Tatneft Seeks $1.1Bln From Ukraine

VedomostiA Ukrtatnafta gas station. Tatneft says managers at Ukrtatnafta's Kremenchug refinery refused to pay for deliveries.
Tatneft said Wednesday that it was starting legal action against Ukraine for $1.1 billion, which the company said it lost after armed police ousted loyal managers at a Ukrainian refinery amid an ownership dispute.

Ukrainian Prime Minister Yulia Tymoshenko countered that the government was ready to battle for the country's interests, her spokeswoman said.

The dispute over the Kremenchug refinery, Ukraine's largest, is one of the problems that has lately strained relations between Russia and Ukraine, in addition to the periodical disruptions in gas trade.

New managers took control of the refinery in October and refused to pay for earlier oil deliveries from Tatneft, which resulted in $500 million worth of damages, a Tatneft spokeswoman said. The rest of the damage stemmed from Tatneft's loss of control over the company's operations, she said.

Tatneft said Ukraine had not responded to its requests to protect its investment. A Ukrainian court last year nationalized disputed stakes in Ukrtatnafta, the company that owns the refinery, despite statements by Tatneft that the shares belong to two companies with which it has links.

Tatneft is seeking to obtain a judgment on its complaint under the rules spelled out by the United Nations Commission on International Trade Law, the spokeswoman said. According to these rules, Tatneft and Ukraine will leave a decision to a three-lawyer panel where two of them will represent the sides. These representatives will jointly select a third lawyer.

Tymoshenko said at a news conference in Kiev that the government did not fear the lawsuit and would defend Ukrainian interests, her spokeswoman Marina Soroka said.

Tatneft owns 8.6 percent in Ukrtatnafta, while its biggest shareholder, the government of Tatarstan, holds almost 29 percent in the Ukrainian business. The disputed stakes, totaling 18.3 percent, belong to two companies registered in the United States and Switzerland, Tatneft said.

The amount that Tatneft is seeking is disproportionately large, said Alexander Nazarov, an analyst at Metropol. What's more, Tatneft's revenue has only been growing in the last two quarters as seen from its financial reports under Russian accounting standards, he said.

"I don't quite understand the amount," Nazarov said. "I haven't seen any trace of these losses in their financial reports."

Tatneft posted sales of $2.1 billion in the first quarter of this year, company records show.

With the Kremenchug refinery in limbo, Tatneft doesn't control any refineries to handle its crude. Nazarov said that a financial statement from Tatneft according to U.S. generally accepted accounting principles could give more of a clue into how the refinery problem affected the oil producer's business.

Tatneft, a key supplier to the refinery before the takeover, halted deliveries in October, forcing the plant to buy crude from Belarus and Iraq to maintain output.

At a meeting in Kiev late last month, then-Prime Minister Viktor Zubkov and Tymoshenko agreed to set up a working group to settle the dispute.