RUSSIA August 2013 an ASSESSMENT by the EBRD
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COMMERCIAL LAWS OF RUSSIA August 2013 AN ASSESSMENT BY THE EBRD Office of the General Counsel CONTENTS 1. OVERALL ASSESSMENT ..................................................................................................................................... 1 2. THE LEGAL SYSTEM AND INVESTMENT CLIMATE .................................................................................. 3 2.1 CONSTITUTION AND COURTS ...................................................................................................... 3 2.2 RELATIONSHIP BETWEEN LEGAL TRANSITION AND ECONOMIC PROGRESS...................................... 4 2.3 RECENT DEVELOPMENTS IN THE INVESTMENT CLIMATE ............................................................... 5 2.4 FREEDOM OF INFORMATION ...................................................................................................... 6 3. EVALUATION OF SELECTED COMMERCIAL LAWS .................................................................................. 7 3.1 CAPITAL MARKETS, INCLUDING DERIVATIVES.............................................................................. 7 3.2 CONCESSIONS ......................................................................................................................... 10 3.3 CORPORATE GOVERNANCE ...................................................................................................... 14 3.4 ELECTRICITY AND GAS REGULATION ........................................................................................ 18 3.5 ENERGY EFFICIENCY / RENEWABLE ENERGY ............................................................................ 22 3.6 INSOLVENCY ........................................................................................................................... 26 3.7 JUDICIAL CAPACITY AND CONTRACT ENFORCEMENT ................................................................. 30 3.8 PUBLIC PROCUREMENT ........................................................................................................... 32 3.9 SECURED TRANSACTIONS ......................................................................................................... 35 3.10 TELECOMMUNICATIONS / ELECTRONIC COMMUNICATIONS ....................................................... 38 Basis of Assessment: This document draws on legal assessment work conducted by the Bank (see www.ebrd.com/law) and was last updated during the preparation of the 2012 EBRD Strategy for Russia, reflecting the situation at that time. The assessment is also grounded on the experience of the Office of the General Counsel in working on legal reform and EBRD investment activities in Russia and does not constitute legal advice. For further information please contact [email protected] . 1. Overall Assessment Recent years have been marked by Russia’s intensified efforts to upgrade its legislative framework in line with international standards and best practices. Despite the progress achieved, certain gaps and uncertainties still exist, causing concerns amongst both domestic and foreign investors. In Russia the current regulatory and legal framework governing the local debt capital markets is by a mega regulator (following a merger of the Bank of Russia with the Federal Service for Financial Markets in 2013). Extensive laws and regulations have been enacted to provide this framework, including laws and regulations governing specific entities and areas. In addition the law introducing bondholders meetings was adopted and shall enter into force in 2015, which will strengthen investors’ confidence by providing for their ability to meet and introduce voting rights. The Russian corporate governance framework has recently improved but further progress is necessary, especially in ensuring that legal provisions are well understood and implemented. In the most recent assessment by the EBRD of the Russian corporate governance legislation, certain shortcomings have been identified, in particular, in the regulation on the responsibilities of the board, as well as the rights of shareholders and disclosure and transparency. Russia has an extensive commercial law insolvency framework, which may enable the reorganisation or liquidation of a debtor’s business. However, some scope for improvement exists, and Russia is in the process of considering significant changes to its Bankruptcy Law to facilitate reorganisation and cross-border cooperation, amongst other matters. An improvement in judicial efficiency has long been on the government’s reform agenda. The EBRD 2010-2011 assessment of court judgments in commercial matters revealed that decisions of the Russian Arbitrazh courts were of generally good quality and were overall highly predictable. At the same time, efficient implementation of the court decisions and judicial independence are still areas of significant concern. The secured transactions regulation contains a number of modern features but is inadequate for the demands of the market. The inefficiency of pledge as a tool for risk management and the incompatibility of the Russian law on pledge (security) with market realities and the needs of market players remain a serious barrier to further development of the market, growth in consumer lending and implementation of modern risk management tools. It is a factor resulting in higher banking risk and a dramatic reduction of the Russian financial market’s global competitiveness. The Bank has been cooperating with the Russian authorities to improve secured transactions regulation in a number of areas. According to the recent EBRD assessment of PPP/concessions laws, Russian laws have been ranked in “high compliance” for their extensiveness and “medium compliance” for their effectiveness. The dimension of the definitions and scope of the law has been identified as the main strength of the country’s concessions legislation, with the PPP legal framework and the project agreement dimensions, measuring how extensive, specific and integrated the PPP legal framework is and to what extent the laws regulate the contents of the agreement entered into the PPP project parties, being on the weaker side. Furthermore, the policy and institutional frameworks have been considered as weaker aspects of the implementation framework. In the energy (electricity and gas) sector, Russia’s efforts in the last decade to reform its electricity market offer a useful model for its neighbours. The wholesale market can be regarded as competitive and the reform is now smoothly moving towards a full liberalisation of the non- 2 household market. The situation is sharply different in the gas market, in which the state-controlled Gazprom has a legal monopoly on gas exports. Huge investment is needed in the exploration and production sector to allow Gazprom to meet expected domestic demand and export contractual obligations and to compensate the declining production of ageing fields. In the renewable energy and energy efficiency sectors, a much greater resolve and focus, as well as a quicker timeline for implementation, will be required in order for any significant improvements in efficiency or use of renewable energy sources to be realised. There is potential for improvement in both sectors, but it is unlikely that significant improvement will take place in the renewable energy sector in the near future. This is due largely to the lack of a unified and focused government policy regarding the promotion of RES and no legal or regulatory system in place to provide government support for RES. In the EBRD 2010 Public Procurement assessment the Russian legal and regulatory framework achieved medium compliance with international standards. However, in practice it does not ensure transparency of public procurement decisions or value for money objectives. A general conclusion is that the development of local public procurement capacity is progressing; however substantial gaps in the national legislation and institutional framework were identified. Thus, public procurement policies in the Russian Federation need revision and contracting entities could benefit from the development and implementation of eProcurement procedures available to all contracting entities and suitable for all public contracts. In the telecommunications sector, at a technical and business level, it is understood that the presence of a legal, regulatory and institutional framework for telecoms which is reflective of proven best practice will do much to make the overall environment for the sector attractive for investment, promote broader competitiveness across the economy and aid social development. Russia has some way to go to harmonise with such practices. Reforms are understood to be on- going at a technical level, generally improving the environment for operations. However, plans to adopt more far reaching and strategic restructuring of the sector, particularly on the institutional side, which would be necessary to adopt best practice, have yet to become apparent. 2. The Legal System and Investment Climate 2.1 Constitution and courts The Constitution of the Russian Federation was adopted by the National Referendum in 1993. According to the Constitution, Russia is a democratic, federal republic consisting of 83 subjects of the federation (ethnically based republics, regions, territories, autonomous regions and districts, and the federal cities of Moscow and St Petersburg). State power in Russia is exercised on the basis of its division into the exclusive powers of the federal government, powers jointly exercisable by the federal