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THE FINANCIAL CRISIS IN RUSSIA: RESOURCE NATIONALISM REDEFINED?

THE FINANCIAL CRISIS IN RUSSIA: RESOURCE NATIONALISM REDEFINED?. Aydin Jebrailov Partner CERBA International Mining Conference Toronto, March 8, 2010. Macleod Dixon. International law firm Serving clients via offices on four continents

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THE FINANCIAL CRISIS IN RUSSIA: RESOURCE NATIONALISM REDEFINED?

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  1. THE FINANCIAL CRISIS IN RUSSIA: RESOURCE NATIONALISM REDEFINED? Aydin Jebrailov PartnerCERBA International Mining Conference Toronto, March 8, 2010

  2. Macleod Dixon • International law firm • Serving clients via offices on four continents • One of the longest established track records of working in Russia • Only practice in Russia with first tier Chambers & Partners' ranking in mining

  3. Introduction Resource nationalism May 2008 – legislation adopted re subsoil strategic properties is strongest manifestation of Russian resource nationalism since break up of Soviet Union Russia’s pre-crisis confidence: “Russia will be an island of stability.”(Alexei Kudrin, Russia’s Minister of Finance) End of 2008 - Russia’s “anti-crisis” measures have no impact on subsoil

  4. Legislative Changes/Remedial Measures New legislation: I Enforcing pledges and mortgages II Bankruptcy III Shareholders’ agreements recognized IV Reforms of limited liability companies V Profit Tax reduced VI Antimonopoly law amended VII Possible changes in strategic sector investment restrictions

  5. Enforcing Pledges And Mortgages • Private Enforcement • Enforcing security ex-Russian courts was impractical • Now clarified and usable • Simplified Foreclosure • Pledgee may seize from unco-operative pledgor • Direct access to judicial bailiffs • But foreclosure on individuals’ housing and state-owned propertyonly through courts

  6. Bankruptcy • Shareholders’ liability • Challenging debtor transactions • Other • Accelerated bankruptcy proceedings • Stricter definition of debtor's related party • Creditors' claims due at "observation" instead of “liquidation” stage • Amendments under consideration • Consolidating corporate group bankruptcy proceedings • Cross border bankruptcies

  7. Shareholders’ Agreements Recognized • Scope of SHA • to vote in certain manner • to agree on voting option • to acquire/dispose of shares at certain price or in certain circumstances • Remedies • damages, penalties, compensation • Outstanding issues • distributions • financing options • management decisions etc.

  8. Reforms Of Limited Liability Companies LLCs) • Notary public required for transactions in participation interests • Authority of Board of Directors vs. General Participants' Meeting

  9. Profit Tax Reduced • Rate of Profits Tax 24% 20%

  10. Antimonopoly Law Amended • Merger Thresholds Increased • prior approval by FAS • notification to FAS $233 mln $333 mln $200 mln $100 mln revenue aggregate assets $13 mln $13 mln $6.5 mln $6.5 mln revenue aggregate assets

  11. Combined Licence Definition of Control Compensation incase of requisition Effect of Law Improvements in strategic sector: consist mostly of words - not action Major Anomalies of SSL Possibility to explore afterproduction has started Foreign Investor

  12. Proposed Changes To Strategic Sector Laws Proposed changes for subsoil strategic properties: • Apply general regime for strategic type of activity to subsoil strategic properties, in particular increase threshold for acquisition of subsoil strategic properties from 10% to 50% • Replace state’s right to confiscate newly discovered subsoil strategic properties with right to demand decrease in foreign investor’s ownership to 50% minus one share • Exempt exploration stage properties from restrictions pertaining to strategic properties • Abolish requirement to complete all exploration works prior to commencement of production • Increase “strategic” threshold for gold properties

  13. Other Changes • establish transparent mechanism securing a subsoil user land rights with respect to subsoil plot in question • establish clear cut rules for use of subsoil within protective forests and certain other restricted categories of forest land • provide for possibility to enlarge mining allotment beyond license area, in cases where ore deposit is extended

  14. Conclusion “Despite introduction of legal improvements, the Russian Government and the Legislator have yet to re-define resource nationalism whereby the rules governing subsoil strategic properties are modified and aligned to match the realities presented by the financial and economical crisis”

  15. Contacts Macleod Dixon Moscow Office Tel.: +7495 931 9905 Fax: +7495 931 9914 Aydin Jebrailov, Partner aydin.jebrailov@macleoddixon.com www.macleoddixon.com Macleod Dixon – Local Depth, International Expertise

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