Statement by Liglass Trading CZ s.r.o. on current situation in Kyrgyzstan

The company Liglass Trading CZ s.r.o. releases this press statement in order to clarify the current situation on construction of Akbulun and Naryn hydroelectric power plants in the Upper-Naryn cascades in the Kyrgyz republic and ten small hydropower plants in the Kyrgyz Republic according to the public tender won by the Liglass Trading CZ s.r.o.
 

Prague, September 19th, 2017
 
 
Statement by Liglass Trading CZ s.r.o. on current situation in Kyrgyzstan
 
 
The company Liglass Trading CZ s.r.o. releases this press statement in order to clarify the current situation on construction of Akbulun and Naryn hydroelectric power plants in the Upper-Naryn cascades in the Kyrgyz republic and ten small hydropower plants in the Kyrgyz Republic according to the public tender won by the Liglass Trading CZ s.r.o.
 
Liglass Trading CZ s.r.o. has not executed the planned payment of USD 37,000,000 to the Kyrgyz side yet, due to the following reasons:
 
1. Despite several written requests, the Government of the Kyrgyz Republic (“Kyrgyz Government”) unlawfully withholds a refundable guarantee of USD 1,147,720 belonging to Liglass Trading CZ s.r.o. The Government was obliged to return to the refundable guarantee no later than August 11th, 2017.
 
2. The Kyrgyz Government concealed a serious impediment to execution of the project regarding unsettled relations with the previous investor RusHydro. The Kyrgyz Government exposed any future investments in the project to risk of loss due to already announced arbitrations against the Kyrgyz Republic by RusHydro.
 
3. The Kyrgyz Government breached the investment agreements by failing to take measures to mitigate negative effects of the ongoing force majeure and failing to protect critical confidential information which resulted in severe interruptions in performance of Liglass Trading CZ s.r.o. The Kyrgyz Government representatives did not even attend to the planned negotiations in order to resolve the situation.
 
As the company Liglass Trading CZ s.r.o. was obliged by the business judgement rule and its duty of care under these dangerous circumstances, it has decided to suspend the scheduled payment of USD 37,000,000 in order to protect its own investments and investments of its partners from any possible unlawful detainment. However, Liglass Trading CZ s.r.o. still abstained from any hasty decision of withdrawal from the investment agreements.
 
 
 
Detailed explanation of the grounds for suspension of the payment:
 
 
Ad 1) Unlawful detention of financial guarantee
 
Liglass Trading CZ s.r.o. dispatched three written requests dated as of August 11th, 2017, August 17th, 2017 and September 14th 2017 for release of the financial guarantee of USD 1,147,720, transferred to the Kyrgyz Republic for the purpose of participation in a public tender for construction of ten small hydropower plants in the Kyrgyz Republic.
 
The conditions for release of the deposited guarantee have long been fulfilled and the Kyrgyz Government's obligation to return the guarantee to Liglass Trading CZ s.r.o. was due on August 11th, 2017. The Kyrgyz Government apparently succumbed to media pressure and withheld the financial guarantee without any legal grounds or even explanation.
 
These actions constitute a flagrant violation of the Kyrgyz Government Resolution No. 175 of March 24th, 2017, in which the company Liglass Trading CZ s.r.o. was expressly asserted that the financial guarantee will be repaid within the set deadline.
 
Release of the financial guarantee was reaffirmed in the official letter of the State Committee on Industry, Energy and Mineral Resources of the Kyrgyz Republic dated as of May 25th, 2017.
 
It is striking that, despite the official declarations of the Kyrgyz Government representatives and fulfillment of all conditions for the return of the financial guarantee, the Kyrgyz Government has still not returned the financial guarantee of USD 1,147,720 to the Liglass Trading CZ s.r.o.!
 
This fundamental breach of commitments of the Kyrgyz Government indicated an important warning signal not only for the company Liglass Trading CZ s.r.o., but also for any potential foreign investors in the Kyrgyz Republic in the future, that even the official guarantees of the highest state authorities are not sufficient enough to guarantee actual performance of undisputed obligations of the Kyrgyz Republic. Unfortunately, prior concerns of Liglass Trading CZ s.r.o. regarding overall safety of investments, which relies on correct behavior and proper performance of investment contracts and legal obligations by the other party, proved to be justified.
 
