Category: Russia

The 26th UN Climate Change Conference, taking place in November 2021, and the recently published EU proposals on the Carbon Border Adjustment Mechanism have been at the top of the agenda, this summer, for the majority of Russian energy and other industrial corporations. The green agenda has never been so acute in Russia, the current level of business engagement in the preparations for negotiations on the implementation of Article 6 of the Paris Agreement cannot compare to the one during the Kyoto Protocol period.

The green agenda in Russia used to be rather vague and usually overlooked with the prevailing approach to undertake simple or even superficial measures, which was reflected in the legal framework. Until 2021 there was almost no climate change related legislation. The existing laws provided for basic energy-efficiency measures, like meter installation and energy efficiency labeling, as well as general air emissions control and air quality rules. However, in the past few years, the need for modernization of the industrial facilities and implementation of modern technologies has become the key driver for policy and legislation development. Since most modern technologies tend to be more sustainable and climate-friendly, their implementation could help to meet both the goals of industrial modernization and climate change mitigation.

Modernization and localization are now the focus of all state programs and are backed by various state support measures, including tax incentives and subsidies. Some of the economic instruments that could be used for promoting green technologies in Russia include mandatory implementation of the best available technologies (BAT) at the most polluting production facilities, including those of oil and gas majors, use of special investment agreements with the state, granting incentives in return for technological or infrastructure investments, green financing, and some others.

In the past several years, Russian environmental legislation underwent a deep transformation in the attempt to simultaneously simplify the complex existing permit regulation and get the polluters to modernize or pay more for pollution. These changes include the replacement, by 2025, of all types of environmental permits by a single integrated environmental permit, without which no new industrial facilities could be put into operation. To get this single permit, the most polluting facilities have to implement BATs applicable to their industry, or at least prepare a roadmap for implementation. Failure to meet those obligations could result in 100 times larger environmental fees. The lists of BATs per industry, including oil, gas, and petrochemicals, are approved by the Ministry of Natural Resources and Environment. As transferring to BATs requires substantial funds and resources, there are certain state incentives in place.

The newest instrument is the green financing subsidy. The subsidy mechanism allows for recovery of certain costs of corporate bonds and payments under credit facilities issued for BAT implementation projects, until 2024. Currently available funds amount to USD 60-70 million. The mechanism could be extended, if successful.

Another general investment support instrument that could be used for promoting green technology projects is the special investment contract (SPIC). Under a SPIC, the investor agrees to implement, or develop and implement, modern technology in the mass production of industrial goods and the state agrees to grant various benefits, including guaranteed stability of business conditions and tax incentives. According to SPIC rules, modern technology is the one that is environmentally friendly and has a beneficial social impact. So far, the instrument has been rather popular among companies producing high-end industrial equipment and mining, chemicals, and automotive companies.

A similar instrument, but with broader sector coverage and initially designated for major capital-intensive investment projects, is the capital investment protection and promotion agreement, under which the project entity can have access to state infrastructure subsidies and similarly apply for a stabilization clause. The infrastructure subsidy can cover costs for the creation, modernization, and/or reconstruction of the project-associated infrastructure, as well as the costs of financing for project infrastructure.

The array of available state-support measures in Russia applicable to energy companies and the current attention to the green agenda gives hope that many of the BAT projects will be implemented, thus helping to achieve both the national goal of industrial infrastructure modernization and the global goal of climate change mitigation.

By Georgy Kovalenko, Partner, and Natalia Aristova, Director, EY Law Russia

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Bryan Cave Leighton Paisner has successfully defended FM Logistic and its employees in a criminal case in connection with the collapse of a pedestrian bridge in a warehouse that resulted in the injury of more than 50 people.

The firm’s efforts prevented “the prosecution of both the company’s leaders and one of its founders and owners” and resulted in “a reconciliation with the victims and substantiated petitions to discontinue the criminal case.”

“On October 12, 2021, during the court hearing, the criminal case against the only [remaining] FM Logistic employee was terminated due to the reconciliation of the parties without imposing any fines on the employee or the company,” BCLP announced.

