1 / 14

Foreign Strategic Investment Law: Basic Regime / Practice to Date; Impact on the Oil & Gas Sector

Foreign Strategic Investment Law: Basic Regime / Practice to Date; Impact on the Oil & Gas Sector. AmCham Investment Conference March 24, 2010 Moscow Darrell Cordry – Chevron Jon Hines – Dewey & LeBoeuf. Overview. Not in itself a “negative” a real step toward regularizing the process

matteo
Download Presentation

Foreign Strategic Investment Law: Basic Regime / Practice to Date; Impact on the Oil & Gas Sector

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Foreign Strategic Investment Law:Basic Regime / Practice to Date; Impact on the Oil & Gas Sector AmCham Investment Conference March 24, 2010 Moscow Darrell Cordry – Chevron Jon Hines – Dewey & LeBoeuf

  2. Overview • Not in itself a “negative” • a real step toward regularizing the process • analogous to US / OECD country regimes • Political / economic elements • subject to these winds… holding off or encouraging foreign investment • and will be interpreted / adjusted accordingly • FSIL as new law – plus FIL / SL / CSL / GSL amendments • Applies to certain investments by foreign companies or persons (including through Russian-owned companies)

  3. Overview (cont’d) • Advance approval needed for investments, above stated threshold percentage interests, into Russian “strategic sector” enterprises (“SEs”) – 42 categories, 12 or so sub‑categories, including: • mineral resources E&P (on “fields of federal significance”) • some power gencos (OGKs / TGKs) – a tricky area • ports / shipyards, airports, railroads, trunk pipelines • aviation / aerospace industry • some telecoms / media companies • specialty metals, nuclear/radioactive, weapons/military, cryptography, geophysical processes; biological agents • fishing

  4. Overview (cont’d) • General thresholds for “control” • over 50% • 10% for mineral resource E&P (but 49% per FSIL art. 2.7) • Special / stricter rules for foreign gov’t controlled cos. • general 25% threshold; 5% for minerals E&P • 25% for investment into any Russian company (special practice here) • and can’t have control, or blocking rights • interplay with FSIL art. 2.7: 5% or 10% → 49%?

  5. Overview (cont’d) • Scope / Range of Deals Covered • direct or indirect control • by shareholding or otherwise • wide scope of arrangements is caught • onshore / offshore deals (no matter how far removed) • positive / negative controls (veto rights) • even involuntary / passive occurrence situations • no exemption for Russian-owned foreign companies (this is most of the action so far) • don’t be tempted by / into apparent “loopholes” • Particular situations: • GDR / ADRs – nominal holders • if investor already has >50% • treaty (or special law)

  6. Overview (cont’d) • Notification requirements: • 5% SE stake acquisition – prospective • 5% SE stake acquisition – retrospective (deadline long past) • Penalties • voiding of transaction • lose shareholder vote • for notice-only violation – small fine, etc. • no cases yet reported – but FAS is now threatening

  7. Application / Approval Process • FAS as Authorized Agency; special dep’t, rules • Acts under / in coordination with new Gov’t Commission • FSB role – checks re threat to national security (including per stated indicia) • Procedure / practice for inquiries • to FAS – formal procedure under FAS • to MNR (re minerals E&P) – informal practice • Two types of application • for proposed new control • for already-established (involuntary) control • Time period: 3 to 6 months • FAS communicates Commission decision (and other possible actions)

  8. Actions to Date • Commission meets every few months – 6 times so far • Nearly 30 approvals so far • Most are Russia-to-Russia offshore / onshore deals (and restructurings of holdings) • Some interesting new foreign investments • A few foreign-gov’t-controlled company investments • Possible outcomes • approval without conditions • approval with conditions (investment agreement) • rejection

  9. Actions to Date (cont’d) • Examples: • Telenor and Alfa – to restructure / merge Vimpelcom and Kyivstar stakes • DeBeers – 49.99% of Arkhangelsk Diamonds • Alenia (Italian state-owned) – 25% of Sukhoi JV Co. • Barrick Gold – 50% to 79% increase of stake • Khartron (Ukrainian state-owned) – up to 49.74% of aerospace co. • Lisin offshore cos. – for controlling stakes in ports/shipyards • Polyus gold – various shareholding deals • Itera – up to 49% of Sibneftegaz • UK / UAE co. – for purchase of software producer • EBRD – for 11.75% stake in Promsvyazbank • Dubai World (UAE state-owned) – for 25% stake in large Nakhodka container port co. • Timchenko-controlled co. – up to 23.42% stake in Novatek • Kolbin-controlled co. – for 25% stake in Yamal LNG Co. • Usmanov / Tavrin TV media assets merger – into UTV Russian Holdings • Some rejections (or postponements) – various reasons

  10. Attracting Investment for Exploration • There have been ongoing discussions between “Ministry of Natural Resources” and “Industry” on how to encourage additional investment in exploration • There are a number of under-explored basins within the RF: Black Sea, East Siberia, Northern Arctic • Focus in recent years - optimizing existing production/development of discovered fields • Investment in new exploration now should be a priority

  11. Industry’s Concern with New Regime • There are a number of areas of concern with the current Regime: • Low threshold on size of fields requiring “strategic” approval; • Low limit on participation (10%); • Limited participation in exploration of the Continental Shelf ; • However, there is a critical problem which will impede exploration investment • No guarantee of rights to develop once discovery has been made. • “Strategic” review and decisions are made after considerable risk and cost of exploration already undertaken

  12. New Regime – Payback of Costs • Law provides for recoupment of costs (with uplift) if E&P license is not issued due to “national security” consideration • IOCs invest to develop and produce reserves, not act as an exploration “service” provider • Repayment mechanism is not sufficient • Even with a fixed uplift, recoupment of costs doesn’t provide sufficient returns, particularly for exploration in new, complicated basins

  13. New Regime – Payback of Costs • Due to high risk nature of the business, IOCs manage their exploration activities from a portfolio approach • Upside from successes need to cover costs of dry holes elsewhere

  14. Recommended Solution • Government authorization before exploration period commences • “National security” issues considered at time exploration license is granted • Issue E&P license earlier rather than later • Subsoil Law – to clarify that the Government's right to refuse full E&P rights for the strategic field would not apply if the discovery is by a licensee company that is directly or indirectly controlled by the RF

More Related