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If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #07MOSCOW517.
| Reference ID | Created | Released | Classification | Origin |
|---|---|---|---|---|
| 07MOSCOW517 | 2007-02-06 14:12 | 2011-08-30 01:44 | CONFIDENTIAL | Embassy Moscow |
VZCZCXRO9414 OO RUEHAG RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR DE RUEHMO #0517/01 0371412 ZNY CCCCC ZZH O 061412Z FEB 07 FM AMEMBASSY MOSCOW TO RUEHC/SECSTATE WASHDC IMMEDIATE 7229 INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY RUEATRS/DEPT OF TREASURY WASHDC PRIORITY RHEHNSC/NSC WASHDC PRIORITY RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY RHMFISS/DEPT OF JUSTICE WASHINGTON DC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 000517 SIPDIS SIPDIS STATE FOR EUR/RUS; EB/ESC DOE FOR HARBERT DOC FOR 4231/IEP/EUR/JBROUGHER NSC FOR GRAHAM AND MCKIBBEN TREASURY FOR BAHER E.O. 12958: DECL: 02/02/2017 TAGS: ECON EIND ENRG PREL RS SUBJECT: RUSSIA: STRATEGIC SECTOR LAW MOVING AGAIN, SLOWLY REF: MOSCOW 00462 Classified By: Econ M/C Quanrud. Reasons 1.4 (b) and (d). ¶1. (C) Summary. It appears the draft Law on Foreign Investment in the Strategic Sectors may have legs again. In a January 31 inter-ministerial meeting, PM Fradkov remitted the draft Strategic Sectors Law to the Ministry of Industry and Energy (MIE) for one month to simplify the investment review process and reclear with the Federal Security Service's (FSB). Public accounts of the discussion suggests the process is far from closure: DPM Medvedev is reported to have called for streamlining the decision process, while DPM Ivanov suggested including ports and airports on the list of "strategic" sectors. Despite this, Minister of Economic and Trade (MEDT) Gref, in a February 1 meeting with the Ambassador (reftel), was optimistic the law would advance this year, with passage possible inside six months -- all of which echoes what our Kremlin contacts tell us. As expected, provisions designating "strategic" subsoil deposits have been removed from the draft law and put into draft amendments to the sub-soil legislation, but the two efforts appear to be on a parallel and linked passage track. The suggested subsoil restrictions would align that legislation with the current practice of prohibiting foreign firms from holding majority stakes in projects with fields over 510 million barrels of oil or 50 billion cubic meters of gas. End Summary. ¶2. (SBU) On January 31, the Russian inter-agency finally sat down to discuss a MIE draft of the Strategic Sectors Law, originally submitted to the Government last November. Press coverage of the meeting highlighted ongoing differences among government officials about the law. DPM Ivanov, referencing the 2006 Dubai port debate in the U.S., suggested including ports and airports to the list of "strategic" sectors, something Minister Gref, citing Russia's need to attract foreign expertise, strongly rebuffed. DPM Medvedev called for streamlining the review process from its current four layers. PM Fradkov appears to have heeded Medvedev and Gref, and remitted the draft to MIE Minister Khristenko for revision and reclearance with the FSB before re-submitting to the Government by end-February. MIE Legal Affairs Director Taraskin told us February 1 he expects changes to only affect review procedures and did not foresee changes in the 39 "strategic" activities or the 50 percent foreign stake trigger that would initiate the review process. ¶3. (SBU) President Putin first ordered the government to draft a law regulating foreign investment in "strategic" sectors in his 2005 annual address to the Federation Council. At the time, the press pointed to a deteriorating investment climate and lack of transparency surrounding GOR decision-making on foreign investment as the main catalyst for Putin's directive, although we know that the chaos surrounding both Alcoa's 2005 investment and Siemen's on-again off-again investment in Russia had much to do with the timing. In 2006, differences between economic ministries and the FSB over which sectors should be considered "strategic" and the size of permissible foreign stakes held back consideration of the law. The MIE finally submitted a draft in November 2006 after an inter-ministerial committee rejected the FSB's more restrictive recommendations. (Note: The FSB lobbied to initiate a government review for transactions in these sectors when foreign ownership stakes reached 30 percent, instead of 50. End note.) ¶4. (SBU) In the current draft, government review is triggered when foreign investors attempt to acquire more than 50 percent of a company in one of 39 specified activities dealing with nuclear, defense, aviation, space, and encryption technologies. An authorized GOR agency, probably the Anti-Monopoly Service, would collect the application and necessary information on a given transaction, and prepare it for submission to a review committee composed of representatives from the security agencies. The Prime Minister would then make the final determination whether to allow the transaction, and in extraordinary circumstances, the president would be the final arbiter. Medvedev appears to have argued that these decisions need not go to the MOSCOW 00000517 002 OF 002 President. SUBSOIL PROVISIONS REMOVED -------------------------- ¶5. (SBU) As expected, the current draft no longer attempts to address "strategic" subsoil deposits. Petroleum Advisory Forum President, Vlad Konovalov, confirm ed to us that the GOR will regulate foreign investment in the natural resource sector through the existing Subsoil Law rather than the Strategic Sectors Law, and that the Ministry of Natural Resources has abandoned the idea of enacting a new Subsoil Law. In line with this approach, the GOR at its January 31 meeting, approved amendments to the Subsoil Law limiting foreigners to minority stakes in fields deemed "strategic." Following the meeting, Natural Resources Minister Trutnev announced that any field containing more than 510 million barrels of oil or 50 billion cubic meters of gas would be considered "strategic." He indicated that ten oil and 26 gas fields currently fall into this category. Konovalov said both the Strategic Sectors Law and the Subsoil Law should be finalized by the end of the month, re-submitted to the GOR for consideration, and then submitted to the Duma. COMMENT ------- ¶6. (C) Given the differing opinions apparent at last Wednesday's discussion, further delays are certainly possible before the GOR submits the law for Duma consideration. That said, the day after the meeting, MEDT Minister Gref was surprisingly upbeat about the law, asserting it would pass this year, and suggesting that it could pass as early as July. This tracks with what we have been hearing from our Kremlin contacts, who suggest that the Strategic Sectors Law and Subsoil amendments are a bit of unfinished business Putin wants wrapped up during his Presidency. Passage -- after two years of lingering in the interagency -- would be another sign of the on-going shift in GOR thinking about foreign investment, and would add to a growing body of evidence that suggests an increasingly engaged approach in 2007 to investors. Already this year we have seen real enthusiasm for WTO accession (although that is still a difficult endeavor), a strong Russian delegation fielded at Davos, and uncharacteristically earnest efforts to attract attention and visitors to Russia (including Commerce Secretary Guttierez in March and the Forbes CEO Forum in May). End comment. BURNS
Wikileaks
Wikileaks: Russia 