1 Foreign Direct Investment – a view of regulatorFEDERAL ANTIMONOPOLY SERVICE Foreign Direct Investment – a view of regulator Andrey Tsyganov Deputy Head of the FAS Russia Washington, September 20, 2016
2 General approach - macroeconomicInflation – reduced Recession – stopped Reserves – high Debt/GDP ratio – low Currency rate – flexible Capital flow – not restricted Base interest rate – decreased Assets – cheap Tariffs – stable Oil price - moderate
3 General approach - incentives“We offer comfortable conditions, a good choice of investment instruments with long-term guarantees and preferential treatment. We offer special investment contracts, special tax regime for starting projects – the so-called greenfields – and in the Far East we offer priority development areas and a free port regime.” V.V. Putin, SPBEF
4 Special investment contractSpInC - a form of public - private cooperation, governmental support aimed at facilitation of investments in establishment and modernization of industrial manufacturing at federal and regional levels, support of localization of production, establishment of new modern workplaces, development of high-technology product manufacturing.
5 Special investment contractAdvantages of SpInC for an investor: favorable conditions for product manufacturing; customs and tax preferences; guarantees against adverse changes of legislation; public procurement benefits - investor (entity exercising production of goods at Russian territory according to SpInC) is allowed to obtain the status of sole supplier.
6 Special economic zones29 SEZ created 17 SEZ of four types active: Manufacturing (6); Technology & Innovation (5); Tourism & Recreation (4); Port & Logistic (2). For a period of 49 years: The infrastructure of most of the Manufacturing and Technology & Innovation SEZs is well advanced and more than 400 investors, including foreign investors, are now involved.
7 Territories of Advanced Social and Economic GrowthTASEG is aimed at developing certain regions of the Russian Federation, such as Far East and others. Tax preferences: reduced profit tax rates; a declarative process of VAT recovery; reduced mineral resources extraction tax rates; reduced rates of social security contributions.
8 Import substitution programsCreation of enterprises capable of competing on foreign markets; Implementation of far-reaching technological modernization projects; “Modern technology plus capital” approach.
9 Russian Direct Investment Fund (RDIF):Institutions Russian Direct Investment Fund (RDIF): Russia's sovereign wealth fund with $10 billion of reserved capital under management; 40 percent of foreign direct investment in the Russian economy (2015); 850 billion rubles invested in 30 deals; long-term strategic partnerships with investors attracted over $27 billion of foreign capital into the Russian economy.
10 Agency for Strategic Initiatives (ASI)Institutions Agency for Strategic Initiatives (ASI) Roadmaps of the National Business Initiative aimed at simplification of procedure of doing business: regulatory environment; tax administration; corporate governance reforms; competition; property registration; custom procedures; export support; access to public purchases; construction permits; greed connection. 10
11 Outcomes (Doing Business 2016)Getting Credit: Russia improved access to credit by adopting a new law on secured transactions that established a centralized collateral registry and allows a general description of a combined category of assets granted as collateral. (+ 19)
12 Outcomes (Doing Business 2016)Paying Taxes: Russia made paying taxes less costly for companies by excluding movable property from the corporate property tax base; In addition, the cadastral value of land in Moscow was updated. (+3)
13 Outcomes (Doing Business 2016)Getting Electricity: Russia made the process of obtaining an electricity connection simpler, faster and less costly by eliminating a meter inspection by electricity providers and revising connection tariffs. (+24)
14 Compliance of the Foreign Investor with Fair Competition PrinciplesFederal law on foreign investments, Article 18 The foreign investor shall observe the anti-monopoly legislation of the Russian Federation and avoid unfair competition and restrictive business practices, including but not limited to, through setting up on the territory of the Russian Federation of a commercial organization with foreign investment or a branch of a foreign legal entity to manufacture a high-demand merchandise and subsequently to self-liquidate for the purpose of promoting a similar foreign-made merchandise as well as through a malicious price agreement or merchandise sale market agreement or sale (auction, tender) participation agreement. 14
15 Federal Antimonopoly ServiceThe Russian Competition Authority was created in 1990 in the very beginning of market reforms. The FAS Russia was established in 2004. The FAS Russia - federal executive body under direct supervision of the Government of the Russian Federation. The FAS Russia consists of the Central Office and Regional Offices in each constitutional subject of the Russian Federation (reported to Central Office, financed from Federal Budget). FAS Russia’ staff ( ) – total 3504: Central Office – 1189; Regional Offices – 2315.
