The following issues are scheduled for discussion at the Government (Presidium) meeting on March 26, 2009:

1. The results of implementing the forecast plan (programme) of federal property privatisation in 2008 and the main trends in privatising federal property in 2010

The Ministry of Economic Development has submitted materials for the Government meeting on the results of federal property privatisation in 2008 and the main trends in privatising federal property in 2010.

1)     Results of federal property privatisation in 2008

Federal budget revenues from the sale of federal privatisation assets and facilities in the reporting period amounted to 7.19 billion roubles, including 3.69 billion roubles from the sale of 135 share packets which were announced for sale in 2007 and the tendering results which were summed in 2008.

Federal assets subject to privatisation in 2008 included 1,178 federal state unitary enterprises and state-owned shares (stakes) in 1,874 economic entities, as well as 1,351 real estate facilities constituting public treasury assets. Among the assets included in the 2008 privatisation programme, state-owned stakes in 307 joint-stock companies were privatised in the reporting period and decisions were taken on the terms and conditions for privatising another 213 federal state unitary enterprises.

Within the implementation of the privatisation programme, 25 integrated companies and the Russian Technology state corporation were established in keeping with the decisions of the President and Government of the Russian Federation.  

2)     Main trends in privatising federal property in 2010

According to the Ministry of Economic Development, the main trends in privatising federal property in 2010 are as follows:

-         the privatisation of federal properties which are not involved in exercising state functions or powers of the Russian Federation;

-         the establishment of integrated companies in strategic sectors of the economy;

-         the conversion of federal state unitary enterprises into joint-stock companies, and

-         the formation of federal budget revenues.

 

2. Draft Federal Law On Introducing Amendments to the Federal Law on Additional Guarantees of Social Support for Orphaned Children and Children Left without Parental Care, specifying the mechanisms and the terms and conditions of providing social support for orphaned children and children left without parental care

The Ministry of Education and Science has submitted the Draft Federal Law On Introducing Amendments to the Federal Law On Additional Guarantees of Social Support for Orphaned Children and Children Left without Parental Care, specifying the mechanisms and the terms and conditions of providing social support for orphaned children and children left without parental care.

Over the past decade, the federal laws and regulatory legal acts on social support for orphaned children and children left without parental care, including Federal Law No 159-FZ, on Additional Guarantees of Social Support for Orphaned Children and Children Left without Parental Care, dated December 21, 1996 (hereinafter to be referred to as the Law), have been considerably amended and supplemented.

The submitted draft law is aimed at clarifying some provisions on the exercise of the orphan children's rights to education, and also at removing the inconsistencies revealed in implementing some provisions of the above Law.

To avoid inconsistencies, the provisions of the Law extending additional social protection guarantees for orphaned children and children left without parental care, including such children in the 18-23 age bracket, have been clarified.

 

The amendments stipulated in the draft law remove inconsistencies in interpreting some provisions of the Law, clarify some provisions of the Law in connection with the amendments to it made by Federal Law No 122-FZ of August 22, 2004, and bring some provisions of the Law into compliance with the Constitution of the Russian Federation.

Overall, the adoption of the submitted draft law will improve the Russian legislation on social protection and support for orphaned children and children left without parental care and ensure a better observance of their rights and legitimate interests.    

3.                Draft Federal Law On Introducing Amendments to Some Legislative Acts of the Russian Federation (regarding the introduction of a mechanism of close-out netting)

The Federal Financial Markets Service (FFMS) has submitted the draft federal law, On Introducing Amendments to Some Legislative Acts of the Russian Federation (regarding the introduction of a mechanism of close-out netting) for consideration by the agencies concerned.

Transactions with financial instruments have become widespread in the international financial markets. By the end of 2007, such transactions amounted to over $260 trillion in nominal terms. Transactions with financial instruments are conducted by private and institutional investors, trade and industrial enterprises, state authorities, financial organisations and intermediaries. The number of companies using these instruments to manage risks is increasing.

The fast development of the derivatives market is due to its macroeconomic significance in detecting and distributing risk and its impact on price formation in the market of basic assets - goods, securities, interest rates, etc. Investors on the basic asset market can obtain reliable information on the future price of the asset they might need to implement their production, trade or strategic tasks.

