Strategic Sectors Law Update – First Commission Meeting of 2010

I wrote last month about how this year Russia needs to get serious about its desire to attract more foreign direct investment (FDI), and that the upcoming amendments to the Strategic Sectors Law would be an early test of that commitment.  Today brought various stories which brought this theme even more into relief.

First, statistics on foreign investment into Russia for 2009 were released.  Overall, the level of foreign investment into Russia fell to $41.4 billion according to UNCTAD, and to $54.7 billion according to GOSSTAT.  Using GOSSTAT’s optimistic (wishful?) numbers, the amount of FDI coming into Russia during 2009 was at just under $10 billion.  Compare this to PM Putin’s incredulous statement last December that FDI for 2009 would approach $35 billion. Furthermore, it represents a 50 percent drop from the amount of inward FDI for the same period (Jan.-Sept.) in 2008.

Meanwhile, Pres. Medvedev today again reiterated the Russian government’s commitment to attracting foreign investment.  Trade Minister Nebiullina stated that investment currently accounts for 20 percent of Russian GDP and that their goal is to drive this number up to 30 percent.  And Russia has the most to gain from foreign investment, which is only 3.4 percent of GDP (FDI is a paltry 0.6 percent of GDP).  Finally, Medvedev noted at the same meeting that “Each investment project killed by bureaucracy equals lost revenue and jobs!”  Here is Medvedev at the meeting:


Today, PM Putin chaired the first meeting of the Commission on Foreign Investment for 2010.  On the docket were eight applications submitted by investors from the Netherlands, Belgium, Singapore, Switzerland, and Cyprus.  You don’t have to be an expert to know that all but one of those countries are notorious offshore havens for Russian capital (i.e., these transactions represent nothing more than previously-exported Russian capital returning to the country and should not be counted as FDI).  Interestingly, Putin claimed in his remarks at the meeting that the amount of FDI inflows into Russia during 2009 amounted to $40 billion.  Obviously, as discussed above, this is not true and is more likely the number for total foreign investment or perhaps the total accumulated FDI reserves in the country.  Here is Putin speaking to the Commission:

Here is a running list of the applications reviewed or passed over at the meeting:

    • Merger of Media-1 (Ivan Tavrin) and “AF Media Holding” (Alisher Usmanov) – according to FAS Chief Igor Artemyev, one of the companies is registered offshore and thus the investment was considered “foreign.”  The new company will reportedly be named “UTV Rasha Holding” (ЮТВ Раша Холдинг).
    • Merger of VimpelCom and Kievstar – the two telecom giants – Telenor (Norway) and Alfa Group (Russia) agreed last October to integrate their holdings of these two companies into a unified enterprise, which will reportedly be named VimpelCom Ltd.  News reports state that Alfa Group will control 43.89 percent of the new company while Telenor will hold 35.42 percent. The remaining 20.69 percent will be listed on the NYSE.  VimpelCom Ltd. is registered in Bermuda, with offices in the Netherlands and will be lead by Aleksandr Izosimov.
    • Basic Element Acquisition of Russneft WithdrawnArtemyev stated, “We have finally figured the transaction related to Russneft.”  Well, actually they didn’t.  Deripaska withdrew his application after his application was passed over without a decision at four different meetings last year.  
    • Merger of Turkcell and MegaFon NOT Reviewed – the proposed merger between Turkish telecom Turkcell and Russian telecom MegaFon (МегаФон) was not reviewed purportedly because its application materials were not properly completed.  Artemyev stated that if the two sides are ready, “the necessary materials can be prepared in a month.”  Press reports noted that one of the main opponents to this merger – a genuine FDI deal btw – is Alisher Usmanov…yes, the same Usmanov whose AG Media Holding received approval to merge with Media-1 (discussed above).
    • Merger of Altimo and TeliaSonera NOT Reviewed – this merger between Russian telecom Altimo (of Alfa Group) and Swedish TeliaSonera was put off due to “the need for further consideration of the deal by shareholders,” according to Artemyev.  TeliaSonera is the chief rival of Telenor, which was involved in the merger with another Alfa Group company (discussed above).
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