16 FAS Russia – Multifunctional AuthorityProtection of competition and antimonopoly regulation, including acts and actions of state and municipal authorities and financial markets; Public procurement (state and municipal procurement, defense and security procurement, purchasing rules for state-owned companies); Activities of natural monopolies (including price/tariff regulation, non-discriminatory access and disclosure of information); Antimonopoly regulation of the electric power industry; Advertising and unfair competition; Foreign investments into the strategic economic sectors; Trading activities (retail trade, commodity exchange); Competitive bidding for allocating state property, natural resources, rights. 16
17 FAS Russia’ General ProceedingsGeneral control and supervision; Market studies; Examination of complaints; Investigation of cases; Detection of violations; Decision-making on cases; Imposition of remedies including fines; Control over execution of decisions; Representation in courts. 17
18 Statistic Data 2015 (Competition law)Received complaints – 51546; Initiated cases – 9092 (3109 – authorities); Detected violations of the antimonopoly legislation – 7595; Imposed fines – 6.55 billion Rubles (approximately $80 million);
19 FAS Russia – macro-regulatorProcompetitive character of regulation; Optimization of expenses in regulated sectors; Focus on consumers’ interests; Unification of approaches to regulation; Access to infrastructure on non-discriminatory basis. Antimonopoly regulation Tariff regulation Control over public procurement Control over trade
20 Regulation of Natural Monopolies: new approachTariff regulation on the basis of pro-competitive approaches (benchmarks, compatible markets); Indexation in exchange to costs savings (operating costs, investment costs, economic and financial activity, divestment of incidental assets); Focus on consumers but not on natural monopolies; Transition of markets to competitive conditions; Creation of rules on non-discriminatory access to natural monopolies’ services.
21 Control over economic concentrationReducing administrative burden on business; Decrease in the number of pre-merger notifications (2008 – 5821, 2015 – 1793); Decrease in the number of post-merger notifications (2008 – 44088, 2015 – 165); FAS’ objective – liberalization of antimonopoly regulation and increase of enforcement efficiency on the basis of the best world practices.
22 Google case February 20, 2015 FAS initiated a case in relation to Google Inc. and Google Ireland Ltd., for elements of violating the antimonopoly law upon “Yandex” complain about anticompetitive actions; September 18, 2015 FAS found violation and issued a determination to Google to eliminate the violation of the Competition Law in the part of abusing dominance on the market of pre-installed application stores in Android OS; March 14, 2016 Moscow Arbitration court pronounced legitimacy of the decision of FAS; March 14, an administrative case was initiated against Google; August 11, 2016 FAS Russia imposed an administrative fine upon Google Inc.: 438,067,400 RUB ($ ); August 17, 2016 the 9th Arbitration Appeal Court pronounced legitimacy and reasonableness of the decision of FAS; September 2, 2016 FAS dismissed a petition of Google on prolongation of the period of the execution of FAS ruling on case. 22
23 Google restrictive requirements and actions:Google case Google restrictive requirements and actions: Obligatory purchase of the entire Google Mobile Services application package as a condition for receiving Google Play (binding of Google Play with other GMS applications); Obligatory setting/pre-setting of Google search as a default search in all internet keyword search areas; Conditions for the mandatory placement of Google applications on preferential position (first page of device screen); Restrictions for mobile phone producers/vendors regarding preinstallation of apps that compete with GMS apps on Android OS. 23
24 Liner Container Shipping CaseNovember 26, 2013 FAS Russia opened investigation against the largest world maritime container lines operators upon signs of concerted actions on the market of container shipping on the Southeast Asia – St Petersburg route; December 15, 2015 A.P.Moller-Maersk A/S, CMA CGM SA Hyundai Merchant Marine Co., LTD, Orient Overseas Container Line Limited Evergreen Marine Corp. (Taiwan) Ltd were recognized violated Point 1 Part 1 Article 11.1 of the Law on Protection of Competition by exercising prohibited concerted actions that resulted in fixing mark-ups to the freight rate (after every decrease of freight rates the carriers fixed GRI mark-ups in a synchronized and unified manner to increase or maintain final prices); September 7, 2016 Moscow Arbitration Court supported a decision of FAS. 24
25 Foreign investments into the strategic economic sectorsThe legal basis of the FAS Russia’s functions: Federal Law No. 57-FZ “On Procedure for Foreign Investments in Companies of Strategic Significance for Russian National Defense and State Security”, dated April 29, 2008; Federal Law No. 160-FZ “On Foreign Investments in the Russian Federation”, dated July 9, 1999; Code of Administrative Offences Of the Russian Federation No. 195-FZ dated December 30, 2001; as well as more than 20 statutory regulatory enactments supervising the procedure for foreign investments in the Russian Federation.
