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Russian law curbs foreign investment in key sectors

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Russian law curbs foreign investment in key sectors

By Neil Buckley in Moscow
Published: May 6 2008 03:00 | Last updated: May 6 2008 03:00

In one of his last acts as Russian president, Vladimir Putin yesterday signed a long-awaited law restricting foreign investment in 42 “strategic” sectors, including energy, telecoms, mining and aerospace.

Foreign investors have pushed for clarity as the Putin administration has pursued an unofficial policy of re-establishing state control over key sectors and has applied unwritten and often murky rules over what foreigners could invest in.

Oil companies such as Royal Dutch Shell and TNK-BP, in particular, have faced pressure over their Russian investments.

The new law, under consideration for more than three years, for the first time sets clear rules on sectors where investors have to seek special permission.

Russian officials claim the rules are more liberal than those in many other countries. But some foreign investors have said the list of restricted sectors is too long – some suggest they account for more than half the economy – and that the language leaves too much scope for interpretation.

Analysts also warn that the law leaves the door open for more sectors to be included in the future.

“We see it as a step in the right direction,” said Andrew Somers, president of the American Chamber of Commerce in Russia. “It’s something the foreign business community has been asking for for years. But everything is about implementation.

“There is enough room in the language to implement it constructively, or less constructively. We’ll see where it goes.”

Under the new rules, foreign private investors will have to seek permission from a committee chaired by the Russian prime minister – set to be Mr Putin after he stands down as president this week – to take more than 50 per cent of companies in strategic sectors.

Foreign state-controlled companies will be barred from taking a controlling stake in strategic companies, and will have to seek permission for a stake of more than 25 per cent.

As well as energy, aerospace, mining and defence, sectors defined as strategic include space technology and nuclear energy. “Dominant” fixed-line telecommunications companies are also included. Broadcast media covering at least half the country are deemed strategic, as are large-circulation newspapers and publishing companies. Some eyebrows were raised at the late inclusion of the fishing industry.

Chris Weafer, chief strategist at UralSib, a Moscow brokerage, said the passing of the law was positive, as its absence had held back investment in Russia, especially outside oil and gas.

But Mr Weafer warned that the gradual expansion of the scope from an original 16 sectors to 42 suggested many industries had “lobbied themselves on to the list”. “Those industries now have considerable protection and will be less pressured to be competitive and modernised,” he said.

Copyright The Financial Times Limited 2008

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