RusEnergyLaw JOURNAL • Current issue/5'2005
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EDITORIAL
Victor Borodin,
Tax Partner, Ernst & Young (CIS) B.V.
Dear Professional Colleagues:
The current issue of the Journal covers a variety of analytical and informational materials and updates concerning the legislative framework pertinent to the energy and mining sectors in Russia and the other CIS member states.
With regards to Russia, the development of its oil production and the gradual resumption of the oil policy by the Government have revived the discussion whether the country would be able to increase its output on a long-term basis and have the spare capacity that it would need to influence prices, and whether the growing attention being paid by the authorities to the oil industry should be interpreted as a strategy aimed at using Russia’s oil power as an additional instrument in its foreign policy. How should considerable differences between levels of production and exports be interpreted? How would different production scenarios have an effect on export levels of crude? What are the uncertainties surrounding reserves, future oil outputs, and the ability to maintain the recent rate of increase in production? What is the future status of the Russian oil industry in terms of major players and the level of foreign investment participation by foreign investors? These and various other questions are being discussed in the issue.
Concerning Russian Oil & Gas taxation regime, Russia is currently considering proposals to grant oil companies certain tax breaks for developing new fields. The respective amendments would be passed next year. The Government plans to levy the tax in accordance with scaled rates in 2007. Further details on these proposed rules should be expected in the near future.
Certain key changes have been introduced by the International Commercial Arbitration Court (ICAC) Rules, increasing the overall reach of the ICAC in relation to the arbitral proceedings, their transparency and accountability standards, and flexibility.
Further amendments to the draft Russian Subsoil Law will be proposed by the governmental bodies shortly. The document has been drafted for more than two years and the hearings on the draft law are expected to continue at some point in 2006. Consideration of fields as strategic assets and getting access for foreign investors to the strategic fields appear to be the most controversial concepts under the current draft. With a fair bit of luck, sufficient clarity would be introduced into the draft law by the lawmakers in the several months to come.
As far as the other CIS countries are concerned, Kazakhstan demonstrates rather attractive opportunities for the industry. The Government has set a high price for the chance to partake in this opportunity, however, and investors have been somewhat reluctant to pay it, Therefore, the Government is now proposing to make a modest reduction in its demands, and may continue to do so until it reaches the level that investors are willing to pay. In particular, a new Law On Production Sharing Agreements (Contracts) has come into force recently, promoting the establishment of a concise legal basis which will govern the oil operations in the Kazakh sector of the Caspian Sea and the Aral Sea.
A new Transfer Pricing Law is expected to come into force in 2006 to eliminate uncertainties in the practical application of the transfer pricing rules, as well as excessive control over prices by the authorities. The newly adopted Law On Currency Regulation and Currency Control which enters into force on December 18, 2005 establishes a firm framework for further liberalization of the country’s currency regime. Besides licensing and registration methods of currency control, the law provides for a notification method, which is a novelty. Another novelty is that the National Bank will be performing currency monitoring activities to assess the stability of the balance of payments through creation of a database for currency transactions. The Law further liberalizes the repatriation of foreign and national currency and removes certain limitations for residents to enter into foreign currency transactions.
As is hopefully appreciated, the Journal diligently monitors the major industrial and legislative trends and developments in this part of the world and is dedicated to continue doing so in the future.
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