The Russian Government has approved the concept of a new Law on Mineral Resources submitted by the Natural Resources Ministry for parliamentary debate. The document has been returned for follow-up revision on April 17. There is no doubt that the bill will be approved by the government, which will do whatever possible to get the State Duma to adopt it.
The previous mineral resources law was drawn up in 1993 and, in the opinion of government officials, its resource has long been exhausted, as it satisfied neither investors nor the state. The chief task set to the authors of the new draft law was to make it a law of direct action, so that officials might play minimal role in licensing.
President Vladimir Putin, speaking a few days before the debate on the law, said: "Nobody denies that common national resources should be controlled by the state and federal authorities, but there should be mechanisms of legislative protection of the people living in those areas." It is a question concerning the environment and, evidently, social justice. So, when the country's natural riches are in the hands of producing companies, the life of the population in those areas should be improving.
The new version of the law on mineral resources will affect the work of foreign companies in Russia because it puts the activities of new investors under new legislation. The right to use mineral resources will be given only to Russian citizens and to legal entities established in compliance with Russian laws. "This calls for the need for foreign companies to register their subsidiaries in Russia in accordance with Russia's legislation," explained Natural Resources Minister Yuri Trutnev, who presented the draft law at a cabinet meeting. Earlier it was announced that foreign companies would be allowed to participate in tenders for developing large strategic mineral deposits only if they establish joint ventures with a Russian partner, in which the latter would hold not less than 49% of the stock.
Such statements are viewed as fairly tough to some investors. French Total said it would have to revise its plans for further investments in Russia's oil and gas sector. Other world giants have not made such hasty declarations, but the news that the problem of participation in large projects was added to the existing problems involved in the companies' activities in Russia is not optimistic.
One must admit that there is nothing surprising in the decision of the Russian authorities. All countries having abundant natural resources, specifically oil and gas, put up barriers to foreign companies and issue regulations, according to which a joint venture is to be registered with a local operator. The most important aspect of the new law is that it should considerably lower the administrative barriers and opportunities for corruption, as well as other risks, such as numerous grounds on which a license may be revoked.
All these problems and ways of solving them are detailed in the new law. In particular, the only grounds for the state to initiate a cancellation of a contract are the following: failure to start using a deposit at an agreed time; a situation in which a company developing a deposit no longer meets the requirements of Russia's legislation; and failure to pay an obligatory one-time sum to the winners of a tender. In case of all other violations, economic sanctions, in particular payment of a forfeit, will be used.
It is significant that the mineral resources law is supported by all cabinet members and has caused no protests in the liberal-minded faction of the government. This means that the law in itself is of a reforming character, but it is not clear, yet, if its implementation is reformatory as well. If the Russian authorities manage to lower the level of corruption significantly in decision-making on producing minerals, the new law may attract additional investments to the country, as the rules of the game are clearly formulated in it. But, unless corruption is combated in the near future, Russia may find itself right back where it started. In the absence of investment and geological prospecting programs, oil reserves at profitable deposits may be exhausted by 2015, Natural Resources Minister Yuri Trutnev said.
