Access simplified to Russia’s strategic assets

Prime Minister Dmitry Medvedev has approved changes to the law that will simplify the procedure for foreign investors buying shares in strategic Russian enterprises.

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The amendments to the law “On Foreign Investments in Commercial Entities of Strategic Importance for National Defense and Security” (Federal Law No.57) will abolish preliminary approvals of transactions involving the use of subsoil assets if the state owns a controlling stake in the relevant business, and the size of the stake remains unchanged as a result of the transactions.

No approval will be required if the investor already owns at least 75 percent in the company. Also, the law will not apply to transactions with companies under the control of regional administrations across Russia.

The legal changes, signed April 4, are expected to help investors address the problem of the validity of previous decisions on the preliminary approval of transactions. There have been cases when the Federal Anti-Monopoly Service approved a sale, but investors didn’t have time to finalize the deal, forcing investors to file a completely new application. If the amendments are approved, the applicants will only have to inform the anti-monopoly service, not apply again.

The amendments also specify the list of activities considered strategic. According to Armen Khanyan, director of the anti-monopoly service’s Department for Control over Foreign Investments, the amended law will not apply to enterprises that use biotechnological products to manufacture cheese, beer and baked goods (for instance, yeast and some types of mold fungi). These biotechnological products are qualified by legislators as “infectious agents.”

This will be the second series of amendments to the law. Previous amendments were introduced in December 2011 to reduce the list of strategic activities.

“We hope that legislators will continue their work to improve Russian regulations and reduce administrative barriers in those sectors where they are clearly excessive,” says Sergei Stefanishin, a legal adviser for Ernst & Young in Moscow.

First published in Russian in RBC Daily.

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