The arbitration proceedings relate to Eugene Kazmin, an owner of Ukrainian company KVV Group which took over the stricken steelworks on the promise of significant investment and a fresh start. As predicted by many at the time, the hopes proved to be over-optimistic as Kazmin and KVV Group were virtual unknowns with no experience ruunning a steelworks who had been running a scrap metal business in Crimea.
Liepājas metalurgs metallurgical plant based in south-western Latvia was first declared insolvent after it failed to repay a state-guaranteed loan to an Italian bank. The government sold the plant to Ukrainian investors and scrap metal merchants, KVV Group, in late 2014.
Liepajas metalurgs was renamed KVV Liepājas metalurgs and officially re-opened on March 6, 2015, but soon started having problems again and was once more declared insolvent in September 2016.
The company had difficulties paying its electricity bills and wages to workers. It also missed the deadline for a €2.7 million payment to the Latvian state, as part of the extremely favorable conditions under which it acquired the plant.
KVV Group was supposed to pay €107 million in several installments over 10 years.
A statement first published on the government website September 2 and updated in corrected form on September 3 said:
On 13 April 2020, the tribunal in arbitration case Eugene Kazmin v. Latvia (ICSID Case No. ARB/17/5), under the auspices of the International Centre for Settlement of Investment Disputes (hereinafter - ICSID), granted Latvia’s request that the Claimant, Ukrainian citizen Mr. Eugene Kazmin, be ordered to provide a letter of guarantee for an amount of EUR 3 million, as security for the possible reimbursement of Latvia's legal expenses.
The case was initiated by Mr. Kazmin and relates to the sale of the insolvent JSC “Liepājas Metalurgs” to the Ukrainian company “KVV Group” in 2014.
In the order in question (Procedural Order No. 6), the tribunal found that there were serious concerns as to whether Mr. Kazmin would respect any decision by the tribunal to reimburse Latvia’s legal expenses. These concerns mainly arise from the tribunal’s doubts with respect to Mr. Kazmin’s business practices and criminal proceedings against legal entities controlled by Mr. Kazmin (or related legal entities). In addition, the tribunal voiced doubts regarding the possible use, by Mr Kazmin, of shell companies to transfer assets in order to avoid paying debts.
In breach of Procedural Order No. 6, Mr. Kazmin failed to provide the requested bank guarantee within the specified deadline. As a result, in Procedural Order No. 7 of 6 May 2020, the tribunal suspended the arbitration proceedings for six months or until Mr. Kazmin provides the requested bank guarantee in an amount of EUR 3 million. If he does not provide the bank guarantee within six months, Latvia will be entitled to request that the tribunal terminate the proceedings. To date, Mr. Kazmin has not provided the requested guarantee.
On 30 July 2020, Mr. Kazmin submitted a proposal for the disqualification of all three members of the tribunal. According to Mr. Kazmin, Procedural Order No. 6 reflected the tribunal’s lack of independence and impartiality. Latvia strongly disagrees with these allegations and disputes Mr. Kazmin's application to disqualify the tribunal, which is currently being examined by the Chairman of the ICSID Administrative Board.
In accordance with a decision taken at the session of the Cabinet of Ministers of 25 August 2020 and based on Paragraph 16 of Cabinet Regulation No. 228 “Procedure for Ensuring Representation in International Investment Dispute Settlement" of 3 May 2017, the State Chancellery publishes Procedural Order No. 6 of 13 April 2020 (available here) and Procedural Order No. 7 of 6 May 2020 (available here).