Court in The Hague orders Russia to pay Naftogaz $5B in compensation for losses in Crimea

According to the press service of NJSC Naftogaz of Ukraine, The Hague’s Arbitration Tribunal at the Permanent Court of Arbitration ruled this on April 12, 2023.

As reported by Ukrinform, such a decision was made by the Arbitration Tribunal at the Permanent Chamber of the Arbitration Court in The Hague on April 12, reports the press service of Naftogaz of Ukraine.

“The Naftogaz team has won a key victory on the energy front. Despite Russia’s attempts to obstruct justice, the Arbitration Tribunal ordered Russia to compensate Naftogaz for losses of $5 billion. This relates to the seizure of our assets in Crimea by Russia in 2014. Russia must now comply with this decision in accordance with its obligations under international law," commented Naftogaz CEO Oleksiy Chernyshov.

The Arbitration Tribunal confirmed that Russia must fully compensate Naftogaz for losses caused by Russia's illegal seizure of Naftogaz Group's assets in Crimea. 

“Arbitration awards can be executed through an enforcement mechanism. Therefore, if Russia refuses to voluntarily execute the decision, pursuant to the 1958 New York Convention, Naftogaz has the right to initiate the process of recognition and admission to enforce the award in the territory of those states where assets of the Russian Federation are located,” the company said.

The court ruled that compensation should be equal to the fair market value of Naftogaz assets before expropriation. The court rejected Russian claims that Naftogaz is not entitled to any compensation for the expropriation of its assets. 

According to the company, the compensation established by this decision is the largest awarded by an International Arbitration Tribunal as indemnity for the expropriation of assets by Russia in Crimea.

In addition, the court ruled that Russia must reimburse Naftogaz for costs associated with the arbitration proceedings.

As reported, in October 2016, Naftogaz and six other companies of Naftogaz Group initiated arbitration proceedings (PCA case No. 2017-16) against the Russian Federation based on the Agreement between the Cabinet of Ministers of Ukraine and the Russian government on the Encouragement and Mutual Protection of Investments, also known as the Ukrainian-Russian Investment Treaty. Naftogaz requested the Tribunal to bind the Russian Federation to pay compensation for violation of the Treaty including for the illegal expropriation of strategically important Naftogaz energy investments, which were among the main targets of the Russian Federation in Crimea in 2014.

In July 2022, The Hague Court of Appeal confirmed the jurisdiction of the Tribunal in this case.