#14 - JRL 9099 - JRL Home
Subject: RE: 9098-Subsoil Law
Date: Mon, 21 Mar 2005
From: "Andrei Liakhov" <andrei.liakhov@nortonrose.com>

Re. Adam Landes - Subsoil Law

The draft law does not contain restrictions on foreign ownership per se (see draft dated 5 March as published) but Art.60 of the draft allows the organisers of auctions (i.e. the Ministry of Natural Resources (MPR)) to set up auction rules inter alia in relation to bidders. Trutnev stated on more than one occasion that it will be his Ministry's policy to restrict bidders for strategic deposits to over 51% Russian owned companies, presumably on the basis of this right. However nothing in the law or indeed in the policy statements from the MPR officials suggests that foreigners will not be allowed to buy these rights on, e.g. secondary market or acquire controlling stakes from the winning bidders.

Thus, much of the current publicity around this issue seems to be much ado about nothing for everybody who actually reads the published draft (MPR's website in section titled "documents" rather than speculating on the basis of what other commentators THINK the law says.

What all commentators seem to miss in the cloud of speculation about access to strategic deposits is that for the first time the draft allows unincorporated consortiums with, in theory (as definition of the group of persons used by the Anti-Monopoly Law is exceptionally wide), exclusively foreign participants to bid for the licences. This will provide oil majors quite an advantage over any SPVs as consortium members will be able to bid with their Group balance sheets, rather than quite limited balance sheet of an SPV.

The draft is a much better version of the draft presented to the Government on the 31 January, but there is still quite a long road for it to develop into a working law. Much will depend on how exactly the MPR ill apply its quite wide powers of auction organisers.