Subsoil Rules Mulled for Foreign Investors

The government has drawn up rules for foreign investors that will allow them access, under certain conditions, to large deposits of oil, gas, copper and gold.

Under proposals submitted to the State Duma last week on strategic natural resource deposits, foreign investors would be able to buy stakes in companies that produce oil, gas, copper and gold at strategic fields.

But such investors would need permission from a government commission if they wanted to buy 10 percent or more of these companies, according to the bill, a copy of which was obtained by The Moscow Times.

Natural Resources Minister Yury Trutnev unveiled the proposals in December, and they ended up being listed as amendments to a bill seeking to govern foreign investment in industries that are vital for national security.

Current legislation does not stipulate any caps on foreign investment, but in practice the government has not allowed foreign-led companies to take part in auctions for significant deposits.

The amendments would prevent foreign control over these deposits, Natural Resources Ministry spokesman Gennady Gudkov said Tuesday.

Yury Kravchenko, a senior lawyer at law firm Macleod Dixon, which deals with investment projects across various industries, said he did not see a direct ban in the amendments on foreign companies controlling such assets. A final decision on the size of foreign involvement would rest with the government, he said.

A separate raft of amendments submitted to the Duma last week describes what fields would be classed as strategic. In line with previous reports from government officials, fields would fall under this category if they hold more than 70 million tons of oil, 50 billion cubic meters of gas, 50 tons of gold or 500,000 tons of copper, according to a copy of the amendments obtained by The Moscow Times.

The thresholds are quite low, Kravchenko said. "Even medium-level companies look at these rules with concern," he said.

Other strategic fields include all deposits that contain diamonds, uranium, pure quartz, lithium and platinum.

Any deposits on the continental shelf or under inland seas are also classed as strategic, as are deposits whose excavation requires the use of land that is vital for national security and defense.

The definitions were officially introduced by a group of Duma deputies from the Construction and Land Use Committee. They were approved by that committee and await consideration by the full Duma on March 19.

The restrictions are reminiscent of legislation in the United States and Europe, said Alexander Marchenko, a lawyer at LeBoeuf, Lamb, Greene & MacRae, a law firm whose specialty covers natural resources.

Under the bill on strategic investments, foreign investors are exempt from these rules if they want to buy a stake in a state-controlled company such as Gazprom or Rosneft. But even in the case of a state-controlled company, potential investors would need clearance if they represented a foreign government or an international organization, or were controlled by either of these and wanted a stake of more than 25 percent.