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Scandal with Liglass Trading. Is it just the beginning?

The main event of last week was the termination of the contract with the Czech company Liglass Trading. The company did not pay the promised $ 37 million. The Cabinet of Ministers in response has decided to discontinue all relations with the Czechs. However, investors themselves do not intend to simply abandon the deal with Kyrgyzstan.

Return $ 1 million

Liglass Trading issued an official statement almost immediately after the information about termination of the contract. Several claims to the authorities of Kyrgyzstan were voiced there at once.

So, it turned out that Liglass Trading wants to return the guarantee fee for participating in the tender for the construction of small hydropower plants in the amount of $ 1,147,720. While Kyrgyz authorities asked the public and journalists to wait until September and not hasten with accusations, Liglass Trading wrote letters to our officials.

In total, Liglass Trading sent three written notices — on August 11, August 17 and September 14 on return of the guarantee fee.

The Czech company is sure that it has fulfilled all the conditions for the return of the fee. The Kyrgyz side had to return the money till August 11, 2017.

«The Kyrgyz side probably got under the pressure of the media and, without further explanation of its actions, has not yet returned the guarantee fee. The proof of the unreliability of the Kyrgyz side was a blatant violation of government decree No. 175 dated March 24, 2017 in which Liglass Trading was unequivocally assured of the return of the fee in due time. Return of the fee was also repeatedly officially confirmed by a letter from the State Committee for Industry, Energy and Subsoil Use dated May 25, 2017,» the company said in its statement.

Liglass Trading believes that the non-return of money is a significant warning signal not only for the company itself, but for all potential investors.

«Even the guarantees of the highest state bodies are not a sufficient guarantee of observing of unconditional commitments by Kyrgyzstan for investors. Fears of Liglass Trading, concerning the return of investments, proved to be justified,» the statement says.

We were not aware of quarrel with RusHydro

The same statement contains one more revelation of the Czech company. The Kyrgyz side allegedly hid from Liglass Trading a fundamental obstacle in the implementation of the project. Because of it, the previous investor, RusHydro, puts the project at risk because of arbitration with Kyrgyzstan.

It turned out suddenly: Liglass Trading did not know that the envisaged transfer of 50 percent of the shares of Upper Naryn HPP company was not coordinated with RusHydro, and this is done only on the ground of termination of the contract with the company against its will.

«No sane entrepreneurial entity can ignore such a serious risk that could lead to the loss of all investments of Liglass Trading. The government of Kyrgyzstan did not act in accordance with the concluded agreement. It did not take any action to limit the damage in case of force majeure circumstances and did not prevent the leakage of confidential information,» the company said in the statement.

Liglass Trading notes that in these circumstances it had to do everything to preserve its investments and to act with extreme caution. As a result, it was decided not to terminate the contract, but simply to suspend the payment of $ 37 million.

Who will sue whom?

The government of Kyrgyzstan held its ground. Liglass Trading did not pay $ 37 million, so the contract with it is terminated unilaterally. And there will be no return of guarantee fees.

The reaction was immediate. Liglass Trading threatened Kyrgyzstan with international arbitration. The basis was an investment agreement signed by the parties. It clearly states that in case of disagreement, the parties have three months to negotiate and three more — to examine the claims and answer them.

In fact, the scandal with Liglass Trading can last for at least six months — negotiations with mutual claims will certainly continue. And only then one can talk about legal proceedings.

The State Committee for Industry, Energy and Subsoil Use of the Kyrgyz Republic is confident that the failure by Liglass Trading to fulfill its obligations on payment of $ 37 million in due time is the basis for the termination of the investment agreement.

Officials threatened that Kyrgyzstan would take all the measures provided by the investment agreement and Kyrgyz legislation regarding the violation of the investment agreement by Liglass Trading, including, in addition to the termination of this document, the recovery of unfulfilled obligations from the investor.

International arbitration again

There was a short pause in the dispute between the parties. Officials of the Kyrgyz Republic and the Czech investors took a time-out. Liglass Trading was the first who broke the silence.

Additional information on the appeal to international arbitration appeared on its official website.

The statement says that the statement of the Government of the Kyrgyz Republic that the agreement on the construction of small hydropower stations and two stations of the Upper Naryn cascade can be unilaterally terminated and contradicts the reality. Liglass Trading believes that the Cabinet thus misleads not only the President of the Kyrgyz Republic, the deputies of the Parliament, but also the public.

At the same time, Liglass Trading not for the first time reminds that even the resolution of litigation in accordance with the legislation of Kyrgyzstan does not exclude the possibility of «arguments» in international arbitration.

Under the Kyrgyz law on investment, any investment dispute is resolved in the courts of Kyrgyzstan, unless one of the parties requests consideration by appealing to international arbitration.

The disgruntled investor can apply to the International Center for Settlement of Investment Disputes for hearings. This right is granted to him by the Convention on the settlement of investment disputes between states and subjects of other states or rules regulating the use of additional funds.

The second option is to file a claim to arbitration or an international temporary arbitration tribunal (commercial court) established in accordance with the arbitration rules of the UN Commission on International Trade Law.

Recall, the former investor of the project — Russian company RusHydro — is also preparing to file a lawsuit to international arbitration against Kyrgyzstan. The Czech Liglass Trading so far calls for negotiations. The case did not reach the court. But the government of Kyrgyzstan does not intend to make concessions. And in the end, instead of new stations, we can get two more international arbitrations and a hydropower project frozen for an unknown term.