26 Foreign investments control mechanismEstablished by the Law No. 57-FZ: restrictions for foreign investors: on transactions or other actions, which result in control over trading, including the acquisition of shares (stakes); on acquisition of property, the cost of which is 25 and more percent of book value; the list of strategic activities; procedure for dealing with requests of foreign investors on preliminary approval of transactions, approval of control establishment; consequences and sanctions for non-compliance with legal requirements.
27 The procedure for transactionsThe decision of the Government Commission on Monitoring Foreign Investments in the Russian Federation Conclusion of the agreement on the implementation of commitments Foreign investor implements a transaction or other actions within the period established by the Commission Foreign investor provides the notification on transaction or other actions, which are the subject to preliminary approval
28 The due procedure for consideration of complaintsPresentation of complaint materials Government Commission on Monitoring Foreign Investments Decision Requests of information on transactions The FAS Russia - authorized body The Federal executive bodies Request reply Request for emergence of threat to defense of the country/ Conclusion (30 days) Decision in accordance with 135-FZ on the extension of consideration period before making a decision in accordance with 57-FZ Request for emergence of threat to the national defense/ Conclusion (30 days) Submission of complaints in accordance with 135- FZ and FZ-57 Decision in accordance with 57-FZ and 135-FZ APPLICANT (Foreign investor) Ministry of Defense of the Russian Federation Russian Federal Security Service
29 The results of consideration of complaintsOver 8 years of enforcement of the Law 57-FZ the FAS Russia has received 422 complaints, including: 205 complaints were considered by the Commission, in 193 cases the decision on prior consent was taken (in 53 cases – with the assignation on of commitments) and in 12 cases – the prior consent was refused; 162 complaints were returned to applicants as they did not require prior consent; 43 complaints were withdrawn by applicants as the latter refused to carry out a transaction; 12 complaints are under consideration.
30 Transactions of US investors considered by FAS Russia2013: "Hawk Acquisition Intermediate Corporation II" (“KraftFoods” + “Heinz”) was approved to acquire the right to indirectly manage over 50% of shares of strategic companies "Heinz-Georgievsk" and "Petroprodukt-Otradnoe" (food production); 2014: "Abbott Healthcare BV" has established an indirect control over strategic companies "Veropharm" and "LENS-Pharm“ (production of medicines) $631 mln; 2015: "Red Tiger LLC" (a subsidiary of "Halliburton“) took control over "Baker Hughes" and "Orenburgneftegeofizika" (geological studies); 2016: "General Electric Company“ established indirect control over "Alstom Grid" and took 49% of shares of "Turbine Technologies AAEM" were acquired (nuclear power plant equipment production).
31 Other transactions considered by FAS Russia2011: the acquisition by the French company “Total E&P Yamal” of 20,5% shares of “Yamal SPG” (314 mln euros); 2011: “Alstom Holdings” established control over “Tverskoy Vagonostroitelnyi Zavod” and “Bryanskiy Mashinostroitelniy Zavod” (320 mln euros); 2012: “Schneider Electric” established control over “Electroshit – TM Samara” and “NTC Mechanotronika” (510 mln euros); 2014: the merger of “Holcim Ltd” and “Lafarge” that controls strategic “Lafarge Cement” (the cost of the Russian part of the transaction – 368 mln euros).
32 Other transactions considered by FAS Russia2015: acquisition by “China Petrolium and Chemical Corporation” of a right to indirectly manage 20% of the share of the OJSC “Sibur Holding” and a right to block decisions of the governing body of this society and its affiliated bodies of strategic importance (1,338 billion of US $); 2016: acquisition by “Videsh Limited” of 15% of the share of “Vankorneft” and a right to block decisions of its governing body (1,268 billion of US $); 2016: acquisition by “Molumin AG” of a right to manage of 100% of the share of “Geotekhnologia” (29 million of US $).
33 On recipient country investment policies relating to national securityIf governments consider or introduce investment policies (including measures) designed to safeguard national security, they should be guided by the principles of non-discrimination, transparency of policies and predictability of outcomes, proportionality of measures and accountability of implementing authorities. Recommendation adopted by the OECD Council on 25 May “critical infrastructure” approach. 33 33
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