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. Last Updated: 07/27/2016

Strategic Sectors Bill Off Until 2008

Itar-TassKhristenko said Thursday that the government did not have enough time to pass the strategic sectors bill this year.
The government has delayed legislation that would define the country's strategic economic sectors and set the rules for foreign investment there until next year, Industry and Energy Minister Viktor Khristenko said Thursday.

Among reasons for the delay are new proposals from the security services to designate more industries as strategic, made since the Cabinet shake-up in September. The government also decided to package the bill with proposals, yet to be completed, to govern foreign investment into the development of natural reserves.

"We don't have enough time to do it this year, although the document has a high degree of readiness," Khristenko told reporters after a Cabinet session.

Martin Shakkum, chairman of the State Duma industry committee that oversees the bill, said the legislature would come back to the issue next spring. The Duma gave preliminary approval to the legislation in September.

The delay of the bill, which governs foreign investment into strategic industries, could put big deals on ice and make new entrants hold off, investors warned.

"I am surprised. ... We expected the second and third reading to happen pretty quickly," said Andrew Somers, president of the American Chamber of Commerce. "What we are looking for is clarity of the rules of the game and the sooner the clarity, the better."

The Duma had scheduled to give the bill a crucial second reading Friday but the Duma Council, which draws up the chamber's agenda, on Tuesday postponed the debate indefinitely.

Since President Vladimir Putin ordered the bill in 2005 to clarify investment rules, the government has been trying to reconcile reformist views from some ministers with a more restrictive approach from the Federal Security Service. The government appeared to have reached a compromise when it submitted the bill in July, but Shakkum said Thursday that the controversy resumed after the Cabinet reshuffle.

Under the bill, a state commission could reject requests from foreign investors to buy control of Russian companies operating in 39 specific industries that involve dealing with state secrets, military equipment and other sensitive products. The bill would prohibit companies controlled by foreign governments from buying more than a blocking stake in a strategic company.

"There are proposals to extend [the list of strategic industries] and objections to these proposals," Shakkum said.

Exactly what constitutes control over a company also remains to be hammered out, he said. "We believe a lot of the legal and technical phrases require additional work," he said. Some of the suggestions come from the "special agencies," he said without elaborating.

Khristenko said the government had to draw up amendments to the subsoil bill, which would govern foreign investment into the lucrative energy sector, before the strategic sectors bill could go forward, Interfax reported.

Natural Resources Minister Yury Trutnev said Oct. 25 that his ministry or a group of Duma deputies would submit the long-delayed amendments the following week, but there were no reports as of Thursday that it had happened. Ministry spokesman Rinat Gizatulin was unavailable for comment Thursday.

Somers endorsed the idea of passing the bills together. "The only concern I have is that the amendments to the subsoil law have taken forever," he said. "There's been hundreds of drafts."

Foreign investors shouldn't worry about the delay with the strategic sectors bill, Somers said. "I think there's enough momentum in the government and enough public statements that they are going to pass this law in the relatively near future."