Russia moves forward on foreign investment law

Int’l Relations

Russia moved a step closer on Thursday to passing a key law on foreign investment in strategic industries that has been eagerly awaited by investors seeking clarity, on what they can and cannot buy.

A parliamentary committee responsible for preparing the law approved a new draft ahead of a second reading on March 19 and rebuffed last-minute efforts by industry lobbyists to alter the text, already agreed with President Vladimir Putin. “This is a political decision. You know very well, which doors to knock on if you want anything changed,” the head of the Duma lower house of parliament’s land and construction committee Martin Shakkum told lobbyists. A renewed effort to push the new rules through the Russian legislature comes only days after Dmitry Medvedev, Putin’s ally, won the presidential election. Putin is expected to step down in May but has vowed to stay on as Prime Minister.

Putin’s economy guru and Finance Minister Alexei Kudrin said in January that Russia should change its hawkish foreign policy and seek more foreign investment amid the prospects of a shrinking current account and budget surpluses under Medvedev. The lower house of parliament approved the draft in the first reading last September, over two years after Putin’s initial order, but a further hearing was delayed amid a tussle between key ministries and security agencies. Under Putin’s eight-year rule the state regained control over the lucrative energy sector, often at the expense of foreign companies, and largely ignored Western criticism of property rights violation.

Seek permission

The idea of a law capping foreign investments had been initially perceived as a continuation of these policies, though many investors have changed their minds and said a tough law will be better than none at all. The new draft, obtained by Reuters, extends the list of sectors where foreign investment will be restricted to 43, up from 39 in the older draft. It will also affect electronic mass media, fishing industries, Internet providers and publishing houses. An original list of strategic sectors included nuclear energy, natural monopolies, exploration of strategic mineral deposits, aviation, space as well as other defense-sensitive industries. The draft law bans firms controlled by foreign governments from seeking control over Russian companies and requires other foreign firms to seek permission from a government committee if they wish to take a stake over 50% of equity in a Russian firm.

The lawmakers also approved amendments to the existing subsoil law, defining recoverable deposits of over 70 million tons of crude, 50 billion cubic meters of natural gas, 50 tons of gold and 500,000 tons of copper as strategic. The law would require a foreign firm to seek permission, before acquiring more than 10% of the equity in a firm exploring a strategic deposit. The law will not affect deals concluded before it goes into force, but makes it mandatory for foreign firms to notify the authorities about stakes above 5% in Russian businesses. Officials involved in drafting the law met Putin this week and the version approved by the Duma committee is set to go to a second reading without any delays. The third reading is largely technical. (Reuters)

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