According to BCLP, the case received significant public and media exposure and was personally supervised by the Chairman of the Russian Federation’s Investigative Committee. A large number of witnesses and the need to review a significant amount of construction and other technical documentation created a challenge for the defense, according to the firm.

The BCLP team included the Head of Criminal Law Business Protection Practice Anton Gusev, Partner Vladimir Chikin, Senior Associate Angela Glamazdina, Advisor Ekaterina Verle, Attorney-at-Law Nadezhda Ilyushina, Lawyer Antonina Potanina, and Junior Lawyer Soslan Doguzov.

Debevoise & Plimpton has advised Polyus on its USD 700 million seven-year eurobond offering with an annual coupon rate of 3.25% and the related tender offer for outstanding notes due 2022-2024. 

According to Debevoise, the proceeds will be used to finance the purchase of existing notes due 2023 and 2024 for the aggregate principal amount of USD 605.3 million, as well as for Polyus’s general corporate purposes.

According to Debevoise, Polyus is the world’s fourth-largest gold mining company by production volumes and the largest gold miner in terms of attributable gold ore reserves. “The company demonstrates the lowest production costs among major global gold producers. Its principal operations are located in Siberia and the Russian Far East: Krasnoyarsk, Irkutsk, and Magadan regions and the Republic of Sakha (Yakutia).”

The Debevoise team included Partners Natalia Drebezgina, James Scoville, Cecile Beurrier, Richard Ward, and Alan Davies, Counsels Dmitry Karamyslov and Patrick Fasoro, and Associates Laurence Hanesworth, Alexey Khnalkov, Joseph Mash, Timur Ochkhaev, Olga Panfilova, and Heather Atkins.

Debevoise did not reply to our inquiry on the matter.

Bryan Cave Leighton Paisner has successfully defended United Aircraft Corporation’s subsidiary Irkut and its employees in a criminal case in connection with customs duty evasion amounting to more than RUB 50 million.

According to BCLP, public authorities claimed that UAC deliberately underreported the value of the imported goods, which allegedly resulted in non-payment of customs duties to the Federal budget.

“The defense was able to achieve the withdrawal of the criminal case and the transfer of further investigations to the Ministry of Internal Affairs’ preliminary investigation bodies,” BCLP announced. “Moreover, the termination of this criminal case due to the absence of corpus delicti prevented the customs authorities to initiate new criminal cases … for similar claims for an amount exceeding RUB 400 million.” According to the firm, the criminal case against two employees of the company was terminated, on exonerating grounds, due to the lack of corpus delicti.

BCLP reported that law enforcement agencies rarely make decisions on the termination of criminal cases involving specific individuals, since such a decision may be followed by rehabilitation, including a public apology from the Russian Federation’s Prosecutor’s Office.

The BCLP team included the Head of its Criminal Law Business Protection practice Anton Gusev, Partner Vladimir Chikin, Senior Associate Angela Glamazdina, Lawyers Antonina Potanina and Alexander Kirilchenko, and Junior Lawyer Soslan Doguzov.

Bryan Cave Leighton Paisner has advised Irrico Limited on the sale of a Russian agricultural holding company.

According to the firm, the holding company is engaged in intensive crop and vegetable farming in the south of Russia. Irrico Limited is a joint venture set up by VTB Group’s investment banking business VTB Capital together with private equity and private credit investor CEECAT Capital.

The BCLP Moscow team was led by Partner Rustam Aliev and included Partner Ian Ivory, Associate Director Vera Gorbacheva, Counsels Igor Zhivotov, Ekaterina Verle, and Anna Zelenskaya, Senior Associates Kseniya Shevchenko, Dimitri Antipin, Denis Khramkin, and Tuyana Molokhoeva, and Associate Ayta Aduchieva.

The firm did not respond to our inquiry on the matter.

Latham & Watkins has advised PIK Specialized Homebuilder on the secondary public offering of quasi treasury ordinary PIK shares by its fully owned subsidiary PIK Investproekt.

