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. Last Updated: 07/27/2016

Subsoil Law in Deep Trouble

For MTSenator Viktor Orlov
The bill on subsoil resources is very unlikely to be approved before summer and it is far from certain that it will become law at all this year, a senior natural resources official said Tuesday.

In its present form, the bill addresses only six out of 40 factors that hold back the development of subsoil exploration and mining in Russia and deter investors, and it needs further work, Viktor Orlov, head of the Federation Council's committee on natural resources and environmental protection, said at an international forum on mineral resources in Moscow.

"The main problems in mining and exploration will not be resolved by the current [wording of the] legislation, which we have sent back for reworking," Orlov said.

Bills must be approved by the Federation Council after each of their three readings in the State Duma, and are then signed into law by President Vladimir Putin. The subsoil bill -- which has been in the works since at least 2001 -- was presented before the Duma last June but failed to pass first reading due to opposition, including from regional governments.

Natural Resources Minister Yury Trutnev said last December that he would push for the law to be adopted in the second half of 2006.

The subsoil law should not only deal with the distribution of mining licenses but also aim to stimulate more effective use of subsoil resources, an objective the current draft fails to achieve, Orlov said.

Russia's unified tax grade for all deposits and lack of legislation encouraging the activities of small and mid-size mining enterprises discourage companies from fully exploiting their deposits or taking on less lucrative projects, Yevgeny Melekhin, professor at the Moscow University for Geological Exploration, said at the forum. "The tax system makes the development of less lucrative deposits unprofitable," he said.

Trutnev said in December that the law would tackle issues such as the provision of more administrative freedom for the sector, a graded tax system for oil exploration and clear rules on which deposits would be labeled strategic, meaning foreign investors' access would be limited.

However, restrictions on strategic deposits are not Russia's biggest problem in attracting foreign investors, said Anton Yelistratov, an associate at Macleod Dixon, a law firm catering mainly to foreign clients in the mining and natural resources sectors.

Limitations on investment in strategic assets do not worry foreign companies if the rules are concise, clearly grounded and justified by national security concerns, Yelistratov said at the forum. What worries investors more is the general lack of clarity in Russian business rules and the dearth of guarantees that their investments will be liquid, he said.

"Foreign investors are first of all looking for stability. They want to know that in 20 to 50 years time they will still be able to mine their deposits under the same conditions," Yelistratov said.

Russia plans to conduct 1,400 tenders for licenses to develop mineral deposits in 2006, Vladimir Bavlov, deputy head of the Natural Resources Service, said Tuesday.