Strategic Industries Law Update

On Monday, the Commission on Foreign Investment met for the last time this year and for the fifth time since the Strategic Industries Law’s passage in April 2008.  At the meeting, the Commission considered 15 proposed transactions.  Significantly, the Commission did not consider Basic Element’s proposed acquisition of Russneft.  Note that this is the fifth time the Commission has failed to consider this deal.  FAS Head Igor Artemyev stated that the reason was due to a “lack of clarity” surrounding the deal.  This is all the more surprising since Artemyev previously stated with certainty that the Russneft purchase would be decided on at the December meeting.

The Commission also denied the application of three Canadians (apparently just some dudes) to acquire Darasunskiy Rudnik from Yuzhuralzoloto.  Darasunskiy is the biggest gold mine in the Zabaikalskoe region.  More on this denial here.

In his remarks at the meeting, PM Putin stated that in 2009 Russia received approximately $35 billion in foreign direct investment (FDI), which he claimed is “not a bad result in the context of a global financial and economic crisis.”  The level of FDI can be compared to $27 billion in both 2007 and 2008.  I find Putin’s number hard to believe.  According to the Federal Government Statistics Service, there was approximately $10 billion of FDI from January – September 2009.  In fact, Putin claimed that the $35 billion in FDI was from the same time period (i.e., Jan – Sept), so the discrepancy couldn’t have resulted from an end of the year jolt in activity.  Also, the Federal Statistics Service has previously been criticized for using methodologies that overstate foreign investment levels in general and FDI in particular.  It will be interesting to see whether the statistics service revises its numbers when it releases its final report on foreign investment for 2009.     

Finally, the final Commission meeting coincided with news that the Strategic Industries Law will be modified in the near future, possibly January.  The Russian government is promising to coordinate the changes in the law with foreign investors.  I think this statement should be taken with a grain of salt based on recent history.  When the Strategic Industries Law was between its first and second readings, many of the changes advocated by foreign investor groups mysteriously disappeared without explanation.  It will be interesting to see whether the changed economic environment modifies the behavior of Russian law makers.  At the very least, they are promising that the law’s coverage will not be expanded. 

Here is a list of deals approved at the meeting.  I will update as more information is released:

As always, here is video of Putin’s opening remarks at the meeting:


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