Putin signs measure limiting foreign access

Clears way for Russia to issue licenses on major fields

Russian President Vladimir Putin has signed into law a long-awaited bill limiting foreign investment in strategic industries, including major oil and gas fields, the Kremlin press office said May 5.

The law, which covers access of foreign investment in 42 sectors of Russia's economy, including the nuclear industry, aviation and space, limits foreign investors' access to major oil and gas fields and deposits, which fall under the category of "strategic reserves."

Hydrocarbon fields with reserves of 70 million mt (511 million barrels) of oil and 50 billion cubic meters of gas are considered "strategic."

The bill, which "has strategic importance for the country's defense and security," was adopted by the State Duma, the lower chamber of Russia's parliament, on April 2 and approved by the upper chamber of the parliament, the Federal Council, on April 16, the Kremlin office said.

Simultaneously with the foreign investment law, Putin signed into law amendments to the subsoil and offshore laws, among other documents, which also were adopted in mid-April.

The foreign investment law prohibits companies with less than 50% Russian ownership from bidding for strategic fields, allowing them to participate only as minority partners.

The government, however, retains the right to take a decision to issue a license to a foreign-controlled company "in separate cases."

Under the law, foreign companies would have to inform Russia's supervising bodies about any plans to buy more than a 5% interest in a company holding a license for a strategic field.

The law is not to be applied to existing projects. It can affect existing projects only if changes in ownership would take place after the law comes into effect, the text of the legislation says.

Russia's natural resources ministry previously clarified that the law's restrictions would not apply to medium or small fields.

The law will come in force in a month after it is officially published by Russia's governmental newspaper, Rossiiskaya Gazeta.

Within six months after the law takes effect, foreign companies that own more than 5% interest in strategic projects must inform Russia's government about their ownership.

Initially, Russia expected to pass a new subsoil law regulating development of strategic fields in 2005, but after authorities failed to agree on the draft law, it was decided to pass a number of separate bills on the issue, including the foreign investment law and amendments to the existing subsoil law, to speed the process.

The approved amendments to the subsoil and offshore laws give the right to develop Russia's offshore reserves only to those companies "which have five-year experience in working offshore Russia and in which the state owns at least 50% interest."

State-run Gazprom and Rosneft, as well as Zarubezhneft, are the only companies that meet the amendments' requirements.

The amendments also suggest that if a foreign company discovers a strategic field, it will have to sell at least a 50% interest in the project to a Russian entity to receive rights to develop the field.

With the adoption of the law and the amendments, Russia's natural resources ministry now can start issuing licenses for a number of major undeveloped fields.

Legislators believe the adoption of the law to be positive for both Russia and foreign investors, as it sets up clear rules.

Created: May 6, 2008

Return to top

Oilgram News brings fast-breaking global petroleum and gas news to your desktop every business day. Its correspondents around the world report on supply and demand trends, corporate news, government actions, exploration, technology, and more. Request more information about Oilgram News or start a subscription.