U.S. energy firm Vanco in arbitration with Ukraine

KIEV, July 16 Wed Jul 16, 2008 6:46pm BST

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KIEV, July 16 (Reuters) - U.S. energy company Vanco said on Wednesday it had filed for international arbitration with Ukraine, after the government cancelled a 30-year licence to explore and extract oil and gas in the Black Sea shelf.

Prime Minister Yulia Tymoshenko has said Vanco broke conditions of the agreement, that the company structure was unclear and has voiced concern that it could sell on the licences to Russia's gas export monopoly Gazprom (GAZP.MM).

Vanco has denied the allegations.

"We are committed to Ukraine's energy independence that would be reached through the realisation of this (agreement)," the president of Vanco's unit in Ukraine, Jim Bown, said in a statement.

"We remain open to dialogue with the government of Ukraine to resolve issues ... but have also chosen to pursue our right to protect our investments through the Arbitration Institute of Stockholm," he said. Ukrainian President Viktor Yushchenko, long at odds with his on-off ally Tymoshenko, has sided with Vanco, as has the prosecutor general and the Security and Defence Council, which decides issues affecting national security.

Industry sources have said that within Vanco's company structure in Ukraine lies DTEK, an energy group that is part of the vast empire of firms belonging to Rinat Akhmetov, Ukraine's richest man and a leader in the opposition Regions Party.

Tymoshenko has said the Black Sea shelf should be developed by state energy firm Naftogaz, with potentially a foreign partner who would get a 30-40 percent stake in a production sharing agreement.

Later, Naftogaz suggested that Gazprom could join it in a joint venture to explore and extract in the shelf.

The contract allowed Vanco to explore and extract in the Prykerchensky block - an area of just under 30,000 square km at the northern end of the Black Sea and 13 km offshore.

Vanco had won the initial contract in early 2006 and then spent 18 months in talks about its details and only received the go-ahead last October. It had said it would spend as much as $3 billion in the long term. (Writing by Sabina Zawadzki)

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