly, the purpose of these inspections is to determine whether KPM and TNG are in compliance with subsoil use legislation, environmental protection legislation and immigration legislation. The Statis and Kazakhstan dispute various aspects of these inspections.
The Statis respond to the information requests by the Ministry of Oil and Gas regarding the Cliffson sale by submitting further documentation. At this point however, the Statis learn that Cliffson already submitted a letter to the Ministry stating that it will refuse to purchase TNG’s and KPM’s interests as set out in their 13 February agreement (see above).
The Ministry responds to an application made by the Statis for the waiver of pre-emptive purchase rightsfor the Cliffson sale by requesting additional information regarding the terms of the transaction and the financial and technical abilities of Cliffson. The Ministry highlights that based on Kazakhstan’s seizures of TNG’s and KPM’s assets, transfers of their shares are forbidden and concluded that the transaction would only be approved if TNG and KPM satisfied the requirements necessary to release the attachment of their shares.
The Statis and Cliffson Company S.A. agree on the sale of 100% of the shares and interests in TNG and KPM. The total value of the agreement, including the buy-out of the companies’ noteholders, exceeded US$ 920 million. The deal with Cliffson, a company owned by the Assaubayev family, originated out of the offer made by Grand Petroleum in November 2009. One condition of the agreement is that Kazakhstan’s Ministry of Oil and Gas grants permission and waives the State’s pre-emptive right to purchase TNG and KPM.
The Chief of the Aktau Territorial Department of Judicial Executors issues a court order to freeze several of KPM’s bank accountsand sends a formal warning to KPM of criminal responsibility if they fail to comply. The seized accounts include two accounts with Kazkommertsbank, forty-one accounts with Kazkommertsbank, and nine accounts with Halyk Bank of Kazakhstan.
The Statis meet KMG representatives in Amsterdam, where they are also presented an offer of US$ 20 million for their equity interests related to Tristan Oil.The Statis refuse the offer. Prior to the meeting, the Statis meet with Tristan’s main noteholders, who tell the Statis that KMG has now offered them just 25 cents on the dollar to purchase their interests. The offer is declined.
Several companies demonstrate an interest in the purchase of KPM and TNGas the Statis decide to attempt selling their businesses in Kazakhstan due to the increasing tensions with the authorities. One of these companies is Kazakh-owned Starleigh which initially bids US$ 450 million before shortly thereafter dropping the bid first to US$ 350 million and then to US$ 50 million including a buyout of the noteholders. The Statis refuse the latest offer. Another company, Grand Petroleum, presents an offer to purchase KPM and TNG for US$ 1.15 billion. Grand Petroleum is owned by the wealthy and politically connected Assaubayev family.
The Russian Science and Research Institute for the Construction and Operation of Pipelines and Energy Facilities confirms for a second time that KPM’s pipeline is not a main/trunk pipeline,stating that the report of the Kazakh Ministry of Justice is unfounded and “cannot serve as a ground to consider KPM’s pipeline as a main pipeline”.
Cornegruta’s wife as well as his lawyers are chased from their car and filmed by a Financial Police Officer.Kazakhstan does not dispute this.
Kazakh energy law expert Professor Medet Suleymenov issues an expert legal opinion that KPM’s pipelines are not main/trunk pipelines.
The Financial Police announces that four former and current managers of KPM and TNG will be prosecutedfor making “illegal profits” of 147 billion Tenge (c. USD 980 million).
Documents showthat in early June 2009, Kazakhstan’s Prime Minister Karim Massimov, the Ministry for Energy, the Ministry of Justice, the Ministry of Finance, and Samruk-Kazyna, Kazakhstan’s sovereign wealth fund are considering a buyout of KPM and TNG. Kazakhstan disputes this document’s reliability.
Anatolie Stati writes a letter to President Nazarbayev requesting the release of KPM’s General Manager, Cornegruta, the protection of KPM’s and TNG’s former and current staff, as well as an end to the ongoing dispute. The release of Cornegruta was not granted. He later escapes Kazakhstan’s jail and flees the country. Stati also states his intention to begin arbitration proceedings, although Kazakhstan denies this happened.
The Financial Police arrive at KPM’s and TNG’s offices at 4:20 pm on May 6 looking for KPM’s and TNG’s senior managementsince criminal proceedings have been initiated against them. By this time, most senior managers of KPM and TNG had decided to leave Kazakhstan having been charged and fearing arrest. The search of the premises ends at 4:15 a.m. on May 7.
Amid efforts by the Statis to sell their Kazakh operations, KPM’s and TNG’s subsoil licenses are withdrawnand their other assets frozen, including the shares of both companies, KPM’s field oil pipeline, TNG’s field gas pipeline and TNG’s condensate pipeline. The arbitration panel in Sweden later finds that “the evidence that Kazakhstan’s conduct interfered with [the Statis] ability to sell their investments in KPM and TNG is overwhelming.”