The Russian financial market is also being formed with the use of transactions with financial instruments making it possible to expand the market, enhance its stability and thus promote capital turnover and thus help keep capital at home. In 2007, the overall volume of trade in such transactions on all trading floors in Russia came close to $383.9 billion.

The dynamics of key indicators on the RTS-FORTS Derivatives Market shows that from July 2001 to July 2007, average daily trading increased from 27,500 to 683,800 contracts and the average daily amount of open positions from 61,100 to nearly 5 million contracts.

However, these figures are insignificant compared to the respective markets in other countries. The reason is that at present the Russian market of transactions with financial instruments fails to comply with market investors' requirements and also with the development level of such markets in industrialised countries. This is why Russian producers often prefer foreign financial markets to the Russian derivatives market.

For instance, Russian producers choose the London Metal Exchange for insurance against the risk of trading in non-ferrous metals, and the New York Mercantile Exchange (NYMEX) and the International Petroleum Exchange against those involved in oil and petrochemical transactions.

One of the main reasons for this is the inadequacy of the Russian legislation regulating this segment of the financial market. This is also confirmed by the positive dynamics of forward transactions after the amendments made to Article 1062 of the Civil Code of the Russian Federation on court protection for them.

One of the main factors seriously impeding the development of the derivatives market is a lack of direct opportunity to use the closeout netting mechanism for all financial deals signed within a single agreement, when bankruptcy proceedings are initiated against one of the parties to the agreement. The application to respective financial transactions of general legal provisions on insolvency (bankruptcy) governing the settlement of the debtor's liabilities and the procedure used when the debtor refuses to fulfil its liabilities does not ensure the maximum possible reduction of systemic and credit risks when Russian economic entities conduct transactions with derivative financial instruments, and thus fails to enhance the stability and reliability of the national financial system as a whole.

In well-developed financial markets the above problem is solved through the conclusion of master agreements providing for the need to determine net liabilities including all current and future liabilities of the parties when circumstances arise (as written into the agreement) preventing the due fulfilment of such liabilities.  

Similar provisions are written into agreements signed by Russian participants in the financial market. Russian laws do not directly ban the conclusion of respective agreements or make it possible to sign them. However, the validity of such agreements within the framework of Russian legislation as a whole cannot be doubted and may be regarded as a novation (Article 414 of the Civil Code of the Russian Federation), a complex conditioned obligation (Article 157 of the Civil Code), an alternative obligation (Article 320 of the Civil Code), or their combinations. However, judicial practice does not support the above position and, in the event of disputes, regards each obligation as a separate agreement, which is not connected with other liabilities between the parties concerned. The judicial bodies' viewpoint is especially categoric in the event of bankruptcy proceedings, which is explained by the need to protect the rights of the debtors' other creditors.

Legal uncertainty regarding the possibility of using the procedure for determining net liabilities on financial transactions signed within a single contract makes such transactions less attractive on the Russian financial, commodities and currency markets and prevents their active use, including the hedging of economic risks.

The inadequate regulation of the derivatives market in Russia leads to imbalances in the development of the national financial market.

For this reason, it is necessary to make amendments to the legislation on insolvency (bankruptcy) legalising the use of closeout netting, i.e., the mechanism for determining net liability from financial transactions within bankruptcy proceedings.

The draft law sets forth the main requirements to the procedure for determining net liabilities. In particular, it establishes a procedure for calculating liquid liability connected with the failure to fulfil obligations on financial transactions for supplies of goods, securities, currency or other assets.

A general procedure whereby a net obligation is determined by the creditor through making respective claims within the debtor's bankruptcy proceedings, or by a court-appointed liquidator through making debt claims to third parties indebted to the debtor, will be applied to determine net liabilities.

In order to exclude the improper use of this instrument during bankruptcy proceedings, the legislation on insolvency (bankruptcy) should classify the respective contracts and categories of transactions eligible for closeout netting, and also the procedure for determining net liabilities. Since under Article 1062 of the Civil Code of Russia, judicial protection for derivatives transactions is limited by the participating companies and is provided only if one of the parties to the transaction is a legal entity holding a banking licence or a licence to perform operations on the securities market, a similar approach should be used in regulating similar transactions during bankruptcy proceedings.

