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By John Helmer in Moscow

Russian government gears up to open new, and old, foreign investment deals.

The new Russian legislation to supervise foreign investment in the mining and resource sectors is already taking gold miners by surprise.

According to a Russian junior, which is planning to list on the domestic stock market shortly, it has discovered that, before its shares can be sold to foreign portfolio buyers, the Federal Service for Financial Markets (FSFM) must determine whether the foreign buyers are eligible. That requires a government listing of all Russian companies holding gold reserves above the 50-tonne (1.6 million ounce) threshold. That threshold was fixed in the law defining strategic reserves, from which foreign miners and investors are excluded.

The new legislation sets out the list of strategic sectors and metals, and also thresholds for oil, gas, copper and gold. However, there is no government list of companies working with reserves that has been officially verified. As the gold miner has just discovered, the FSFM doesn’t have such a list, because it hasn’t been compiled yet. So the miner cannot get clearance from the market watchdog to sell its shares on the market.

Who should compile this list has also not been decided.

The new legislation to activate Russian’s foreign investment review commission was signed into law at the end of April. Prime Minister Vladimir Putin is the chairman; and the deputy chairman is Igor Shuvalov, the First Deputy Prime Minister. Another 15 officials are to comprise the commission. They include most of the cabinet, including Deputy Prime Minister Igor Sechin, the overseer of the oil and energy sector; Deputy Prime Minister Sergei Ivanov, the head of the military-industrial complex in cabinet; and Yury Trutnev, Minister of Natural Resources. Sergey Kirienko, who as head of Rostom supervises uranium mining and fuel processing, is a member, as is the chief of the FSB, the state security agency, Alexander Bortnikov.

The secretary of the commission, and the day to day chief of the commission’s operations is Igor Artemiev, who is the head of the Federal Antimonopoly Service (FAS).

Just as the US Treasury staffs the comparable US body, the Committee for Foreign Investment in the US (CFIUS), FAS is to staff the Russian commission. Artemiev has created a new unit with 17 staff; more are expected to be added. The staff is headed by Svetlana Levchenko. On her first day, and in her first interview, she told Mineweb that, for the designated strategic sectors, including mining, a retrospective review of foreign investment is mandatory.

“It is very important to mention, and you should draw the market’s attention to this, that the law supposes that we will review, not only new investments, but the market as a whole. According to the law, within a 180-day period, all foreign investors holding more than 5% stakes in Russian companies are obliged to report this fact to FAS. We are ready to accept these applications as well.”

The legislation sets out a list of 42 sectors designated as strategic, and required to be reviewed by the new commission. Mining is one of them.

The application procedure is as follows, Levchenko said. First, the foreign investor should bring its application for review in two copies to FAS. FAS will then review the submission, and if necessary, supplementary documentation may be requested within one month. If and when an application meets the submission criteria, “we are obligated to review it within a three-month period.” Levechenko said she hopes to speed this up to a one-month review period.

FAS will then forward the results of its review to other ministries and officials on the commission. “We are not responsible for the timing which other bodies will take,” she noted.

A parallel review process has also been introduced for all Russian companies seeking to sell shares abroad. This is broader in application than the strategic foreign investment regime. The new regulation — adopted by a decree of FSFM — limits Russian companies to list for sale no more than 30% of their issued stock outside Russia. For mining companies, the threshold for listing is lower — at 25%. The new limits have been lowered from the 40% threshold in effect before 2006; and 35% between February 2006 and now.

For companies whose operation is defined as strategic, the 5% threshold mentioned by Levchenko appears to be no more than a notification procedure; authorization may be a rubber-stamp. Foreign acquisition of more than 50% of shares in a company with reserves below the exclusion threshold must be approved by the commission. Foreign acquisition of more than 50% of a company with reserves above the threshold cannot be approved, and is prohibited.

After several years of argument over the thresholds, the new legislation fixes the exclusion limit for oil at 70 million tonnes (490 million barrels); gas at 50 billion cubic metres; gold at 50 tonnes (1.6 million oz); and copper at 500,000 tonnes. A zero threshold has been fixed for the mining of uranium, diamonds, quartz, cobalt, nickel, platinum group metals, beryllium, and lithium. This means that foreign investment in mining companies with these assets is not permitted above the 50% level.

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