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Saturday, March 18, 2006

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Saturday Feature
 
Russia to clarify rules on foreign investment
Neil Buckley and Arkady Ostrovsky from Moscow
3/18/2006
 

          Russia is preparing to apply controls to foreign investment in 39 "strategic" sectors of the economy including defence, nuclear energy and aerospace, after what investors complained were a series of arbitrary and sometimes contradictory decisions.
German Gref, economy minister, told Russia's government recently he planned to submit a long-awaited draft law this month. It would define the sectors in which foreign companies would need permission to acquire blocking minorities or control of companies.
The draft law will require foreign investors to get permission from the Russian president and government to acquire a blocking minority of more than 25 per cent, or controlling stake of more than 50 per cent, of a company in a strategic sector.
As well as arms manufacturing, nuclear energy and aerospace, the list of sectors is expected to include natural monopolies, space and aviation technology, and specialist fields such as manufacture of cryptographic equipment and industries handling infectious agents.
The Russian government has been working on the law since last spring, in consultation with foreign business representatives, after President Vladimir Putin pledged in his state of the nation address to provide greater clarity for investors in sensitive areas.
Barring foreign control of enterprises in some of Russia's most lucrative sectors risks leaving the country open to criticisms of protectionism similar to recent moves by European Union states to block foreign takeovers of energy assets.
But analysts said it was important for Russia to clarify the rules, and it was moving into line with international practice in defining areas of its economy related to national security where investment limits would be applied.
Russia's economy ministry said on March 02 its planned law was similar to those in countries including the US, Spain, France and Finland.
Investment in natural resources will be restricted only in oil fields or mineral deposits that the government defines as strategic assets in a separate law on subsoil resources, or in companies holding those assets.
An announcement by Russia a year ago that it would bar companies with less than 51 per cent Russian ownership from participating in tenders to exploit its biggest oil, gas and metals reserves worried foreign investors. But Russia has since indicated it would define only six big oil, gold and copper fields in the subsoil law.
Separately, Mr Gref recently echoed an earlier warning from Russia's financial markets regulator about a "bubble" forming in Russia's stock market. Share prices have soared more than 30 per cent this year, on the back of an 83 per cent rise last year.
The economy minister said he was "very worried" about the danger of a sharp fall in share prices, and was carrying out a joint analysis with the markets watchdog.
Analysts say share prices have been driven up by a huge inflow of funds chasing limited assets.

 

 
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