C O N F I D E N T I A L MOSCOW 011686

SIPDIS

SIPDIS

STATE FOR EUR/RUS; EB/ESC
DOE FOR HARBERT
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR GRAHAM AND MCKIBBON
TREASURY FOR LEE, COX, AND BAKER

E.O. 12958: DECL: 10/18/2016
TAGS: ECON EIND ENRG PREL RS
SUBJECT: STRATEGIC SECTORS LAW SUBMITTED TO GOVERNMENT

REF: A. 05MOSCOW3511


B. 05MOSCOW12258

C. 05MOSCOW15602

D. 06MOSCOW3523


1. (C) Summary. The Ministry of Industry and Energy (MIE) on
October 13 submitted the draft law on Foreign Investment in
the Strategic Sectors for government review. Contrary to
press reports that the new draft reduces the number of
strategic sectors that would be regulated by the new
legislation from 39 TO 7, contacts at the MIE and the
Ministry of Economic Development and Trade (MEDT) say that
the draft law has not changed from previous versions (see
reftels) and the 39 types of economic activity governed by
the new legislation have just been grouped into 7 categories.
On other key sticking points, the definition of what
constitutes a strategic deposit and the level of foreign
equity that would trigger review of a particular project have
not yet been decided. End summary.


2. (C) The business newspaper Kommersant reported October 16
that the Ministry of Industry and Energy (MIE) submitted the
draft law on Foreign Investment in Strategic Sectors to the
government on October 13 and claimed the new draft reduced
the number of economic activities that would be governed by
the new law from 19 to 7 (comment: the 19 appears to be an
error because previous drafts list 39 activities considered
"strategic"). Emboffs discussed the article with both MEDT
Deputy Minister Kiril Androsov and the MIE Director for Legal
Affairs Vladimir Teraskin, who indicated that the draft
remains virtually unchanged from the version released earlier
this year. Teraskin explained that the 39 sectors have just
been grouped into 7 categories.


3. (C) Teraskin confirmed that the draft has been finalized
and Deputy Premier Zhukov would send it to an
inter-ministerial commission for review on October 19 or 20.
He said that differences between the MIE and FSB remain on
the level of foreign equity stake in a deal that would
trigger a review, with the MIE sticking to 50 percent and the
FSB insisting on 30. MEDT Deputy Minister Androsov said that
the interagency commission would review the draft in the next
two to three weeks and then submit it for government
approval. Duma review would then follow. According to
Androsov, the definition of strategic deposits is still under
review by the respective ministries. He said that the MEDT
position on strategic deposits has not changed and continues
to include only the 7 largest deposits.


4. (C) Comment: This week's submission of the draft law to
the inter-ministerial commission is the first sign of real
life since the draft was sent back to the government late
last year for further review, but the continued lack of
consensus over key issues illustrates the sensitivity
surrounding this proposal. Putin will probably have to
intervene and break the impasse if this law is going to be
passed before the end of 2006.
BURNS