KazTransGas May Seek International Arbitration in Dispute over Georgian Subsidiary

(UPDATE adds comments from Georgian Energy Minister Kakha Kaladze)

Kazakhstan’s state-owned KazTransGas has formally asked Georgia to launch negotiations on settlement of a long-standing dispute over control of its owned gas distribution grid in Tbilisi otherwise warned of taking dispute to international arbitration to seek compensation of damage, estimated by the company to be equivalent of USD 130 million investment.

KazTransGas bought gas distribution company in the Georgian capital in 2006, but three years later the state took over management of the Kazakh company’s Georgian subsidiary after the energy regulatory commission appointed a special administrator in the KazTransGas-Tbilisi, citing company’s financial and debt problems.

KazTransGas-Tbilisi supplies natural gas to over 380,000 customers in the Georgian capital.

The issue was apparently raised when Georgian PM Irakli Garibashvili visited Kazakhstan in November, 2014. Although Georgian Energy Minister, Kakha Kaladze, who was accompanying the PM, said at the time that the management of the gas distributor company in Tbilisi would be handed over back to the Kazakh company in “the nearest future”.

Commenting on the Kazakh company’s notice, Energy Minister Kakha Kaladze told journalists: “To say the truth it was a surprise to receive this letter of complaint [from KazTransGas], because we are already in the process of negotiations.”
 
He also said that although the Ministry of Energy is not against of handing over management of the gas distributor company back to KazTransGas, the process is delayed because of unresolved issues with the Finance Ministry.

“I think that that the issue will be resolved in the nearest future and the case will not be referred to arbitration,” Kaladze added.

Georgian Deputy Energy Minister, Mariam Valishvili, said in an interview with the Azerbaijani news agency, Trend, last week that the issue remained unsolved as no agreement was yet reached over company’s debt, which was a reason behind putting a special administrator in KazTransGas-Tbilisi in 2009.

KazTransGas said in a statement on its website on October 5 that it sent “pre-arbitration dispute settlement” notice to the Georgian authorities on September 21.

The Kazakh company has proposed that “the parties begin negotiations to settle the dispute over the investments of KazTransGas JSC in KazTransGas-Tbilisi LLP without resorting to arbitration.”

“In 2006-2009, the total investments of KazTransGas JSC in the development of KazTransGas-Tbilisi LLP and in the gas supply system of Tbilisi amounted to approximately 130 million US dollars,” KazTransGas said.

KazTransGas said that it has been unable to participate in the business operations of its subsidiary since a special administrator has been appointed to the company.

“The Georgian authorities have breached the rights of a foreign investor,” the company said.

“KazTransGas JSC hopes that the Georgian party will take a constructive approach and that the dispute will be resolved without arbitration,” it said.

“If the dispute cannot be settled through negotiation, KazTransGas JSC will refer it to investment arbitration… and will seek the recovery of control over KazTransGas-Tbilisi LLP as well as damages equal to or greater than the amount of its investments,” KazTransGas said.