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17 Sep, 2007 03:05

Russia to restrict foreign investment in strategic sectors

The Russian government is working on a bill to limit foreign investment in some of the country's most lucrative strategic sectors, including oil and gas, and aviation.

Russia's effort to formalise how it regulates its strategic sectors comes at a time when several of the world's major economies are doing the same, and economic protectionism is on the rise across the globe.

National governments from the U.S. to the UK are increasingly making it clear that foreign investment must be regulated in strategic industries, such as defence, aviation and energy.

Russia's parliament is now discussing a draft law limiting investment in its strategic sectors, meaning foreign companies will be unable to gain control of projects in these industries.

The Association of European Businesses in Russia is not opposing the new law, but is concerned about some of its formulations:

“It is not completely clear what is meant by the lists defining the strategic sectors. We have a problem that the procedural framework is not completely clear,” pointed out Dr. Frank Schauff, CEO of the Association of EU businesses in Moscow.

After months of pressure from Russia's environmental authorities, Royal Dutch Shell ceded control of the Sakhalin-2 oil and gas project to Russia's Gazprom late last year.

Gazprom has also bought control of Russia's Kovykta gas field from Russo-British venture TNK-BP, after authorities threatened to revoke the latter's licence for under-producing at the field.

“There's a bitter taste in a lot of investors' mouths. They are worried, and they are worried because they do not see proper legislation, so any move towards clarity is welcome,” pinpointed Tom Mundy, strategist at Renaissance Capital Group, Moscow

The law may put an official stamp on Russia's policy but it will not change much for foreign investors.

“It's only a question of formalities, not a question of reality. In my opinion the reality is already here. Foreigners are not advised to invest in strategic segments,” said Evgeny Nadorshin, Chief economist at Trust Bank, Moscow.