Additionally, to regulate closeout netting proceedings it is necessary to specify the rights of the external administrator in case of a refusal to perform the debtor's financial transactions (contracts and other agreements) signed within a single agreement. Thus, under the current legislation, the external administrator, using the right of refusal to perform transactions, may reject some transactions with financial instruments signed within a single agreement which are outside the financial considerations in the debtor's opinion. This may disrupt the integrity of the mechanism for determining net liabilities. In order to remove said contradiction, it is proposed to establish an administrator right to refuse to execute forward transactions signed within a single agreement pertaining only to the liabilities between the creditor and the debtor within this agreement.

The draft law is also intended to remove the technical error made in Item 6, Article 51 of the Federal Law On the Securities Market, by establishing that this norm defines the notion of "financial instruments", as provided by Item 5, Article 3 of said law.

In specifying the draft law, law makers used the experience accumulated by international organisations and major foreign countries in regulating closeout netting procedures.

Thus, in 2006 the International Swaps and Derivatives Association (ISDA) adopted the ISDA Model Netting Act, which is a revised version of similar laws adopted by the ISDA in 1996 and 2002. The Model Netting Act sets forth the main principles necessary for ensuring the possibility of enforceable bilateral netting, including within insolvency proceedings. Model netting acts worked out by the ISDA have been successfully used in drafting netting legislation in some countries. At present, the provisions on netting with respect to financial liabilities are applicable in nearly all industrialised countries. In particular, they were written into the legislation of nearly all EU countries, and also of Australia, Brazil, Canada, the United States, South Africa, Japan and others.

For instance, under French legislation, an article of the Monetary and Financial Code says that closeout netting is enforceable under French law, whereas the next article establishes that not a single insolvency provision can prevent the application of the previous article. Thus, French legislation clearly establishes that insolvency laws cannot be used to dispute the enforceability principle of closeout netting excluding the risk of a failure to mention some concrete problem cases.

The federal law of Switzerland on the fulfilment of debt obligations and bankruptcy establishes that the liquidator cannot refuse to perform only part of the liabilities within a single agreement.

The German law on bankruptcy proceedings also provides for a special procedure for determining monetary claims on forward financial agreements and also confirms exceptions to the liquidator's right to choose the deals. Paragraph 104 of said law says that if forward financial transactions are united by a framework agreement providing for the termination of the agreement at any one time in the event of its violation, the totality of these transactions within the bankruptcy proceedings is regarded as a single bilateral agreement.

The said amendments to the draft law will create conditions for the development of a national exchanging and an over-the-counter markets of financial instruments. Russian companies and banks, and also state-controlled companies and other organisations in the state sector, will receiver wider opportunities to conduct hedging (risk insurance) transactions. In turn, the establishment of this segment of the financial market and a reduced risk of investment in Russian assets will create more favourable conditions for investment in the Russian capital market on the whole. Overall, the adoption of the respective legal regulations aimed at reducing systemic and credit risks will help to expand the Russian financial, monetary and capital markets and enhance their stability.

4.                 Draft Federal Law On Introducing Amendments to Articles 69 and 119 of the Customs Code of the Russian Federation

The analysis of the processes of customs clearance and control over exports shows the need to legislatively limit the number of points of departure for some commodities from the customs territory of the Russian Federation in order to ensure due customs control over them.

Customs agencies are still confronted with the serious problem of ensuring proper control over timber exports.

With the shipment points being numerous, widely scattered and remote from the customs offices responsible for customs clearance of exported timber, it is impossible to exercise effective control over timber exports.

Another concern is the limited capacity of most border exit points to conduct the customs clearance (control) of timber and timber products in transport vehicles leaving the customs territory of the Russian Federation and also to exercise quality control of exported timber products in order to exclude their replacement by products of varying quality. Considering the specifics of this category of commodities, the exit points do not have the necessary equipment or technical base to conduct efficient control within the established timeframe.

In order the meet customs control and quality control requirements with respect to exported timber and timber products, it is necessary to establish specific exit points for exporting them from the customs territory of the Russian Federation.

Under Article 69 of the Customs Code, the Russian Government is entitled to establish only border entry points for some types of commodities entering the customs territory of the Russian Federation.

To resolve the above issue, it is proposed to make amendments to Article 119 of the Customs Code to give the Government the right to also establish border exit points for some commodities leaving the customs territory of the Russian Federation. At the same time, in order to normalise the terminology, it is proposed to amend Article 69 of the Customs Code by removing the ambiguity in interpreting the term "determine" as applied to border entry/exit points at the state border of the Russian Federation (as written into Russian legislation on the state border of the Russian Federation) by replacing it with the term "establish."

