Actuality February 27, 2008

   The new order of foreign investors' admission to the strategic deposits can be put into effect already in 2008 by amendments in the Natural Resources act, declared the representatives of the Ministry of Industry and Energy. The act about foreign investments' restriction into strategic industries of economy, as assumed, will come

into effect only from January 1, 2009. The last versions of bill drafts, which will be con sider

ed by the State Duma on March, 19, nevertheless, suppose harsh restriction on the foreign participation in the capital of companies engaged in strategic deposits' development.

   The future of bill drafts restricting foreign investments in strategic industries will be decided in the near time.

As Vladimir Taraskin declared, one of the document authors, director of legal department of the Ministry of Industry and Energy, it is more credible that the last working version of the bill draft that is now in the committee of the State Duma for construction and land relations will be approved on the meeting of the State Duma on March. According to him, some substantial amendments will be required in case if the appropriate political decision

will be taken after the presidential elections.

   The last version of bill draft prepared to the second reading extends the list of strategic companies due to fishing, electronic mass media and also consumers of natural resources, workings on

strategic deposits, including the shelf. Approval of the governmental commission will be required at the purchase by a foreign investor more than 50% stocks of the strategic company or more than 25%, if a buyer is a company with the state participation. The restrictions are harsher for the extractive companies: one should coordinate the purchase of more than 10% stocks and more than 5%, if a buyer is a company with the state participation. According to Mr. Taraskin, the head of the Ministry of Industry and Energy Yurij Trutnev insisted that amendments in the Natural Resources and Shelf acts were put into effect after the official publication.

The act about foreign investments' restricti on into strategic industries will come

into effect on January 1, 2009.

   We will remind that works of "The order of effectuation of foreign investments into commercial organizations having the strategic value for the national security of Russia" act were conducted in the Ministry of Industry and Energy since 2005.

In 2007 the bill draft was introduced to the State Duma and passed the first reading. It was assumed that it would come into effect at the end of 2007. However, departments did not manage to coordinate the order of investors' admission to strategic industries with introduction of amendments in the Natural Resources act that gave determination of strategic deposits.

Consideration of the bill draft was postponed till 2008, the committee of the State Duma for construction and land relations at the head of Martin Shakkum was appointed responsible for revision.

The bill draft included the list of 39 strategic types of activities in such industries, as production of armaments and special equipment, space, aviation, nuclear industries etc. It was assumed, that only more than 50% stocks of the strategic company acquired by the foreign investor will be coordinated in the governmental commission.

   However, as Yurij Lyubimov explained, the counselor of the head of the Ministry of Economic Development and Trade (MERT), the representatives of MERT and administration of the president insisted on introduction of "floating control" criterion. In their opinion, all transactions should be coordinated, as a result of which a foreign investor gains control over a strategic company regardless of size of the acquired stockholding.

In the end the bill draft includes both approaches. To protect portfolio investors, buying the minimum stockholdings on a stock exchange and not pretending to control, the authors of the bill draft specified, that acquisition less than 10% stocks is not considered the control establishment and is not subject to coordination (this exception does not reach the raw material companies). If an investor pretends to an intermediate package, according to Mr.

Lyubimov, so, he has to request the authorized body, whether such transaction will be considered the control establishment.

   The representatives of investors are not satisfied with the bill draft. As Alex Stolarsky declared, the deputy head of legislative comm ittee of the European Business Association and the lawyer of Be

iten Burkhardt company, there is no clear determination of control over a company in the bill draft, it is not said what an investor should do, if he acquires the stocks of a company, which subsidiary or lower-tier subsidiary is a strategic company. He marked also, that at the preparation of the bill draft to the second reading disappeared terms restrictions: earlier the transaction was considered coordinated, if the authorized body did not give an answer within six months; now there is no such norm. In the committee of the State Duma for construction and land relations reported that there is no final version of the bill draft yet. There are only some amendments in the bill draft, introduced by Martin Shakkum and other deputies.

Amendments are studied by the working group and coordinated with the concerned departments; however, the decision to recommend them to approval will be taken on the meet ing of the committee in the middle of March – already after presidential elections.

   The president will probably become Dmitry Medvedev who is the most liberal politician.

It is not eliminated that bill drafts restricting the foreign investments in strategic industries will be corrected to the liberal side.