International Eye: Russia

Alrosa to appeal Commission diamond ruling

Alrosa to appeal Commission diamond ruling

Russia’s state-owned diamond company Alrosa is preparing for a massive legal battle with the European Commission over a ruling prohibiting it selling rough gems to competitor De Beers.

Alrosa is the world’s second-largest diamond producer behind De Beers. The Commission ruled in February that the sale of gems to De Beers violated anti-trust regulations, and ordered sales to be reduced and then ended by 2009.

Alrosa has instructed its regular, and preferred, antitrust counsel Baker & McKenzie in its appeal of the Commission ruling. London-based partners Keith Jones and Samantha Mobley are leading the antitrust team that is working feverishly on the company’s appeal.

A date for the appeal hearing before the European Court of Justice is yet to been determined, but is expected to be within a month.

De Beers, led by its Northern Hemisphere legal manager Merlie Calvert, who is herself a competition specialist, is not a part of the appeal and the company has previously stated it would abide by the Commission’s decision.

However, Calvert’s legal department is sure to be keeping a close eye on the case and its outcomes.

Lawyers battle it out over Rosneft

The controversial Rosneft IPO finally completed over the summer, but not before lawyers for the Russian oil giant were forced to overcome a few obstacles.

Not least of those barriers was the High Court challenge mounted by Yukos, the embattled oil company that has since been declared bankrupt by the Russian courts.

Yukos, which is infamous for the arrest and imprisonment of its former chief executive Mikhail Khodorkovsky on tax-evasion charges, claimed in the High Court that the forced sale of its chief oil-producing asset Yuganskneftegaz to Rosneft was illegal. The process threatened to derail the $10.4bn (£5.51bn) IPO of Rosneft at the last minute.

Byrne and Partners’ litigation partner Nicola Boulton instructed Matrix Chambers’ Clare Montgomery QC for Yukos as they sought a judicial review, dragging the London Stock Exchange (LSE) and Financial Services Authority (FSA) into the case.

Rosneft was advised by US firm Cleary Gottlieb Steen & Hamilton on its IPO and instructed Travers Smith for its High Court defence. Mark Howard QC of Brick Court Chambers represented Rosneft in court.

Ashurst litigation partner Edward Sparrow and Fountain Court Chambers’ Michael Brindle QC represented the FSA, while the LSE instructed Freshfields Bruckhaus Deringer and Brick Court’s Richard Gordon QC for its defence.

Linklaters was keeping a watchful eye on the case through its role advising the joint global co-ordinators of the IPO, which included ABN Amro Rothschild, Dresdner Kleinwort, JPMorgan and Morgan Stanley.

Mr Justice Charles rejected Yukos’s attempts to get a judicial review of the LSE and FSA’s decision to list Rosneft shares, and they were admitted to trade on 19 July after pricing at $7.55 (£5), making Rosneft the world’s fifth-largest IPO to date and valuing the company at $80bn (£42.37bn).

Bakers assists in new Russian RMBS deal

Baker & McKenzie helped to set a new standard in Russian law over the summer when it acted on the country’s first public residential mortgage-backed securitisation (RMBS).

Bakers, led by Moscow partner Vladimir Dragunov, provided advice on the securitisation and structured finance aspects of the deal as transaction counsel for JSC Vneshtorgbank. The state-owned bank is Russia’s second largest.

The firm created a special-purpose vehicle incorporated under Luxembourg law that issued $88m (£46.61m) of debt, with the transaction governed in parts by both Russian and English law. Bakers’ Moscow, London and New York offices were all involved.

“This securitisation represents a milestone,” Dragunov told The Lawyer. “As the first public Russian RMBS deal it is attracting a large amount of interest from the Russian mortgage market and could pave the way for many more similar transactions.”

Sakhalin dispute continues apace

There are few places where politics has as much effect on international law firms’ clients as in Russia. The country is never far from a controversial headline, which certainly makes life interesting for lawyers working in Moscow.

The ongoing dispute between the Russian Federation and the Shell-led consortium over the Sakhalin-2 project is at the forefront of global attention, and UK law firms have been at the eye of the storm.

Linklaters’ Moscow office has been heavily involved, with partner Dmitry Dobatkin the chief protagonist. Dobatkin has been a long-term adviser to the Sakhalin Energy Investment Company (SEIC), the Bermuda-based operating consortium of which Shell is the major shareholder, along with Mitsui & Co, Mitsubishi and Marathon Oil Company.

Dobatkin’ s past work includes advising on the financing and construction of an liquefied natural gas plant, and oil and gas production and transportation facilities under a production-sharing agreement (PSA) with the Russian Federation.

Freshfields Bruckhaus Deringer has also been heavily involved in Sakhalin-2 for some time, with Moscow-based energy partner Jacky Baudon advising financial backers the European Bank for Reconstruction and Development (EBRD), the Overseas Private Investment Corporation, and the Export-Import Bank of Japan on the original project financing. That itself is not without problems, with the EBRD delaying a funding decision while the dispute continues. Associate Sergei Diyachenko is playing a key role in the negotiations.

The PSA, originally drafted in the early 1990s, lies at the heart of this latest dispute, with SEIC apparently benefiting from a clause that allows it to recoup its costs before sharing profits with the Russian Federation. The announcement that SEIC’s costs had doubled to $20bn (£10.59bn) meant a much smaller share of the profits for Russia.

The Russian Federation then withdrew a vital permit, alleging environmental negligence. Many cynics see it as a ploy to get state-

owned gas giant Gazprom and oil company Rosneft a greater share of the pie. If they become involved in contract negotiations it could mean big work for their legal advisers, which include US firms Chadbourne & Parke and Cleary Gottlieb Steen & Hamilton.

The ongoing dispute threatens all foreign involvement in Russia’s oil and gas industry and is sure to unsettle lawyers everywhere.

Egorov victory heralds antitrust law rethink

Russia’s largest domestic firm, Egorov Puginsky Afanasiev & Partners, was celebrating over the summer after it successfully negotiated the end to a major antitrust dispute in the country.

The victory for Egorov’s client Eurocement Group will result in new legislation to bring Russia’s antitrust practice into line with EU legislation. It was opportune timing for Egorov and Eurocement as the case was finalised just ahead of the implementation of a new federal anti-monopoly law, on which Egorov had advised the Russian Federation.

The case saw Eurocement fined some Rs1.92bn (£38m) by the Federal Anti-Monopoly Service after it increased prices by 70 per cent. The appeal reached the Federal Arbitrage Court of Cassation in Moscow, which negotiated a settlement that sees Eurocement’s fine reduced to Rs267m (£5.28m).