At the end of 2012 important changes were made to Russian subsoil legislation pertaining to the use of subsoil sites of federal importance, including those on the continental shelf and those under the inland sea and territorial waters of the Russian Federation (a number of these changes came into force at the beginning of 2013).

In addition, in January 2013 Russia’s MNR1 published a revised draft decree of the Russian Government that identifies the bodies authorized to expropriate land plots required for subsoil use, and also contains regulations governing the submission and consideration of the respective applications of subsoil users.

Set out belowis a brief summary of these adopted or planned legislative changes, as well as the recently formulated position of the HAC2 on early termination of subsoil use rights in cases where the subsoil user is not guilty of failure to comply with the material terms of the license/licensing agreement.

FORM OF BIDDING FOR THE RIGHT TO USE SUBSOIL SITES OF FEDERAL IMPORTANCE

With effect from January 11, 2013, following the entry into force of Federal Law No. 323-FZ dated December 30, 2012, the provisions on bidding for the right to use subsoil sites of federal importance contained in the Subsoil Law, the Continental Shelf Law, and the Gas Supply Law have been amended.3

Pursuant to these amendments, bidding for the right to use subsoil sites of federal importancemay be conducted solely in the formof an auction.4 Thismeans that nowthe sole criterion for selection of the winning bidder to obtain the right to use a subsoil site of federal importance is the amount of the proposed one-off payment for the right to use the respective subsoil site.

According to the President of Russia, the need to legislate for the cancellation of tenders for the right to use subsoil sites of federal importance arose because such tenders had demonstrated a “lack of transparency as well as inefficiency”.5

PREVENTION AND CLEAN-UP OF OFFSHORE OIL AND PETROLEUM PRODUCT SPILLS

On December 30, 2012, the President of Russia signed into law Federal Law No. 287-FZ amending theContinental Shelf Lawand the Lawon Inland SeaWaters, TerritorialWaters and Contiguous Zone of the Russian Federation6 which is aimed at reducing the adverse impact on the marine environment in the event of an oil or petroleum product spill on the continental shelf or in the inland sea or territorialwaters of the Russian Federation.

These amendments come into effect fromJuly 1, 2013 and provide for, inter alia, the following:

  • adoption by operating organizations7 of an offshore oil and petroleum product spill prevention and clean-up plan that has received state environmental approval;
  • the requirement that operating organizations have financial security in place (e.g. a bank guarantee, insurance policy or reserve fund), and that they have the material and technical resources, personnel and organizational capability to undertake oil and petroleum product spill prevention and clean-up;
  • compensation in full by operating organizations for any damage caused to the environment (including aquatic biological resources), the life, health or property of individuals, or the property of legal entities as a result of oil and petroleum product spills, and reimbursement of expenditures incurred by federal executive bodies for manpower and resources to clean-up any oil and petroleum product spills;
  • the subsoil license holder’s (subsoil user’s) subsidiary liability for compensation for any damage caused to the environment (including aquatic biological resources), the life, health or property of individuals, or the property of legal entities as a result of oil and petroleum product spills (if the operating organization has been engaged by the subsoil user under a contract); and
  • amending licenses for the use of subsoil sites on the continental shelf or under the inland sea or territorial waters to include conditions requiring subsoil users to use certain technology and methods for the clean-up of oil and petroleum product spills offshore in frozen conditions.

EXPROPRIATION OF LAND PLOTS REQUIRED FOR SUBSOIL USE

On January 25, 2013, the MNR published a revised draft of the decree of the Russian Government on Adoption of the Procedure for the Submission and Approval of Applications and Approval of the Expropriation of Land Plots Required for Operations in Connection with Subsoil Use.8 The enactment of such legal act by the Russian Government is envisaged in Article 25.1 of the Subsoil Law.9

The revised draft decree refers the matter of the approval of the expropriation of land plots for the purposes of subsoil use (other than land plots required for subsoil use at subsoil sites of local importance, which are expropriated pursuant to the decision of the competent executive bodies of the constituent entities of the Russian Federation) to Rosnedra,10 with the subsequent processing of the expropriation of the land plots referred to Rosimuschestvo11 (or its regional offices), and includes regulations governing the submission and approval of applications fromsubsoil users for the expropriation of land plots (if there is no otherway to obtain rights thereto).

EARLY TERMINATION OF THE RIGHT TO USE SUBSOIL WHERE THE MATERIAL TERMS OF A LICENSE HAVE NOT BEEN COMPLIED WITH THROUGH NO FAULT OF THE SUBSOIL USER

At the end of 2012 theHAC stated that in order to terminate subsoil use rights for reasons of a breach of/failure to perform the material terms of a licensing agreement by a subsoil user12 there is no requirement to prove that the subsoil user is at fault.13 Explaining its reasoning, the HAC noted that the early termination of the right of subsoil use on such grounds:

  • constitutes a termination of contractual relations in the manner envisaged by the Subsoil Law on the grounds of default by a subsoil user as a business entity acting at its sole risk in the performance of its obligations under the contract (the licensing agreement); and
  • does not amount to an administrative penalty (imposition of administrative sanctions), the enforcement of which requires proof of the fault of the person in respect of whom such measure is applied. 14

Therefore, theHAC classified a licensing agreement between a subsoil user and Rosnedra as a civil law contract and deemed that it was lawful to terminate the right of subsoil use in the event that a subsoil user had failed to perform the material terms of such licensing agreement through the fault of third parties (e.g., contractors engaged to performwork in connectionwith subsoil use). Taking into account the HAC’s reasoning asmentioned above, it remains unclear whether the conclusion of the HAC on the absence of a requirement to prove that the subsoil user is at faultmay be applied to early termination of the right to use subsoil on the grounds of breach of thematerial terms contained in the list of subsoil use conditions included in a license (which, as opposed to a licensing agreement, is not in the formof an agreement/contract).15