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27 Feb, 2008 09:36

Investors search for clarity from Russian Duma

The development of key parts of Russia’s economy may be being held back by lengthy Duma discussions about news laws. Two years ago Russia’s lower house began work on new foreign investment laws, and it’s still to be finalised.

It could pass the Duma next month. But that is only if outstanding issues get resolved.

European business leaders, meeting in Moscow on Tuesday, say the lack of clarity is hurting Russian commerce.

German engineering company Siemens wanted to buy a stake in Russian turbine maker Power Machines, but the negotiations dragged on for so long that  Siemens was about to withdraw.

When Airbus wanted to build parts for its engines in Russia, a nervous regional authority, unsure of what the law would allow, was slow to approve the deal.

Both are examples of industries that may fall into strategic sectors and where the government has yet to define the rules under which foreign investors may or may not get involved.

The internal Duma body responsible for amending the Draft Law works closely with the Association of European Businesses.

“Up to date, certainly, there is no legislation but nevertheless there were some decisions made in the past regarding foreign investments but the legal framework was not clear. And if this law is going to make clear legal framework and if it is going to provide clear decision-making process, which the foreign investor can also stick to, this would be useful thing certainly for investments,” commented Dr. Frank Schauff, CEO of Association of European Businesses in Russia.

Forty strategic branches are listed in the Draft Law falling into seven types: military, space and special equipment, nuclear energy, aviation, cryptography, natural monopolies as well as metals and alloys used in arms and the military.

Several key issues remain undecided. Investors still don't know what size stake would give an investor control or whether bureaucrats will have to give written reasons for forbidding an investment.

“It is important to have a transparent and clear framework that allows to determine how long the decisions will be taken, what is a strategic company, when is control obtained – all these questions are addressed in the law. Concerning the time frame it is not very clear whether the process will take three, six or maybe even more months – here it is crucial to implement a maximum deadline for taking decisions,” Alex Stoljarskij, a lawyer at Beiten Burkhardt, said.