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. Last Updated: 07/27/2016

Deputies Approve Draft Law on Investment

Parliament on Wednesday adopted a draft law aimed at clearing up the confusion surrounding foreign investment in Russia.


In a 141 to 2 vote, the Supreme Soviet gave preliminary approval to a law regulating foreign investment contracts and investment tenders that guarantees foreigners equal rights to Russian bidders in investment tenders and makes clear who can and who cannot sign contracts with foreigners.


Foreign businesses, particularly oil companies, have been reluctant to sink money in exploration projects in Russia because of a lack of regulations guaranteeing their investments.


Several foreign investors here have seen their projects bogged down in disputes between regional and federal governments, rapidly changing legislation and disagreement's between partners on what precisely the contracts mean.


"To the extent that it makes the players clear, it will encourage foreign investment", said Daniel Wolfe, an attorney at the law firm Clifford Chance.


Parliament ordered local governments to draw up lists of projects available for foreign investment in order to end confusion over who had the decision power over awarding such contracts.


It ordered the federal government to draw up such a list, before Aug. 1. The legislation also clarified the tender procedure and the components a foreign investment contract should have to be legal.


Parliament is expected to vote on the law again later on this year after President Boris Yeltsin has read it and has suggested any possible amendments.


The author of the law, pro-reform legislator Leonid Gurevich, said the law would serve as a long-needed guide to foreign investors on what they can invest in, how and with whom.


Gurevich said that, because of the absence of this law, several major agreements on the development of Russia's natural resources had become entangled in contract disputes.


Wolfe said his firm had advised clients, particularly companies exploiting natural resources in Russia, to sign agreements with both the federal and the local government because it was rarely clear who owned the investment object.


Although parliament is rarely favorable to foreign investors, it did pass an amendment to the draft law that specifically guarantees foreigners equal rights in tenders for investment objects.


Wolfe said that, in some recent tenders, Russian bidders had been informed of the conditions well before their foreign competitors, giving them an unfair advantage.


"Foreign investors do not really need advantages", he said. "Everybody just needs a stable regime to be able to work".


Gurevich said he had shown the law to foreign oil companies in London and had gotten their approval of the law. Gess Laving, chief representative in Moscow for British Petroleum, confirmed that oil industries had looked at the law. He declined to comment, however, until he had seen the final version.


In a series of amendments, legislators sharpened articles in the law that require investors to live up to environmental legislation, and to protect indigenous populations from any damage that may be caused by investment projects.


Northern peoples have protested against oil exploration projects, fearing it could ruin their reindeer business by spoiling the tundras.


The draft law orders partners to define production sharing, a sore point in several existing deals, and states that foreign investors can be forced to sell part of the production resulting from their investment on the Russian market.


As before, the federal government cannot sign agreements with foreign investors without approval from the local government in the region in which the investment takes place. Even the city councils of Moscow and St. Petersburg can block such projects.