JKX Launches Arbitration Proceedings against Ukrainian Government

Eastern Europe-focused junior energy firm JKX Oil & Gas announced Monday that it has launched arbitration proceedings against the Ukrainian government under the Energy Charter Treaty – a bilateral investment treaty between the UK and Ukraine. JKX is looking to recover more than $180 million in rental fees that its Ukrainian subsidiary has paid on production of oil and gas in Ukraine since 2011.

JKX said it is seeking compensation for "losses it has suffered from Ukraine's treaty violations", including "Ukraine's failure to treat JKX's investments in a 'fair and equitable' manner and failing to comply with commitments made by Ukraine in respect of JKX's investments."

JKX suspended its planned 2015 capital investment program in Ukraine on January 7, explaining that the move was prompted by the Ukrainian government's decision last November to restrict industrial users of natural gas to buying their gas solely form Ukraine's state-owned gas company Naftogaz.

JKX noted that an Emergency Arbitrator, appointed under the Arbitration Rules of the Stockholm Chamber of Commerce, has already issued an Emergency Award that orders Ukraine to refrain from imposing royalties on the production of gas by JKX's Ukrainian subsidiary in excess of the rate of 28 percent (as opposed to the 55-percent rate currently applicable under Ukrainian law). JKX said the Emergency Award is binding on Ukraine under international law, but if Ukraine refuses to comply with the Award it will seek to have it recognized and enforced by the Ukrainian courts.