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Coronavirus – Changes in legislation in the field of subsoil use and energy – Russia

  • Russia
  • Coronavirus - Country overview

18-05-2020

The following legislative changes were adopted in April 2020 in the field of subsoil use and energy, and may be of interest to energy and mining companies that are operating in Russia:

1. Support measures related to the pandemic for companies that are licensed subsoil users in Russia

The Russian government has adopted a number of measures to support businesses during the COVID-19 pandemic.

In particular, based on Government Decrees Nos. 440 and 557 of 3 April 2020 and 22 April 2020 respectively, companies holding subsoil licenses may upon application suspend or limit their rights to subsoil use for up to two years. An application to this effect is to be submitted in accordance with Rosnedra’s administrative regulations, approved by Decree No. 315 of the Ministry of Natural Resources of 29 September 2009.

In addition, licensed rights to use subsoil resources will not be terminated in 2020, even if the user’s license expires before the end of the year, except if the licensee itself requests termination of the license. This means that any company with a license expiring between 15 March and 31 December 2020 will be able to continue its activities for 12 months following the license’s original end date.

Deadlines to submit applications and supporting documentation to be granted exploration or production licenses for subsoil use are also suspended until 31 December 2020.

If a licensed subsoil user has been ordered to cure violations of the terms of their license within a specific deadline between 15 March and 31 December 2020, such deadline is also postponed by one year until 31 December 2021 at the latest.

The above measures will certainly help subsoil users to develop their own strategy to overcome the adverse economic effects caused by the COVID-19 pandemic.

2. Amendments to the Federal Law “On Gas Exports”

Amendments were also adopted to the Federal Law No. 117-FZ “On Gas Exports”, whereby the list of companies authorized to export liquefied natural gas (LNG) had been expanded.

This law, adopted in 2006, effectively established a monopoly for Gazprom and its subsidiaries to export natural gas and LNG.

The right to export LNG was somewhat liberalized in 2013.

In particular, since 2013 the following companies have been authorized to export LNG:

i. сompanies holding subsoil licenses as of 1 January 2013 for use for deposits of federal significance, which have been provided for the construction of a natural gas plant or for the delivery of extracted gas to such a plant for liquefaction, and

ii. сompanies producing LNG under state control exceeding a 50% stake (directly or indirectly) and that hold subsoil licenses to develop offshore fields (including within the framework of a production sharing agreement), as well as their subsidiaries (in over 50% ownership)

In practice, only a number of projects by the company NOVATEK fall under these criteria, as well as projects by state-owned Rosneft and Gazprom and their subsidiaries.

Amendments to the law adopted in April are aimed at increasing the production of LNG in the Arctic.

The following amendments grant export rights for LNG made from gas extracted from subsoil plots of federal significance:

a. subsoil users as described in point (i) above with licenses issued after 1 January 2013, and

b. companies holding subsoil licenses issued after 1 January 2013 and which own production facilities to liquefy natural gas, provided that such companies are controlled (directly or indirectly) by companies, which in turn are controlled (also directly or indirectly) by companies mentioned in point (i) above

Therefore, companies controlled by entities that gained export rights back in 2013 will now obtain the right to export their LNG if their licenses were issued after 1 January 2014.

These amendments on the one hand widen the circle of companies eligible to export LNG, but on the other hand have a limited impact de facto, since only companies belonging to a group of companies that were already granted export rights in 2013 will be eligible. Opportunities for such groups to engage companies with other minority shareholders are also expanded for projects to extract and produce LNG.

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