Strategic Industries Law Update

So guess what – the Governmental Commission tasked with approving investments into Russia’s ‘strategic sectors’ promised to meet in September and it kept its word while cutting it close. The Commission apparently reviewed over ten applications and made decisions on nine. The only applications on which there is public information so far include (I will add more details as they become available):

Itera is a Russian natural gas company and, though I haven’t confirmed this yet, I’m almost positive that it, like Polymetall, had to comply with the law on foreign investment into strategic sectors because its holdings are organized off-shore. This is of course becoming the dominant theme of the strategic industries law’s implementation, not to mention somewhat of an embarrassment to Russia. Indeed, it is ironic that a law intended to oversee the purported flood of foreign capital into Russia is now mostly validating the claim that most of this ‘foreign’ investment is actually the result of domestic roundtripping. This begs the question – if Russians don’t want to keep their capital in Russia, why on earth would foreigners?

As befits Russia, much significance can be drawn from not only what was done during today’s meeting, but also from what was not done. Specifically, the Commission did not review the bid from Oleg Deripaska’s Basic Element to purchase shares in Russneft. Remember that this proposed acquisition was already postponed one time at the meeting in June. Head of the Federal Antimonopoly Service (FAS) Igor Artemev told media outlets that the Russneft transaction was postponed because not all members (Sechin!) of the Commission agree with the transaction. Under the strategic industries law, the Commission’s mandate is to review threats to the national defense and security of Russia that are posed by foreign acquisition of companies in strategic industries. Thus, it’s hard to see on what basis any of the members could oppose the Russneft transaction.

Artemev also said that the Commission had planned to review TNK-BP’s proposed acquisition of shares in Verkhnechonskneftegaz (Вернечонскнефтегаз) from OAO “East-Siberian Gas Company” (Восточно-Сибирской Газовой Компании), but TNK-BP supposedly sent a letter withdrawing its request to the Commission. As I previously wrote, this deal was originally scheduled for review at the February 2009 meeting, but was postponed until the July 2009 meeting, at which it was not reviewed.

On one other strategic industries note, the head of the FAS’ Directorate on Control of Foreign Investment Svetlana Levchenko participated in a meeting hosted by the Association of European Businesses in Russia on September 17. Her useful Power Point presentation (only in Russian), can be found here.

Here is PM Putin at today’s meeting:

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