The government is trying to protect the investment in Russia. But from whom?

Иван Ермохин Иван Ермохин Expert of Center Russia-OECD published Investments
The government is trying to protect the investment in Russia. But from whom?

On August 29, the media reported that the Ministry of Finance of Russia has developed a draft Federal law on the protection and promotion of investment in the Russian Federation. The bill offers investors willing to invest in projects in the field of agriculture, fisheries, mining, manufacturing, energy and waste management, transportation, construction, and communications, to conclude an agreement on the protection and promotion of investment with the Government of the Russian Federation.

The agreement will be concluded with investors on projects that cost up 10 billion roubles and it will be valid for 6 years (or 12 years, if the total investment in the project exceeds 30 billion roubles). The promotion of investment agreement is concluded in a declarative manner, for this, the investor (registered in the Russian Federation) must submit an application to the state authorities.

The agreement is a guarantees investors the stability of the regulatory and fiscal for the period of its implementation. Hence, changes in legislation on taxes, environmental protection, licensing will not affect the projects being implemented. It should be noted that today similar guarantees are already given under special investment contracts, which can be concluded by investors in respect of projects for the development of the industry. Similar guarantees are often provided in international investment protection agreements, the so-called "grandfather clause", which protects the investor from changes in the domestic regulatory environment for the worse for the investor at the time of the project.

The bill provides compensation for companies in case of violation of the terms of the agreement by the Russian Federation and its subjects. The parties may address to the Russian court in case of conflict. Furthermore, the agreement may also include a provision on dispute resolution in the arbitration court. The bill is a new attempt by the Russian Government to attract private investment in the Russian economy for infrastructure development.

On the one hand, the guarantees offered are tangible. The opportunity to develop the project without the risk of increasing the regulatory and tax burden is a significant argument for investment. On the other hand, the draft law may be an attempt to "manually" protect investors from the unpredictability of Russian legislation. And then it turns out that instead of working on a comprehensive change in the approach to how laws are adopted in Russia (without qualitative public discussions, without long-term planning and assessment of their impact, etc.), the Russian Government is looking for simple ways to solve the problem of distrust of the private investor to the state policy of the Russian Federation.