Russia energy Law, Policy and Regulations:

The Ministry of Energy (Minenergo) is a federal agency in charge of creating and enforcing
government policies and regulations in the energy sector. The scope includes issues related to the

 Electric power industry,

 Development of hydrocarbon fields
 Oil & Gas production / processing
 Peat and shale industries
 Major oil and gas pipelines
 Renewable energy sources
 Petrochemical industry

Russia current energy policies are guided by the Energy Strategy-2035 (ES-2035). The main
objective of ES-2035 is to boost the contribution of the fuel and energy industries to the
country's social and economic development, while sustaining and enhancing Russia's role in
global energy markets. The Strategy outlines the following focus areas in order to attain these
goals:

Diversification of the energy sector, including:

 Non-carbon energy source development to supplement carbon energy;

 De-centralization of energy supply sources;
 Export of Russian energy-related technologies, equipment, or services
 Growth in use of electric energy, LNG, gas, and gas engine fuel.
 Increased deployment of digital transformation and IP-based technological .
 Infrastructure optimization, including the creation of new oil and gas and petrochemical
clusters in Eastern Siberia, Russia's Far East, and the Arctic.
 Reduction of the energy industry's environmental impact.
The Russian Federation's Ministry of Natural Resources and Ecology, as well as the federal
agencies under its control, are in charge of the licensing regime. The Federal Entity for
Subsoil Use (Rosnedra), which is subordinate to that Ministry, is the administrative agency in
charge of oil and gas extraction regulation. Rosnedra is in charge of:
 • Issuing, suspending, and revoking subsoil use licences.
• Approving deposit development plans.
• Transferring and storing geological information.

The regulatory regime in Russian oil and gas sector :There are two kinds of regime:
• Regime of tax-royalty :The most common oil and gas extraction regime. The Subsoil Law
and regulation on the Subsoil Use Licensing Procedure, dated 15 July 1992, make up the
primary body of this legislation. It applies to projects both onshore and offshore.
• Production sharing regime. The Federal Law on Production Sharing Agreements (PSA
Law), dated December 30, 1995. A PSA can only be entered into under the new
modifications if it can be proven that the relevant subsoil block cannot be developed under
the tax-royalty regime and a PSA is needed due to the particular challenges of the project.
Example of Russian existing PSAs: offshore fields of Sakhalin I and Sakhalin II
The following statutes make up the legal basis for Russia's oil and gas legislation:
• The Russian Federation's Constitution. It lays out the main principles governing natural
resource ownership rights.
• The Federal Subsoil Law (the Subsoil Law). This is the main law that governs a wide
range of laws concerning natural resources.
• The Russian Federation's Federal Law on Gas Supply (the Gas Supply Law). The
development, transportation, and sale of natural gas are all governed by this regulation.
• The Production Sharing Agreements Act
• The Federal Law on Gas Export.
Subsoil Law: This is the main Russian law governing the oil and gas sector. Under the
Subsoil Law, a subsoil license grants the license holder an exclusive right to use a particular
subsoil plot on the terms and conditions specified in the license. These terms include:
a. Purpose of the subsoil use;
b. Borders of the land plot granted for subsoil use;
c. Deadlines (such as the start and end of the production);
d. Production volume
e. Payments for subsoil use.
There are five types of E&P subsoil licenses:
Exploration licenses. It permits the license holder to conduct above-ground exploration
activities

Production permits are awarded for deposits that have been explored and reserves recorded in
the state balance of reserves. Tenders or auctions are used to award production licenses.

Combined licenses: are issued with respect to deposits that have already proven reserves but
require substantial additional exploration. Combined licenses are awarded by tender or auction.

Technology development for unconventional resources:   A license is awarded by a tender for

a subsoil block that contains only unconventional resources. It is issued for a 15-year term.

Combined technology development, exploration, and production of unconventional

resources: Spinoff of the unconventional resource area of the block from a previously licensed
block and issued to the same license holder.

The rights to oil and gas in Russia: The Russian Constitution grants the state ownership of
subterranean minerals, which is subject to the combined jurisdiction of the federal and regional
governments where the deposit is located. As a result, subsoil deposits cannot be purchased, sold,
gifted, inherited, contributed, or pledged. If a foreign investor has an interest in a subsoil license
holder who made a discovery that meets the federal importance criteria, the Russian government
can refuse to issue the advanced E&P license to the subsoil license holder who made the
discovery.

If a foreign investor seeks to take control (owning 25 % or more of shares, or appointing more
than 25% of members in the company board) of a firm that holds a subsoil usage license for a
deposit of federal significance, Russian legislation requires them to get permission from the
Governmental Commission, which is led by the Russian Prime Minister.

Restrictions imposed in Russian law: Under Russian law, rights to use natural resources cannot
be transferred by a holder to third parties. Russian law establishes a number of restrictions in
relation to "deposits of federal significance” if it contain recoverable oil reserves of no less than
70 million tonnes or gas reserves of no less than 50 billion cubic metres or it require the use of
land plots designated for defense or security purposes.
Termination of license: Subsoil licenses terminate on the expiration of their designated term,
but they can also be terminated by state authorities before expiration for the following reasons:

 Violation of provisions of the license by the subsurface user

 Threat to the health of workers or residents affected by operations related to subsoil use.
 Emergencies like natural disasters, war, and others.
 The failure of a subsoil user to begin operations in line with the license's stipulated term.
 Liquidation of a business or economic activity that holds a subsoil use license.
 Failure of a subsoil user to file required Russian reports (including geological data
reports).

Fines and penalties: There are fines imposed by the Russian law for the use of subsoil without a
license and it can result in an administrative fine ranging from RUB800 K to RUB1 million.
Violation of subsoil law is considered an administrative offence and is punishable by a fine and
based on the seriousness of the offence, subsoil license holder can be subject to criminal liability.

Russian Energy Fiscal Payments: Oil and gas earnings contribute for almost 40% of Russia's
state budget. On the one hand, Russia wants to create a favorable investment climate for projects,
but they also need to ensure that budget funds continue to flow. As a result, the oil and gas fiscal
structure is exceedingly complicated and subject to frequent adjustments as a result of multiple
incentives. Subsoil use involves the following fiscal payment obligations:

• One-time payments for the award of the subsoil license

• Regular payments for geological study, exploration, and construction of
underground facilities.
• MET – Mineral extraction tax , (Revenue added tax )
• MET, calculated based on the physical volume of oil and gas extracted
• Corporate profit tax, Social taxes and payments,Value added tax.
• Export Custom Duty (ECD)
Renewable energy policy in Russia: After years of being regarded as a "oil-and-gas country,"
Russia today has a growing renewable energy sector. The Federal Electricity Law included a
support mechanism in 2011.The promotion of renewable energy sources (RES) through the
capacity market; this plan attempts to assure the financial feasibility of renewable energy
investments by establishing "Capacity Supply Agreements" with renewable energy producers.
Various other financial, legal and tax incentives are proposed at the local, regional and federal
levels, depending on the particular RES investment project. In 2019, new legislation was adopted
to support micro-scale energy generation in Russia. It provides that the owners of micro-scale
generation facilities (up to 15kW) may sell any excess electric power produced to retail
consumers.

Reference:

Investment Climate and Market Structure Review in the Energy Sector of

KAZAKHSTANENERGY CHARTER SECRETATIAT 2013Boulevard de la Woluwe, 56B-
1200 Brussels, Belgium

The Oil and Gas Law Review: Russia, Natalya Morozova, Vinson & Elkins LLP
The Energy Regulation and Markets,Review: Russia,Thomas Heidemann and Dmitry
Bogdanov, CMS Russia, 05 August 2020