900 KPM and TNG employees sign a letter to the Governor of the Mangystau Region expressing their concernsabout the Financial Police’s harassment of their companies.
KPM’s General Manager Cornegruta is arrested and interrogated for a second time by the Financial Police. Criminal proceedings are opened against him for supposed “illegal entrepreneurial activity”.
A team of five experts from the Russian Science and Research Institute for the Construction and Operation of Pipelines and Energy Facilitiesstate that the KPM and TNG pipelines in question are not main/trunk pipelines as Kazakhstan’s Financial Police claims.
The Statis attend a meeting chaired by the Ministry of Energy’s Executive Secretary, Askar Batalov to discuss Kazakhstan’s actions against KPM and TNG. The Statis say that they were assured that the ongoing investigations would be cancelled, and the operating pipelines would be correctly classified as so-called “field pipelines” rather than main/trunk pipelines. Kazakhstan disputes that this happened, but the Swedish arbitration panel later finds that as Kazakhstan had made commitments to allow the Stati businesses to continue to operate at this meeting, and then broke their promise, the authorities were in breach of the ECT.
After comprehensive tax audits, KPM and TNG are presented with approximately US$ 62 million in back taxes and penalties, based on well drilling costs for 2005 to 2007.
TOTAL demonstrates an interest in the purchase of KPM’s and TNG’s assets. Later, following discussions with the Kazakh authorities, TOTAL withdrew from the bid process, allegedly for technical reasons.
Fitch issues a rating watchfor Tristan’s long-term default rate and Moody’s reports a downgrade of Tristan Oil. Both agencies cite the ongoing dispute with the Kazakh authorities and the criminal investigation against KPM.
Experts at the Ministry of Justice, Ministry of Energy and the state-owned KazMunaiGaz (KMG) conclude that KPM’s and TNG’s pipelines are not main/trunk pipelines as alleged by the Financial Police.
The Financial Police open a criminal investigation against KPMarguing that KPM has been operating a main/trunk pipeline and is doing so without the correct license. The Swedish arbitration panel later finds that this is false, and that the “discovery” by the Financial Police about this nature of this pipeline should instead be described as a “reclassification” by the Kazakh authorities.
The Tax Committee calculates that the “illegal profit”from the operation of the supposed main/trunk pipeline exceeded 78.7 billion Tenge for KPM and TNG (c. US$ 662 million at the time).
The Financial Police claim that KPM’s and TNG’s pipelines are of a particular category – “main/trunk” pipelines – for which the necessary licenses were not obtained. Subsequently, the Financial Police ordered a new audit to determine the income from the operation of these pipelines. Whether KPM and TNG were indeed operating main/trunk pipelines or another category of pipeline (“field pipelines”) becomes a key pretext for harassment of KPM and TNG. The Swedish Arbitral Panel later concludes that the two companies’ use of the pipelines did not constitute a crime and that Kazakh authorities who claimed otherwise had been “compelled” by the Financial Police to make these statements.
Instructed by the Financial Police, the Ministry of Energy and Natural Resources, the National Bank of Kazakhstan, the Tax and Customs Committees and several further government agencies conduct inspections and tax audits of the Statis’ oil and gas companies KPM and TNG. The Swedish arbitration panel later accepts that the cumulative effect of these audits was “co-ordinated harassment.”
President Nazarbayev issues an order, including the phrase “at the request of the Moldovan party,” instructing Deputy Prime Minister Umirzak Shukeyev and the Head of the Financial Police Sarybai Kalmurzayev to “thoroughly investigate” the Statis’ businesses in Kazakhstan. Kazakhstan later disputes the significance of this document and argues that President Nazarbayev was following standard diplomatic protocol in responding to the Moldovan request.
Moldovan President Vladimir Voronin sends a letter (later leaked to Moldovan media) to Kazakhstan’s President Nursultan Nazarbayev asking the Government of Kazakhstan to thoroughly investigate the Statis’ business activities in the country.
KazMunaiGas (KMG), the state-owned Kazakh energy company, try to buy KPM and TNG. They offer an amount which under-values the company, at US$ 754 million. Eight other companies, including Korean National Oil Corporation (KNOC), also place indicative bids. KNOC place the highest bid at $1.55 billion (twice what KMG are prepared to pay), while the average for all bids received stands US$ 1.05 billion. The Kazakh-owned KMG bid is 25% less than this.
Tristan Oil issues Eurobondsto fund capex projects onshore. The notes were guaranteed by TNG and KPM. The intention was for these bonds to be paid from cash flows generated by these companies. One of the largest of the bondholders was a US-based fund called Black River Asset Management, from which later Argentem Creek Partners spun out from.
Moldovan businessmen Anatolie Stati and Gabriel Stati (together, the Statis) begin investing in Kazakhstan by acquiring shares in the Kazakh oil companies Tolkynneftegaz LLP (TNG) and Kazpolmunay LLP (KPM), which subsequently became the guarantors of Tristan Oil Notes.