They want to protect the mining from unfriendly investors
On July 5, the State Duma must adopt a bill in the second reading that will allow foreign subsoil developers to be transferred to Russian legal entities through the court. Sergei Gavrilov, chairman of the lower house committee on property, which developed the amendment, told Vedomosti about this.
According to him, the bill initiates the application of a mechanism similar to the one introduced by the decree of the President of Russia in relation to Sakhalin Energy – the operator of the Sakhalin-2 project. As “Vedomosti” wrote, the decree was posted late in the evening on June 30 on the Kremlin’s website. According to the decree, all the rights and obligations of the operator of the oldest liquefied gas (LNG) project in Russia “Sakhalin-2” are transferred to the specially created Russian LLC, in which Gazprom (50% plus 1 share), the Anglo-Dutch Shell ( 27.5%) and Japanese Mitsui and Mitsubishi – 12.5% and 10% of shares, respectively. This is done to protect the national interests and economic security of Russia, as well as because of the “threat of an emergency situation of a natural or man-made nature”, the decree explained.
From the text of the amendments to the Federal Law “On Privatization of State and Municipal Property” and separate legislative acts of the Russian Federation (available in “Vedomosti”), it follows that the co-owners with a share of the block package will be able to apply to court with the requirement to convert a foreign subsoil user company into the legal form of a Russian LLC. and higher (more than 25%), as well as a director of the company or a member of its board of directors. Claims must be submitted to the Moscow Arbitration Court, the term of consideration is 30 days.
It is possible to file such a claim in the following cases:
After the transfer to Russian jurisdiction, foreign owners who continue to obstruct the operation of a branch in Russia may be restricted in their rights (deprivation of the right to participate in shareholders’ meetings, suspension of dividend payments, etc.), according to the text of the amendments.
“This is the maximum legal procedure, the procedure of court decisions, the guarantee of ownership rights of the participants. At the same time, an opportunity is provided [продолжения] financial and economic activity on Russian territory and the fulfillment of international obligations,” Gavrilov says. He did not specify which joint ventures with foreign subsoil users may soon be affected by the draft law. “If risks arise [в сфере недропользования]then a systematic and very delicate response should be given to them,” the deputy added.
According to Gavrilov, on the amendments “there are positive conclusions from all branches” of power, and “with a high degree of probability” they will be finally adopted by the State Duma before the end of the spring session.
Yaroslav Shytsle, a lawyer at the Rustam Kurmaev and Partners law firm, believes that the main purpose of the bill is to transfer corporate disputes “to Russian courts and preserve the property of a branch of a company that will already be considered Russian.”
At the end of February 2022, due to Russia’s armed conflict in Ukraine, Shell decided to withdraw from joint ventures with Gazprom, including Sakhalin-2 (implemented as part of the production sharing agreement – SRP), and also to sell 50% in two JV with Gazprom Neft – Salym Petroleum Development and Gidan Energy. Alexander Frolov, the deputy general director of the Institute of National Energy, advises paying attention to these projects as the “most likely objects” of the new draft law.
Shell also previously announced that it would stop participating in the Nord Stream 2 gas pipeline project, which was frozen for an indefinite period after the start of the SVO. The company specified that at the end of 2021, its non-current assets in enterprises in Russia amounted to about $3 billion.
In March, the American ExxonMobil also announced the termination of its activities in Russia. The company also announced a phased exit from the second PSA project “Sakhalin-1”. This is the only active PSA project in Russia, where the Russian company does not have a controlling stake, ExxonMobil is the operator in it. The Americans have 30% in “Sakhalin-1”, the same amount in the Japanese Sodeco, 20% each in “Rosneft” and the Indian ONGC. Formally, the project also falls under the characteristics described in the new draft law, since the only exception, which is not affected by the amendments, are branches of foreign companies engaged in LNG projects within the framework of production sharing agreements.
At the same time, the effect of the amendments can also be applied to Novatek projects, including the largest operating Yamal LNG, the shareholders of which, in addition to Novatek itself (it owns 50.1%), are the French Total (20%) and the Chinese CNPC (20%) ) and the Silk Road Fund (9.9%). “Yamal LNG” is engaged in gas liquefaction, but does not work under a production sharing agreement.
Frolov suggests that in the future, requirements for forced transfer through the court to Russian jurisdiction may be extended to all foreign participants of the JV, and not only to those belonging to unfriendly jurisdictions.