Foreign Investments into Russia’s Strategic Sectors

1. Foreign Investments into Russia’s Strategic Sectors Way to Projects Implementation

2. Basic concept and goals of the law The law contains restrictions related to the basic requirement to maintain the assets that are of strategic value for Russia’s national security in the property of Russian private businessmen (physical persons) and legal entities. The law targets two goals. On the one hand, it has to ensure protection of Russia’s national interests. On the other hand, it should facilitate the formation of predictable and transparent business climate for foreign investors in Russia.

3. What deals should be approved by the authorities in accordance with the Russian law? • The first criterion: whether the performance of a Russian enterprise is strategic for the national security; • The second criterion:whether the deal leads to a situation when a foreign investor establishes control over the company.

4. Important differentiation Differentiation between mining companies, on the one hand, and other strategic enterprises, on the other hand: • Restrictions regarding companies controlling subsoil fields of federal importance are tougher than for other strategic enterprises. Differentiation between private foreign investors, on the one hand, and foreign investors controlled by foreign states, on the other hand: • Restrictions regarding investors controlled by foreign states are tougher than for private foreign investors.

5. Lobbying in the development of a draft law Russian law on foreign investments into strategic enterprises was developed and adopted under the influence of different lobbyists. Its wordings result from the interaction of power clans in the Federal Security Service (FSB), the Presidential Administration, the Federal Antimonopoly Service (FAS), the Ministry of Telecom and Mass Communications, the Ministry of Industry and Energy, Gazprom, RAO UES and some other. The main struggle was taking place between the FSB and the FAS for the role of the key regulator. The FAS managed to get this role, however, in accordance with the law, the FSB is also actively involved into decision-making on foreign investments.

6. Regulatory bodies Several departments and interdepartmental commissions are involved into decision-making on approval of the deals. The Federal Antimonopoly Service (FAS) functions on a “one stop“ principle processing requests from foreign investors. It engages the FSB and the Interdepartmental Commission for Protection of State Secrets to the audit of strategic enterprises. The decision on approval of the deal is adopted by the Governmental Commission on Foreign InvestmentsControlon the basis of the audit.

7. Regulators: the FAS After FAS was appointed the authorised regulator for control over foreign investments, the Department for Control over Foreign Investments was created in the FAS.The department was headed by Svetlana Levchenko, ex-deputy head of the Department for the State Service and Control over Government Agencies(before this post she had been the head of the Perm division of the FAS).

8. Regulators: Interdepartmental Commission for Protection of State Secrets The Interdepartmental Commission may also include first deputy heads of the following: • The Staff Council of Federation; • The Staff of the State Duma; • The Supreme Court; • The Presidential Administration; • The Government’s Staff; • The Public Prosecutor General office. The Commission for Protection of State Secrets functions primarily on the basis of the Federal Service for Technological and Export Control (FSTEK). The Chair of the Commission and his two deputies are appointed by the President of the RF. At present the Commission is headed by Director of the Federal Service for Technological and Export ControlSergei Grigorov.

9. Regulators: the FSB On the request from the FAS, the FSB has to determine within 20 days whether the deal can breach Russia’s national security. In spite of the fact that the FSB has the mechanism for blocking of the deal on the auditing stage, the final decision is taken by the Governmental Commission.

10. Regulators: Governmental Commission On obtaining conclusions from the FSB and the Commission for Protection of the State Secrets, the FAS submits the results of the audit to the Governmental Commission for Control over Foreign Investments. The heads of the Commission are the following persons: Vladimir Putin, Chairman of the Government of the Russian Federation (Chair of the Commission) Igor Shuvalov, First Deputy Chair of the Government of the Russian Federation (Deputy Chair of the Commission) Igor Artemyev,head of the FAS of Russia (Executive Secretary of the Commission)

11. Regulators: Governmental Commission The Commission also comprises the following persons: • Alexander Bortnikov, Director of the FSB • Sergei Grigorov, Director of the Federal Service for Technological and Export Control • Sergei Ivanov,Deputy Chair of the Government • SergeiKiryenko, General Director of the State Nuclear Energy Corporation Rosatom • Alexander Konovalov,Minister of Justice • Elvira Nabiullina, Minister of Economic Development • Anatoly Perminov,head of the Federal State Agency Roskosmos • Anatoly Serdyukov,Defence Minister • Igor Sechin,Deputy Chairman of the Government • Anton Siluanov, Deputy Finance Minister • Sergei Sobyanin,Deputy Chair of the Government, head of the Apparat of the Government • Yuri Trutnev,Minister of Natural Resources and Ecology • Viktor Khristenko,Minister of Industry and Trade • Sergei Shmatko,Energy Minister • Igor Schegolev, Minister of Telecom and Mass Communications

12. Decision-making by the Commission Within 30 days from receiving the results of the audit the Governmental Commission should adopt a decision based on the results of the audit. This can be a decision on the following: • On preliminary approval of the deal; • On refusal to approve the deal; • On approval of the deal provided the foreign investor undertakes a number of obligations.

