Russia's new draft law "On subsoil"

The proposed changes intend to affect the so-called "unique" deposits of oil, gas, gold, diamonds and cooper with the amount of reserves exceeding certain thresholds. As regards oil and gas, deposits with reserves exceeding 100 million tons of oil and/or 100 billion cubic meters of gas as well as deposits of strategic importance for national and economic security (in particular, shelf deposits) are suggested to qualify as "unique".

The essence of changes proposed by the Draft Law is that the "unique" deposits will be handed over to investors under separate arrangements, rather than under a licence granted on the basis of an open auction, as is the case now. As is proposed, such "unique" deposits would be developed on concession, production-sharing, or contractual terms. Adoption of such approach will effectively transfer subsoil use from the domain of public law into civil law. The procedure for choosing the winner among those applying is not clarified in the Draft Law although we understand that the MNR is considering a closed auction as one of the possible options.

A concern has been expressed that the treatment of concessions has not been thoroughly tested under Russian law and that it may take some time for wrinkles to appear and even longer to smooth them out. It is widely hoped that the Government will pre-empt these potential problems by adopting effective, comprehensive supporting legislation and regulations together with/immediately after the Draft Law is enacted.

The Draft Law is in development at present and is likely to be submitted to the State Duma by the end of this year.

For further information please contact Natalia Kozyrenko at [email protected]