GML's Tim Osborne says any big, successful firm in Russia is at risk of corruption Mateusz Gołab/WBJ

Tim Osborne is a senior partner at UK law firm Wiggin Osborne Fullerlove and a director of GML Limited, an investment firm and the majority shareholder of Yukos, the oil firm seized and dismantled by Russia last decade. GML has since pursued its compensation claim in Europe, basing its argument on Russia’s participation in an international document called the Energy Charter Treaty (ECT). Last December GML saw its first major court victory when a tribunal of the Permanent Court of Arbitration in The Hague ruled that Russia had indeed been bound by the ECT. It is now pursuing the next phase of its claim.

E Blake Berry: Why have you come to Poland?

Tim Osborne: We have, over the last four-five years, spent a lot of time talking to governments within the EU to make sure they understand what we’re doing and that they continue to support our position. And now it’s sort of turned around and they want us to explain what we’ve achieved in terms of this award. Because it’s an important lesson to the European governments that they have to have recourse to a binding legal system.

Have these governments really supported you?

Most of these governments have, at one stage or another over the past year, specifically stated that they agree that Russia was bound by the Energy Charter Treaty. And I believe we’ll get their support if it comes to enforcement of the award because Russia may try not to pay and it will be important that it’s not just us saying, “you’ve got to abide by the rule of law.”

And has Poland given support as well?

Poland has been very supportive over the years and, in particular, was and remains a clear voice within the EU insisting that there needs to be a legally binding dispute-resolution process.

Does last December’s ruling have any significance for companies like Sakhalin Energy [which Gazprom wrested control of in 2007]?

It has relevance for anybody who invested in the Russian energy sector before October 19, 2009, because the tribunal has found that Russia was bound by the treaty until its withdrawal and investments made prior to that date are fully protected for a further 20 years. Therefore, anyone who felt aggrieved is entitled to bring a claim based on the Energy Charter Treaty.

Now, I don’t think the Shells or BPs of this world are going to claim based on the treaty, because it is a last resort. If you do that you’re out of business in Russia. But it undoubtedly helps their bargaining position because investors and the Russians know that there’s an ultimate fallback.

You’ve said that damages could amount to $100 billion. How are you going to justify that figure?

We quantified our claim at $28.3 billion plus $4 billion for the pension fund when we launched the claim in 2005, based on the share price of Yukos before it was attacked. At that point oil was only at $35 a barrel.

Oil price is only one indicator. The other is that [Yukos subsidiary] Yuganskneftegaz was sold for $9.3 billion or so. Even the Russian government’s own valuation put it at around $14 billion and Yukos’ put it at about $18 billion. Rosneft put it in its IPO about 18 months later valued at $60 billion. And Yuganskneftegaz was 60 percent of Yukos’ oil production capability, so in very broad-brush terms that suggests that Yukos was worth around $100 billion just on its oil production, and there were a lot of other elements to the firm as well.

You’ve publicly commented on several occasions over the last few years that you haven’t felt safe because of Russia’s response to this case. Is this still true?

I’ve gotten used to it. [The Russian authorities] announced this so-called “criminal investigation” into me in September 2006 immediately following a victory in the Dutch courts. And at the time it looked like it was an afterthought as they were targeting Yukos management. ... But, nevertheless, the Foreign Office took it seriously, because it was contemporary with [the death of Russian dissident Alexander] Litvinenko and for awhile the Foreign Office strongly advised me not to leave the country. And then, slowly, they became comfortable with France, the Netherlands and Germany and then the rest of Europe.

Now, with the exception of Russia and countries directly aligned with it, I pretty much go wherever. But the threat remains out there, there’s still that “criminal investigation.”

Now that Russia’s pulled out of the Energy Charter Treaty altogether, are there any protections for foreign investors in the Russian energy sector?

There are various bilateral investment treaties, so anybody who invests from a country with such a treaty with Russia will have whatever protection that particular bilateral investment treaty contains. I wouldn’t say they’re all different, but there are a number of different versions and some are stronger than others. None are as strong as the Energy Charter Treaty. That was the best protection mechanism for investors; it was a very pro-investor treaty which, now that its circumstances have changed, Russia is eager to point out.

And of course, although Russia has left the treaty, anyone who invested there before October 19, 2009, is protected for a further 20 years.

For investors in less strategic sectors, is Russia still a safe place to do business?

I don’t think it’s any less safe than it was. I mean, IKEA have had their troubles. I think anybody who is big and successful is at risk of corruption. It’s a very corrupt country according to everything that you read.

I’m sure that there’s money to be made by people who don’t get their heads too high above the ramparts, who have a local partner who can deal with local problems and are willing to keep their heads down. But until there is a move away from this corruption it’s never going to be a safe place to do business.

So what advice would you offer an investor considering Russia?

You need to accept that you can’t control, you need to be a minority. And if you’re going into the energy sector, you need to go in from the country with the best bilateral investment treaty you can find.

Personally, I wouldn’t do it. But there are huge resources there that have got to be exploited, and Russia can’t do it on its own.