 
Ad 2) Unsettled disputes with RusHydro and arbitration risk
 
According to the investment agreements, the expected payment of USD 37,000,000 constituted a purchase price for 50 % of shares currently owned by the previous investor RusHydro in the Kyrgyz joint-stock company Upper-Naryn hydroelectricstations ("GES"), which is a key company designated for the implementation of the Naryn cascade project.
 
However, the Kyrgyz Government misinformed Liglass Trading CZ s.r.o. and concealed the fact that supposed transfer of 50 % of the shares in the GES company has not been mutually agreed with the RusHydro and termination of the former contract with RusHydro is still disputed and will be challenged in arbitration against the Kyrgyz Republic.
 
The former Russian investor RusHydro has already publicly declared that withdrawal from the former investment agreement by the Kyrgyz Government is disputable and RusHydro is not willing to transfer the necessary 50 % of the shares in GES. No rational investor can ignore such legal risk, as it could probably result in loss of entire investments in the project.
 
 
Ad 3) Lack of cooperation of the Kyrgyz Government in resolving of the situation
 
Liglass Trading CZ s.r.o. was exposed to unpredictable pressure of the public media and political activists in the Kyrgyz Republic, who coordinated the disruption of Liglass Trading CZ s.r.o. investment activities, and in particular discouraged its business partners from participating in the project after the results of the tender and conclusion of the investment agreement were disclosed to public.
 
The cause of these attacks and media campaigns resulted primarily from the unstable political situation in the Kyrgyz Republic after the parliamentary elections and the political struggle in the upcoming presidential election in the Kyrgyz Republic.
 
A major part of these interventions was made possible by the negligence of the Kyrgyz Government, which did not prevent the leak of confidential information, such as identity of the international banks that provide banking services to the partners of Liglass Trading CZ s.r.o. The banks involved in the project ceased any cooperation with Liglass Trading CZ s.r.o. and its partners under pressure of false accusations and misinformation fabricated by certain Kyrgyz political activists, in order to prevent any potential risks of damage on their reputation.
 
The company Liglass Trading CZ s.r.o. perceives the situation as a result of the unstable political environment in the Kyrgyz Republic, which puts any investment at serious risk. Acts of these political activists as third parties qualify as a force majeure as defined in the investment agreements. Therefore, the parties were obliged to take every reasonable measure to mitigate the effects of such force majeure. The Kyrgyz Government did not take any measures to counter the detrimental effects of the force majeure or to prevent a leak of confidential information, which has had a serious negative impact on the implementation of the project.
These reasonable concerns about the intention of the Kyrgyz Government to uphold its contractual obligations can only be remedied by providing sufficient guarantees by the Kyrgyz Government, especially its commitment to fulfill its obligations, as well as releasing unlawfully detained financial guarantee amounting to USD 1,147,720 without any delay.
 
The representatives of the Kyrgyz Government, despite repeated requests from Liglass Trading CZ s.r.o. did not take part in the scheduled negotiations in order to find a constructive solution to this crisis situation. Contrary to the assurance of the Deputy Prime Minister on September 17th, 2017 on the necessity of a personal meeting and his urgent invitation for negotiations, and prompt arrival of the representatives of Liglass Trading CZ s.r.o. to the Kyrgyz Republic, the Kyrgyz Government representatives did not even attend the scheduled meeting. Liglass Trading CZ s.r.o. was prepared and determined to negotiate coordinated actions necessary to finish the project.
 
Instead of initiating the expected negotiations on resolving the situation, however, the Kyrgyz Government's high ranked officials unreasonably and prematurely (i.e. before the deadline for transfer of the USD 37,000,000 even expired) publicly declared termination of both investment contracts, which Liglass Trading CZ s.r.o. learned only through the media.
 
Considering the circumstances and the untrustworthy approach of the Kyrgyz Government, the Liglass Trading CZ s.r.o. company has reasonable grounds for avoiding extreme risk of irretrievable loss of additional USD 37,000,000. Following the repeated invitations, the Liglass Trading CZ s.r.o. company continues to expect that the Kyrgyz Government will respond to its calls for mutual negotiations in order to resolve the situation.
 
In spite of all the above, the Liglass Trading CZ s.r.o. company still intends to finish the project. For this reason, the Liglass Trading CZ s.r.o. has once again requested the Kyrgyz Government to join mutual negotiations and resolve the situation in good faith.
 
Michael Smelík,
Director of the company
Liglass Trading CZ s.r.o
 

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