The Russian government gave initial approval Wednesday to long-awaited draft legislation restricting foreign companies' access to Russia's natural resource wealth and select Russian industries, Russian news agencies reported.
Over a year in the making, the new rules designate large oil, gas, gold, and
copper deposits as strategic, and place limits on foreign companies' ability to develop them. Draft legislation prepared by the Ministry of Industry and Energy would also restrict access to 40 industries, including the aerospace, nuclear, military sectors and natural monopolies.
Big fields already controlled by foreign companies won't be affected by the legislation, Minister of Natural Resources Yuri Trutnev said Wednesday, the Interfax news agency reported.
The new rules promise to set down in law what has long been de facto state control over natural resources and the country's most important industries.
As high oil prices have filled Russia's coffers with cash, the Kremlin has increasingly asserted its influence over business. State-controlled companies like gas giant OAO Gazprom and oil producer OAO Rosneft which enjoy close relationships with the Kremlin, are seen as having the inside track in the competition to book Russian oil and gas reserves. "This bill will specify that certain major strategic assets will go only to state companies," said Chris Weafer, chief strategist at Moscow's Alfa Bank.
State companies "will then be free to form joint ventures with foreign companies, as long as the state keeps 51% of those assets," Weafer said.
While technically raising the barriers to certain kinds of foreign investment, the proposals are also a response to investors' long-held desire for clear rules of the game. "Though the figure of 40 sectors sounds alarming, we hope it will introduce clarity and transparency into the current process, which relies on informal and indirect pressure on foreign investors," said Goldman Sachs economist Roy MacFarquhar.
Ten oil deposits, each holding more than 70 million metric tons of oil, or about 513 million barrels, are covered by the draft law, Trutnev said. The combined total of those oil fields is 1.376 billion metric tons, or 10.09 billion barrels.
The bill names as strategic 26 natural gas fields with reserves over 50 billion cubic meters, gold deposits over 50 tons, and five copper fields with reserves over 500,000 tons.
Trutnev said so far only one gold field, known as Sukhoi Log, would be labeled strategic.
"The bill will not apply to existing contracts, for instance, those dealing with the Sakhalin fields, where foreign capital is involved," Trutnev told a meeting of the government, according to the Interfax news agency.
Industry and Energy Minister Viktor Khristenko told the Cabinet that the draft law would require that foreigners seeking to acquire a controlling stake in an enterprise or natural resource deposit which the law defines as strategic must apply to an appropriate state body.
Applications would then be approved by a government commission involving Russia's Federal Security Service and the president would have the right of veto in certain cases, Khristenko said.
Weafer said the new rules would not keep foreign companies from acquiring stakes in big natural resources projects, but would restrict them to minority roles.
The new rules may also free up the state to proceed with auctions for big new natural resource deposits, including Sukhoi Log and the Trebs and Titov oil fields in the Russian arctic.
"My opinion is that state companies will get exclusive access to major hydrocarbon assets, and will then be free to form joint ventures (with foreign companies) as long as they keep 51% of those assets."
The government gave itself another month to finalize details on the bills, which are then to be submitted to the Russian lower house of parliament, the State Duma.
(Dow Jones Newswires, 31/01/2007)