According to Latham & Watkins, PIK is the largest Russian residential developer and a fast-growing technology company. “Based on the results of the bookbuilding, the offer price was set at RUB 1,275 per share, with the total size of the offering totaling RUB 36.28 billion.”

The Latham & Watkins team was led by Partners Olga Ponomarenko and David Stewart and included Counsel Edward Kempson and Associates Alexander Kartyshev and Anton Vologin.

Latham & Watkins did not reply to our inquiry on the matter.

DLA Piper has advised e-commerce platform Ecwid on obtaining regulatory clearance from the Federal Antimonopoly Service of Russia for its acquisition by Lightspeed.

According to DLA Piper, “the combination of Lightspeed and Ecwid will help merchants reach shoppers where they are, whether on social media or digital marketplaces, ushering in newfound selling flexibility and omnichannel experiences.”

Founded in 2009, Ecwid provides access to e-сommerce technologies for small businesses and enables operating multiple online stores on their website, social media channels, and mobile devices. According to the firm, Lightspeed is a one-stop commerce platform for merchants around the world to simplify, scale, and create exceptional customer experiences.

DLA Piper’s team was led by Partner Denis Gavrilov and included Senior Associate Azamat Abdulmenov.

Morgan Lewis has announced that Alexey Chertov has been promoted to Partner as of October 1, 2021.

According to Morgan Lewis, “Alexey represents lenders, sponsors, and borrowers in connection with a broad range of finance matters, including project finance, prepayment finance, pre-export finance, and acquisition finance. He specializes in trade and project finance transactions, in particular, in the energy and the metals and mining sectors. Alexey also has extensive experience in restructuring and insolvency matters.”

Chertov has been with Morgan Lewis for over eight years. Before joining the firm, he spent nine months with Clifford Chance, ten months with Brack Capital Real Estate, and over three years with Gide.

France’s Altana, Italy’s Nctm, and Germany’s Beiten Burkhardt (which includes an office in Moscow) have announced the launch of their new law firm association, Advant, aimed at international clients moving into or expanding within Europe.

According to a joint press release, the firms “will remain independent legal entities but are incorporating the Advant name into their respective brands going forward.” Structured as a Swiss Verein and governed by a Board that includes two representatives from each firm, Advant will be looking to recruit new members “in additional key European markets over the years ahead.”

According to Advant’s website, the association is already “one of the largest European legal advisors. [The] combined team comprises more than 600 professionals, including more than 140 equity partners.” Advant has offices in ten western European cities and in Moscow, Beijing, and Shanghai.

“Our firms have known one another and worked together for many years now,” said Advant Beiten Managing Partner Philipp Cotta. “Over that time it became clear that our values and vision for the future were very much aligned. We believe that we are stronger together, and offer a unique proposition to the market which will enable us to become a top European player.”

Alrud has successfully represented Skolstroj Turnov in a EUR 43 million supply contract dispute in the Russian Arbitrazh Court.

According to Alrud, “Russian company ООО OMSK-Steklotara, a buyer under the contract, filed a claim for recovering the advanced payment under the contract from Sklostroj Turnov CZ, s.r.o. It alleged non-performance of the contract and invalidity of the arbitration clause in the contract. Although our client did not acknowledge the merits of the claim: the main protection strategy was to terminate the proceedings, without consideration of the merits due to the arbitration clause in the contract.”

According to the firm, it succeeded in persuading the courts of three instances to “leave the claim against the client, without consideration, due to an arbitration clause in the contract providing for [the] settlement of disputes, under the contract in the Vienna International Arbitral Centre. The key feature of the case was that, due to the defects in the arbitration clause, [Alrud] initiated the process of rectifying these in accordance with the European Convention on International Commercial Arbitration of 1961. Our team achieved rectification of defects in the arbitration clause, by obtaining clarifications from the Austrian and Czech Chambers of Commerce, as well as from Vienna International Arbitral Centre.”

Alrud’s team included Senior Partner Vassily Rudomino, Partners Maria Ostashenko and Magomed Gasanov, and Senior Associates Boris Ostroukhov and Ksenia Erokhina.