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. Last Updated: 07/27/2016

Ministry Drafts Criteria for Strategic Companies

The Industry and Energy Ministry has drafted its definition of strategic Russian companies, determining to which companies foreign investors' access will be restricted, Interfax reported Friday.

Some of the country's largest companies -- including Rosneft, LUKoil, Gazprom, Tatneft, TNK-BP, Surgutneftegaz, Alrosa, Yukos and Norilsk Nickel -- fall under the ministry's definition of strategic enterprises, meaning they are considered key to Russia's national security, a source familiar with the draft told Interfax's Oil News Agency.

"As far as the investment climate is concerned, one of the most important items on the present policymaking agenda is determining the criteria for restricting foreign investment in assets deemed to be 'strategic,'" brokerage UFG said Friday in a research note.

Foreign investors have long complained about the lack of clear rules defining which companies or sectors of the economy are off-limits for them. President Vladimir Putin has asked the Cabinet to submit a bill on restricting foreign participation in Russia's strategic sectors to the State Duma by April.

The Industry and Energy Ministry has declined to comment on its proposal before the Cabinet meets to consider the criteria in March.

The bill's reported criteria for defining "strategic" natural deposits expands the definition developed by the Natural Resources Ministry last year to include companies that already control such deposits, UFG said.

The Natural Resources Ministry believes that only the companies planning to develop strategic deposits in the future, not those already working in the sector, should fall under the restrictions, Natural Resources Ministry spokesman Rinat Gizatulin said Friday.

The Industry and Energy Ministry's bill applies to companies that are already developing or plan to develop uranium or diamond deposits. It also includes companies with oil deposits in excess of 150 million tons, more than 1 trillion cubic meters of gas, more than 700 tons of gold or more than 10 million tons of copper, the source said, Interfax reported.

Foreign investors must obtain permission from the Russian government to purchase a blocking or a controlling stake in strategic companies under the bill, the source said.

Analysts said they welcomed any clarity in the rules for strategic companies as a positive development for Russia's investment climate.

The Industry and Energy Ministry's bill "formalizes an unspoken rule" that all the large deals between key Russian companies and foreigners must get the Kremlin's blessing, said Maxim Shein, head of research at BrokerCreditService.

"For Russia, control over natural resources is a very powerful, and perhaps the only, lever of influence abroad," Shein said.