21.10.08

The law on foreign investment in strategic industries came into power in May. One hundred days has passed since the Federal Antimonopoly Service (FAS) began enforcing the law and the first meeting of the governmental committee lead by Vladimir Putin is to take place. The committee is to consider two requests: first from De Beers for the purchase of 49,99% of Arhkangelskgeoldobicha, Lukoil’s affiliate, and second – from Alenia Aeronautica, Italian member of Finmeccanica the for purchase of 25% plus 1 share of ZAO Sukhoy Civil Airplanes.

The King is the State

Information: the FAS received an inquiry whether investment-related restrictions include members of royal families. In Saudi Arabia members of reigning family carry a state sovereignty, thus they are restricted by law slimily to state-owned companies and sovereign funds. The same policy is applied in the USA towards investments from royal families of Brunei, Qatar and Saudi Arabia.

According to the law, such a foreign investor must obtain special permission to purchase over 50% of company’s shares if that company operates in one of 42 specified industries, and for over 10% of shares of those operating in subsurface resources (for foreign state companies – these number are 25% and 5% of shares, respectively). Applications must be submitted to FAS, which will analyze and forward it for approval to the FSB and to the Commission for State Secrets. The final decision is made by the committee headed by Prime Minister Vladimir Putin.

This is not the only item on the meeting’s agenda. Other questions to be considered include whether foreign shareholders should be allowed to issue power of attorney to other foreigners for the representation of their interests at general shareholders meetings (old power of attorney became inoperative). By law permission is required if the new investor has the power to elect over 10% of members of the board of directors or other governing bodies. In this case foreigners requiring registration must be approved by government committee – which may take up to six months.

No comments are available regarding what effect it may have on the TNK-BP case. Conditions of the "peace agreement" between the shareholders of TNK-BP (BP and AAP consortium) include provisions for replacement of Robert Dudley, the President of TNK-BP, by an "independent manager." The new manager may need to obtain a power of attorney from Noviy Investments Ltd, the main owner of the Russian half of TNK-BP.

If a Russian businessman wants to purchase strategic assets through a Russian company, but he has other companies in foreign jurisdictions, then the Russian company may be considered the same as a foreign enterprise – which needs to undergo the same approval process. Also, foreign investors would need approval for transferring assets between any Russian strategic companies they own.

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Source: “Vedomosti”