13. What obligations the Commission may demand from the investor? Such obligations may be as follows: • Maintenance of works on the state defense order; • Mandatory implementation of the submitted business plan; • Maintenance of the number of employees at the enterprise within a determined period … and a number of other obligations of the same type

14. Control over implementation of obligations The FAS and the FSB jointly control implementation of the obligations by the foreign investor. According to the law, gross violation or multiple-case violation of obligations leads to legal enforcement in divesting the foreign investor of the right to vote at shareholders meetings. The court may also obligate the investor to redeem the losses arising out of his failure to fulfill his obligations.

15. What matters - Understanding of the environment - Ability to predict governmental actions • Ability to communicate with the government and government-related institutions • Potential to make your agenda a part of the public agenda • Capability to react promptly in case of crisis • Ability to demonstrate innovations • Ability to imitate the language 15

16. CROS: Formats of supporting the investors • There are several basic formats of rendering support to foreign investors in the projects falling under this law: • Provision of data on the previous experience in implementation of such projects; • Development of a “GR-map” describing all the stages of the project; • Facilitation of development of contacts and long-term relationships with the regulators; • Influencing the regulators via the broadcasters – the experts community and Russian participants of the project; • Organizing the presence of investors in important public institutions • Providing of positive media coverage around the project targeting the state bodies.

17. Work streams of CROS at different stages of obtaining approval for the deal • Generalization of experience on previous deals • Consultation on the legal norms of the law Definition whether the deal is subject to approval CROS: • Development of a GR-map • Creation of positive media coverage • Initiation of experts’ support for the case Submitting an application on approval CROS: КРОС: • Establishing contacts with regulators • Coopetration with broadcasters • Creation of positive media coverage Examination and optimization of the application CROS: Decision of the Governmental Commission 17

18. Experience in implementation of the same type of projects • Study of the experience of obtaining approvals for the same type of projects; • Use of both open and closed sources for understanding of the environments; • Development of a detailed analytical survey containing definite examples; • Emphasis on errors and lost opportunities; • Development of general recommendations on the ways of getting approval for the project from the regulators.

19. Development and maintenance of a GR-map A GR-map represents a unique product demonstrating to the investor the whole way of obtaining approval for the project and contains the following: • Detailed description of the regulatory bodies for a the project; • Step by step description of movement in obtaining approval for the project; • Recommendations on the formats of interaction with each of the regulators; • Opportunities for influencing regulators’ attitudes; A GR-map is maintained and updated throughout the whole period of obtaining approval for the project.

20. Relationships with regulators • Definition of the key persons in the regulatory bodies for a definite project; • Facilitation of direct contact with the key persons and structures; • Facilitation in maintaining steady relationships with the regulators throughout the whole period of obtaining approval for the project; • Regular provision of information on regulators’ moods and expectations on the project; • Creation of additional channels for providing information on the results and advantages of the project directly to the regulator.

21. Initiation of experts support Selection of potentially vital experts, creation of standing relationship with them; Examination of potential platforms for experts’ support; Membership and participation in crucial public and industry institutions; Presentation of the projects at selected platforms; Sponsorship of targeted research projects.

22. Cooperation with broadcasters • The expert community influences regulators via public assessments and non-public detailed conclusions on the project; • Russian partners influence the regulators via the established systems of direct contacts; • Public and civil institutions interested in realisation of the project influence the regulator via public speeches. We interact with those three groups so that to ensure their positive attitude to the project and support.

23. Positive media coverage • Provision of informational openness of the project as far as this does not clash with investor’s interests and the law; • Formation of positive interest of the mass media to the project and the investor; • Formation of a continuous positive media coverage of the project; • Use of formats that are considered to be best fitting for the regulator; • Facilitation in the formation of regulators’ positive attitude to the project via informational activity.