Chinese investors claim $3.5b compensation from Ukraine over Motor Sich deal

Source: Global Times Published: 2020/12/9 20:38:40

Workers at an industrial park for equipment and engineering vehicles in Zhangjiakou, North China's Hebei Province, work on a tight schedule to complete order backlogs. Chinese exports jumped 21.1 percent year-on-year to a record high of $268 billion in November, customs data showed on Monday. Photo: cnsphoto

After experiencing what they said was continuous obstruction by Ukrainian authorities on a purchase proposal, Chinese investors in engine maker Motor Sich have sought international arbitration against Ukraine with a demand for compensation of $3.5 billion, under an intergovernmental agreement on mutual protection of investments.

Analysts said that Ukraine may make a decision under pressure from the US and is highly likely to cite the so-called reason of safeguarding national security. 

It is likely for the Ukraine authorities to cite security reasons so as to legalize the halt of the acquisition proposal, but the final verdict is very uncertain, Liao Shiping, a professor at Beijing Normal University, told the Global Times on Wednesday. 

After considering the costs of launching a lawsuit, the chances of victory, the difficulty of enforcement and to what extent can the lawsuit make up the loss, the Chinese company made the final decision to sue the Ukrainian government, Liao said, noting that such behavior is uncommon among Chinese companies investing overseas. 

On Saturday, Chinese investors in Motor Sich sent the Ukrainian government an appeal for international arbitration, in accordance with the Agreement on the Encouragement and Mutual Protection of Investments concluded between China and Ukraine, according to a statement by Ukrainian privately owned conglomerate DCH, partner of China-backed firm Skyrizon Aircraft Holdings. 

The Chinese company holds between 50 and 80 percent of Motor Sich, said media reports.

Motor Sich, which was established in 1907, makes turboprops, turbofans and turboshafts, and it works closely with Ukraine's Ivchenko-Progress design bureau, industry media Flight Global said.

Expecting to push forward the review work, Skyrizon joined with DCH, which is involved in the Ukrainian finance, heavy industry, construction and transportation sectors. DCH President Alexander Yaroslavsky is also one of Ukraine's wealthiest men.

If Kiev had approved the deal, DCH would control over 25 percent of Motor Sich's shares and Skyrizon an unclear amount, Flight Global reported.

The purchase proposal attracted scrutiny from Washington. In late August, US Secretary of State Mike Pompeo raised the issue in a phone call with Ukrainian President Volodymyr Zelensky, according to media reports.

Reports said facing US pressure and seeking to protect Ukrainian economic interests, Ukraine's State Antimonopoly Committee withheld approval of DCH's purchase of 25 percent of the aerospace group Motor Sich, which is of strategic significance in the country's aerospace industry. 

On November 26, Yaroslavsky said in a statement published on DCH's website that over the past four years, the Chinese investors in Motor Sich had not been able to exercise their rights as the shareholders, as the Ukrainian authorities violated a bilateral investment agreement dating back to 1992, and they saw no prospect of any fair resolution in the Ukrainian legal environment.

 "Today, Motor Sich JSC is one of the largest enterprises in one of the largest Ukrainian cities, but it actually stands idle without sales markets or any investments in modernization. It is losing unique experts and putting employees on forced leave," he said, adding Motor Sich and the Ukrainian aircraft industry as a whole deserve a better fate than a slow death due to a lack of funds and technological obsolescence. 


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