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Russia Energy Law
Russia Energy Law
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
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:
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.
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:
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:
Reference:
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