Energy Investments in the EU and Russia: Investment Regulation under the Third Energy Package and the Russian Law on Foreign Investments in Strategic Sectors Sergey S. Seliverstov, PhD in Law Advisor to the CLO, Electricity System Operator Associate Professor, MGIMO-University First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013

2 Content of the Presentation -Russian energy investments regulation - Foreign investments in Russia (landmark events) -EU energy investments regulation (Russian view) -Russian investments in the EU (landmark events) First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013

3 Foreign Investments in Russia – Law on Strategic Investments Transactions resulting into establishment of control over the strategic companies are subject to the prior approval of a Government Commission. The provisions of the Law apply to the companies doing business inter alia in the following areas: -subsoil use (including exploration) for subsoil parcels having federal importance; service companies fall within the scope; -natural monopolies, such as oil and gas transportation via pipelines, electricity transmission (excl. distribution); -electricity generation from nuclear power plants. First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013

4 Foreign Investments in Russia – Criteria of Control over Strategic Companies holding more than 50 % (sometimes – less than 50 %; for companies holding exploration and/or production license for the subsoil parcel of federal importance – 25 %); being able to determine decisions; being able to appoint the executive body and/or more than 50% of the members of the BoD (25% for the companies holding subsoil license); being the corporate executive body. First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013

5 Foreign Investments in Russia – Criteria of Federal Importance for Subsoil Parcel located on the land territory of Russia and having extractable reserves of oil of more than 70 million tons or having reserves of natural gas of more than 50 bn cubic meters; located in the internal waters, territorial sea and continental shelf of Russian Federation; the use of which is only possible by using the land plots of the so-called “defence-purpose lands”. First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013

6 Foreign Investments in Russia – Limitations for Use of Subsoil Parcels on the Russian Continental Shelf License to use the subsoil parcels of federal importance on the continental shelf may only be granted to the Russian legal entities: having at least 5 years experience of the Russian continental shelf exploration/production with at least 50 % participation of the Russian Federation De-facto it means that only Gazprom and Rosneft (and their subsidiaries) may be granted licenses to use subsoil parcels on the continental shelf. First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013

7 Foreign Investments in Russia – landmark events (oil and gas) -Decision not to ratify the ECT -Shtokman field -Cooperation agreements between Rosneft, Exxon and Statoil -Sale of TNK-BP to Rosneft First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013

8 Foreign Investments in Russia – landmark events (electricity) -E.On: owner of 82 % of OGK-5 -Enel: owner of 56% of OGK-4 and of 49% of Rusenergosbyt -Fortum: owner of 97% of TKG-10 and blocking shareholding in TGK-1 -EdF: management company for Tomsk distribution comp. First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013

9 Russian Investments in the EU Access to markets and ‘security of demand’ Ownership unbundling provisions Certification of TSOs in electricity and gas sectors Unclarity of PCI and TYNDP rules and procedures for third countries’ promoters First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013

10 Russian Investments in the EU – landmark events -North Stream (Project of European Interest 2006) -South Stream v. Nabucco -Russian decision not to ratify the ECT -ECJ case European Comission v. Repulic of Slovakia -Lietuvos dujos case -MOL resale made by Surgutneftegaz -3 TYNDP applications made by the Russian Electricity System Operator First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013

11 Conclusions 1. No “open doors” for oil and gas investments: Russia is protecting its subsoil resources whereas the EU is protecting its internal market (customer base ). 2. Moderate limitations for investments in electricity sector. 3. Legal framework both in Russia and in the EU provides for substantial degree of political discretion on the side of the investments’ recipient. 4. All large investment projects in the energy sector on both sides require political support. Energy investments should be accompanied with various forms of energy diplomacy. 5. Possibility of having an investment treaty is an open question. First Groningen-Moscow Conference on EU-Russian Energy Law, May, 2013