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Wednesday, November 29, 2006

Kremlin to limit foreigners' access to strategic industries

27/ 11/ 2006 - MOSCOW (RIA Novosti political commentator Alexander Yurov) - The Kremlin may limit foreigners' access to some strategic industries if parliament approves a law on foreign investment in commercial organizations of strategic significance to Russia's national security. The document was drafted in the Ministry of Industry and Energy and has been forwarded for consideration to the government. After that, it needs to be discussed in both houses of Russia's parliament and signed by the president. The bill would restrict foreigners' access to the aerospace industry, railways, nuclear power generation, mining companies and companies producing materials for the defense industry. Some transactions involving these industries, such as the acquisition of controlling stakes (more than 50%) in strategic companies, would have to be approved by a special state commission. At the same time, the bill does not seem prohibitive. Its authors compiled a list of obligatory documents the potential investor must submit to the state commission. It includes letters of registration and association, the draft agreement disclosing the nature of the forthcoming transaction, information about the investor's sphere of operation, and information about the investor who controls the company that plans the acquisition. None of these requirements appears to be impossible. The idea of the bill was suggested 18 months ago, when the German corporation Siemens attempted to buy a major stake in Russia's Silovye Mashiny producer of power machines. Parliament viewed the potential deal as a threat to national security interests. As of now, Russian electricity monopoly RAO UES owns a blocking stake in SilMash. UES seems to be engaged in purely civilian projects, but SilMash turns out not only civilian commodities but also electrical appliances for Russian military hardware. In any case, the deal was blocked for reasons that were not very logical, and observers said the decision was influenced by the Russian officials' bias. Trying to prevent a repetition of such situations, the authorities decided to formalize clear-cut rules for such transactions. The leaders of the Industry and Energy Ministry refused to discuss the bill during its drafting, and its future is still uncertain now that it has been forwarded to the government. At the current stage, the ministries and departments whose operation could be affected by the bill should send their opinions and criticism to the government. After approval by the government, the bill will be sent over to parliament. There is still a long way to go, yet many foreign investors who are working or intend to work in Russia already say that it will be a good law. Clear-cut rules never hurt anyone, they say.
Comments:
Should control of upstream assets by national oil companies be of concern to the West?

I help edit Robert Amsterdam's blog, and today he has posted a long analysis about the potential of a Russia-led gas cartel:

http://www.robertamsterdam.com/2006/11/russia_and_the_gas_cartel_part_1.htm  
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