The adoption of this draft law will make it possible:

-         to improve the system of customs administration;

-         to rationally distribute the load among the border entry/exit points, and

-         to enhance state control over some types of commodities of strategic importance for the Russian Federation.

5.                 Draft Federal Law On Ratification of the Agreement between the Government of the Russian Federation and the Government of the Republic of Indonesia on the Encouragement and Protection of Capital Investment

The Foreign Ministry and the Economic Development Ministry of the Russian Federation have initiated the proposal to approve and submit for ratification by the State Duma of the Russian Federation's Federal Assembly the Agreement between the Russian Government and the Government of the Republic of Indonesia on the Encouragement and Protection of Capital Investments signed in Jakarta on September 6, 2007.

The Governments of Russia and the Republic of Indonesia signed the agreement on the encouragement and protection of mutual capital investments on September 6, 2007.

The main provisions of the agreement are as follows:

1.                 Capital investments of a negotiating party should be given access to the territory of another negotiating party in keeping with the legislation of the host country.

2.                 Capital investments of a negotiating party should be given treatment no less favourable than that provided for capital investments of the home country's investors, or investors of a third country which is regarded more favourably by the investors.

3.                 Each negotiating party will preserve the right to apply or introduce, in keeping with national legislation, exemptions to the national regulations with respect to foreigner capital investment.

Under the agreement, neither of the negotiating parties is obliged to extend to investors of another negotiating party the benefits it provides to a third country's investors in connection with their participation in a free trade zone, a customs or a currency union, or those provided within international agreements leading to the establishment of such entities, or under the agreement for the avoidance of double taxation and other tax agreements, as well as under the Russian Federation's agreements with states which were part of the former USSR.

4.                 Capital investment should be guaranteed protection from the forced withdrawal - nationalisation, expropriation, or other measures leading to similar consequences, except cases when such measures are taken in public interests, in keeping with the legislation of a host country and on a non-discriminatory basis, and when accompanied by fast, adequate and effective compensation. In addition, the draft law confirms the investors' right to receive adequate compensation in case of a damage done to their capital investments, in particular as a result of war or armed conflicts.

5.                 The host country should guarantee an unimpeded transfer abroad of income or other payments made in connection with capital investments after the investors meet the tax obligations of the host country.

6.                 Due judicial protection should be ensured for the investors' rights through the use of current procedures for settling disputes between the investors of the negotiating parties and also a means for settling disputes between them in connection with the interpretation and application of the provisions of this agreement.

The provisions of this agreement comply with the norms of international law and are not contrary to Russia's international commitments. The agreement is subject to ratification in keeping with Subitem "a" of Item 1, Article 15 of Federal Law No 101-FZ of July 15, 1995, On International Treaties of the Russian Federation, since it contains provisions which are not written into the Russian legislation. In particular, Federal Law No 160-FZ of July 9, 1995, On Foreign Investments in the Russian Federation, of July 9, 1999, does not provide for the most favoured nation treatment for investors and their capital investments and for the terms and conditions, size and procedure for compensation payments in the event of forced withdrawal of capital investments and a compensation for damages.

The implementation of this agreement will not require any additional federal budget expense leading to negative financial and economic consequences. The application of this agreement will ensure long-term stability and a predictable legal environment for investors participating in increased investment, trade and economic cooperation between the Russian Federation and the Republic of Indonesia.

6. Draft Federal Law On Introducing Amendments to Some Legislative Acts of the Russian Federation on the Compensation of Legal Costs.

The draft law provides for making amendments to Clause 1, Part 2, Article 131 of the Criminal Procedure Code of the Russian Federation; Part 1, Article 95 of the Civil Procedure Code of the Russian Federation; Part 1, Article 107 of the Arbitration Procedure Code of the Russian Federation; Part 1, Article 131 of the Tax Code of the Russian Federation, and Part 1, Article 24.7 of the Code of Administrative Offences of the Russian Federation, to provide a uniform procedure for compensating legal costs.

The need to standardise the effective regulations concerning the compensation of costs connected with a court appearance and stay in the locality where court hearings are being held is explained by a lack of uniform treatment of this issue in different legislative acts.

