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. Last Updated: 07/27/2016

EBRD Protests Chernogorneft Ruling

As it scales down its Russian operations in the wake of last year's economic meltdown, the European Bank for Reconstruction and Development has filed a protest over a Tyumen court decision regarding oil company Chernogorneft.

On Tuesday EBRD announced that, together with the U.S. Export-Import Bank, it has filed a protest petition with the Supreme Arbitration Court over the decision last month to remove Alexander Kiryanov as external manager.

The removal of Kiryanov, who had been supported by the local administration and a majority of the company's creditors, "is not supported in law," the statement says.

The new temporary manager in charge of Chernogorneft is reportedly under the thumb of Tyumen Oil Co., which is seeking to take over Chernogorneft.

The EBRD f Chernogorneft's major creditor thanks to a loan it granted the oil extraction firm estimated at $35 million f said it is seeking "to ensure that the Chernogorneft bankruptcy case is conducted in a way that treats all parties equally."

The Chernogorneft case is just the latest in a series of setbacks for the EBRD, which had 105 projects going in Russia at the end of last year, representing a total investment of 3.44 billion euros ($4 billion).

The bank was very hard hit by the crisis last August when the Russian banking sector crumbled.

Out of then total signed projects worth 2.8 billion ecus ($3.3 billion), the financial sector made up for 35 percent of EBRD's investments, topping $1 billion in value. A large proportion of these are now nonperforming.

However, the EBRD said it had badly performing loans outside of the financial sector as well. It also complained that poor corporate governance and asset stripping were plaguing several of its investments.

In almost a year following the August crash, the EBRD has signed up for only three new projects in Russia, including the launch of the New Telephone Co. in Vladivostok, the construction of a hotel in St.Petersburg and construction of the Permtex oil refinery, a joint venture with participation of LUKoil, Perm government and Soco International.

A $40 million loan to Baltika Brewery is in the works.Russian investments amounted to 24 percent of EBRD's total signed commitments as of the end of 1998.

However, despite all its woes here, the EBRD remains committed to sponsoring market reforms in Russia, officials said Tuesday.

Representatives of EBRD's board of directors arrived in Russia this week for the first time since September 1997.

The EBRD last week released results for the first quarter of 1999, reporting a net loss of 7.4 million euros.

"The EBRD continued to face repercussions from last year's events in Russia and in world financial markets," the bank said in a press release issued last week.

The first quarter loss resulted from a provision of 35.3 million euros, which brings the total amount of provisions for EBRD's banking portfolio to a whopping 971 million euros.

Provisions for losses currently amount to 16 percent of EBRD's total amount of disbursed loans and share investments.

At the end of March 1999 the Bank's portfolio of net commitments amounted to 10 billion euros.

"The financial results continue to be vulnerable to any further adverse developments in the Bank's portfolio and to continuing uncertainties in its operational environment," the press release quoted Steven Kaempfer, the EBRD's vice president of finance, as saying.