Kyrgyzstan wins legal case against QazaqGaz in arbitration court in Paris

The Kyrgyz Republic has won a $35 million arbitration case against QazaqGaz (formerly known as KazTransGas), according to the Kyrgyz media, citing the country’s Ministry of Justice.

«According to the ministry, on January 30, 2024, the arbitration tribunal supported the stance of the Kyrgyz Republic and refused to satisfy claims by the plaintiff (QazaqGas). In 2020, QazaqGas initiated the arbitrary trial against the Kyrgyz Republic under UNCITRAL’s rules adopted in 1976. During the litigation, the complainant demanded $35 million worth of compensation, although it later dropped its claim for lost profits and the sum in the dispute decreased to $15 million,» Tazabek.kg reported.

As the ministry noted, QazaqGas insisted that the Kyrgyz side had violated the company’s rights as an investor of the joint venture KyrKazGas established by KazTransGas and Kyrgyzgas (now Gazprom Kyrgyzstan) in 2004.

The joint venture was supposed to be responsible for the modernization and exploitation of the Kyrgyz segment of the Bukhara – Tashkent – Bishkek – Almaty main gas pipeline. Kyrgyzgas even transferred assets related to the pipeline to the joint venture, although this agreement was canceled later on. The gas pipeline modernization project was regulated by an investment agreement between KazTransGas, Kyrgyzgas and the Kyrgyz Republic.

In turn, claims by the complainant were based on three documents: an agreement between Kazakhstan and Kyrgyzstan on encouragement and mutual protection of investments; an agreement to the Energy Charter and the 2003 Kyrgyz law on investments.

«Even though members of the arbitration panel have confirmed they’re in a position to judge the case, they also agreed with the argument by Kyrgyzstan that the statute of limitations for claims by the complainant based on the law on investments has expired,» the Kyrgyz Ministry of Justice said.

The court has also refused to satisfy the plaintiff’s demands regarding the aforementioned agreement and contract. The court agreed that the Kyrgyz Republic can’t be responsible for actions by Kyrgyzgas under the international law on states’ responsibilities.

«The court ruled that the country cannot bear responsibility for actions done by Kyrgyzgas such as allegedly wrongful cancelation of the trust management agreement,» the ministry reported.

The court has also disagreed with the plaintiff’s argument that state agencies of Kyrgyzstan somehow facilitated the cancelation of the agreement by instructing Kyrgyzgas to do so.

«The arbitration panel noted that the trust management agreement was canceled properly with the consent of all its parties. The court also ruled that there was no legal basis for the complainant to expect the Kyrgyz Republic to reimburse its investments in the joint venture. The panel of arbitrators noted that the country’s actions were appropriate and didn’t violate agreements on reconstruction and joint exploitation of the pipeline,» the media reported.

As a result, QazaqGaz is obliged to reimburse 60% of arbitration costs by the Kyrgyz Republic as a defendant with annual interest capitalization on this sum. The plaintiff now has a month to appeal against this decision.

The arbitration tribunal consisted of international arbitrators: Noah Rubins (the chair from France), Sergey Vatayev (Kazakhstan, appointed by the plaintiff) and Alexey Zhiltsov (Russia, appointed by the defendant). Willkie Farr & Gallagher LLP and a team of lawyers from Kyrgyzstan represented the interests of the Kyrgyz Republic.