For example, Part 2, Article 131 of the Criminal Procedure Code does not specify the costs connected with court appearance and stay in the locality where the court hearings are being held. Also, the procedural legislation does not clearly define the notion of "daily subsistence allowances," which prevent the agencies concerned from regulating a payment procedure to participants in criminal, civil, arbitration, tax collection and administrative proceedings, leading to the inequality and encroachment of their rights.

In order to ensure a uniform procedure for compensating costs to participants in the above proceedings, the draft law proposes amendments to the respective legislative acts and clarifying the issue of legal cost compensation.

The implementation of the above federal law will remove contradictions in the   current legislation of the Russian Federation and standardise the terms, which will result in a legal act of the Russian Government establishing a uniform procedure for compensation payment to participants in legal proceedings.

7. On submitting the Convention on the Transfer of Convicts from Court to the Penitentiary Service to the President of the Russian Federation for approval for subsequent ratification.

The Foreign Ministry and the Ministry of Justice of the Russian Federation have proposed that the Government should approve the Convention on the Transfer of Convicts from Court to the Penitentiary Service and submit it to the President of the Russian Federation for approval for subsequent ratification by the State Duma. The Convention was drafted within the CIS framework and signed in Moscow on March 6, 1998.

The Convention on the Transfer of Convicts from Court to the Penitentiary Service was drafted within the framework of the Commonwealth of Independent States (CIS) and signed in Moscow on March 6, 1998, by CIS member countries except Turkmenistan and Ukraine.

As of today, the parties to the Convention are the Republic of Azerbaijan, the Republic of Armenia, the Republic of Belarus, Georgia, the Republic of Kazakhstan, the Kyrgyz Republic and the Republic of Tajikistan.

The purpose of the Convention is to help convicts to return to normal life in society by allowing citizens of a signatory state and those who are not to serve their term for a crime committed in another signatory state in their home country or the country of their permanent residence (when they are stateless persons).

The need for Russia to be a party to the Convention is also explained by the fact that at present about 22,000 citizens of foreign signatory states serve their terms in Russian penitentiaries.

The Convention specifies the mechanism for the transfer of convicts to penitentiaries and defines the conditions necessary for such a transfer, or circumstances preventing it.

8. On submitting the Treaty between the Russian Federation and the Republic of Angola on Mutual Legal Assistance on Criminal Cases to the President of the Russian Federation for approval for ratification.

The Foreign Ministry and the Ministry of Justice of the Russian Federation have proposed that the Government should approve the Treaty between the Russian Federation and the Republic of Angola on Mutual Legal Assistance on Criminal Cases and submit it to the President of the Russian Federation for approval for subsequent ratification by the State Duma. The Treaty was signed in Moscow on October 31, 2006.

The Treaty, which is to govern Russian-Angolan relations in legal assistance on criminal cases, is aimed at strengthening the legal and regulatory framework for bilateral cooperation in combating crime and also in protecting the rights and legal interests of the two countries' citizens.

The Treaty stipulates the sides' obligations to grant mutual legal assistance on criminal cases, provided they observe all the terms and conditions written into it.

In connection with the above, the Treaty is subject to ratification in keeping with Subitems "a" and "b", Item 1, Article 15 of the Federal Law On International Treaties of the Russian Federation.

9. On submitting the Protocol On Introducing Amendments to the Agreement between the Russian Federation and the Republic of Kyrgyzstan dated October 21, 1994, on the terms of leasing locations to station units of the Seismic Service of the Russian Defence Ministry in the Republic of Kyrgyzstan to the President of the Russian Federation for approval for ratification.

Russia's Foreign Ministry and Defence Ministry have submitted to the Russian Federation's Government the draft Government Resolution, On Submitting the Protocol on Introducing Amendments to the Agreement between the Russian Federation and the Republic of Kyrgyzstan dated October 21, 1994, on the terms of leasing locations to station units of the Seismic Service of the Russian Defence Ministry in the Republic of Kyrgyzstan to the President of the Russian Federation for approval for ratification.

The draft resolution proposes that the Government approve said Protocol and submit it to the Russian President for approval for subsequent ratification by the State Duma.

The provisions of this Protocol entrust the Special Control Service of the Defence Ministry (instead of the Ministry's Seismic Service) with the duty of settling issues of lease compensation payments for the use of land on which the Russian autonomous seismic centre is located in the Kyrgyz Republic, as well as the issues of Russian-Kyrgyz cooperation in seismologic observations and studies in Kyrgyzstan.