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The legal status of parties to private law relations in the oil industry

Romanova Victoria Valeryevna, Head of the Energy Law Sub-Department of O.E. Kutafi n Moscow State Law University, Doctor of Legal Sciences

Fil Sergey Sergeevich, Director of Corporate and Legal Affairs of Gazprom Energoholding LLC, Lecturer of the Energy Law Sub-Department of O.E. Kutafi n Moscow State Law University

This article presents a legal analysis of specifics of the legal status of parties to private law relations in the oil industry using several provisional classifications: 1) classification based on activities of the party to private law relations (e.g., production, refining, transportation of crude oil and petroleum products); 2) classification based on participation or nonparticipation of the government in the authorized capital of parties to private law relations in the oil industry (companies with and without government participation); 3) classification depending on strategic importance (strategic and non-strategic parties); 4) classification based on the commodity market status; 5) classification based on the territory of activities. Findings of the conducted study result in conclusions on revealed specifics of the legal status of parties to private law relations in the oil industry.

This article considers specifics of the legal status of parties to private law relations in the oil industry. Currently, specifics of the legal status of parties to private law relations in the oil industry are not subject to numerous legal studies, nevertheless, we should mention major works of A.P. Vershinin, L.V. Kalanda, M.I. Kleandrov, A.G. Lisitsyn-Svetlanov and R.N. Saliyeva, which examined the most important aspects of the legal status of entities in the oil and gas economic sector[1].

Various provisional classifications may be used to look into specifics of the legal status of parties to private law relations in the oil industry can use: 1) classification based on activities of the party to private law relations (e.g., production, refining, and transportation of crude oil and petroleum products); 2) classification based on participation or nonparticipation of the government in the authorized capital of parties to private law relations in the oil industry – companies with and without government participation; 3) classification depending on strategic importance – strategic and non-strategic entities; 4) classification based on the commodity market status; 5) classification based on the territory of activities, etc.[2]

1) In reviewing the classification of entities based on activities of the party to private law relations – production, refining and transportations of crude oil and petroleum products, it should be borne in mind that the specifics assigned to each entity are formalized in various regulatory legal instruments.

Pursuant to Art. 9 of Law of the Russian Federation dd. February 21, 1992 No. 2395-1 “On Subsoil”[3], subsoil users may be business entities, including partners in private partnerships, foreign citizens, legal entities, unless otherwise stipulated by federal laws. This is a general rule. In this regard, the lawmaker establishes special requirements to the legal nature of subsoil users at federal-status subsoil areas, except for federal-status subsoil areas of the continental shelf of the Russian Federation and federal-status subsoil areas located in the territory of the Russian Federations and extending on its continental shelf.

In this case, a specific feature of the legal nature is that such users may be legal entities established in accordance with the law of the Russian Federation, if pursuant to this Law the Government of the Russian Federation set no additional limits as to admission to auctions for the right to use such subsoil areas of legal entities with foreign investors established in accordance with the law of the Russian Federation.

Another special requirement was established in relation to the legal nature of subsoil users at federal-status subsoil areas of the continental shelf of the Russian Federation and at federal-status subsoil areas located in the territory of the Russian Federation and extending on its continental shelf.

Such users may be legal entities established in accordance with the law of the Russian Federation, having at least 5 years of experience in development of subsoil areas of the continental shelf of the Russian Federation, wherein the Russian Federation has a share (contribution) in the authorized capitals of more than fifty percent and (or) in relation to which the Russian Federation has the right to, directly or indirectly, exercise more than fifty percent of the total votes assigned to voting shares (stakes) that constitute such legal entities’ authorized capitals.

Grounds for the origin of the right to use subsoil areas are stipulated in Art. 10.1 of Law of the Russian Federation dd. February 21, 1992 No. 2395-1 “On Subsoil”. The said article introduces the possibility of granting the right to use subsoil areas without auctions. Pursuant to cl. 1, Art. 10.1, the list of federal-status subsoil areas that are granted for use without auctions shall be approved by the Government of the Russian Federation.

Resolution of the Government of the Russian Federation dd. June 15, 2009 No. 787-р[4] approved the list of federal-status subsoil granted for geological study of subsoil, exploration and production of raw hydrocarbons without tenders and auctions, and approved granting the right to use certain subsoil areas to Gazprom, OJSC. Later on, this resolution was repeatedly amended in part related to the legal nature of companies, which was expanded to include Rosneft Oil Company, OJSC[5].

The subsoil user’s rights and duties arise from the date of state registration of a subsoil area license.

Requirements to issue, execution and registration of subsoil licenses, requirements to the subsoil user, if any amendments and additions to subsoil area licenses are needed, and to applicants, if re-issue of licenses is needed, are stipulated by Law of the Russian Federation dd. February 21, 1992 No. 2395-1 “On Subsoil”; bylaws, including the Administrative Regulations of the Federal Agency for Subsoil Use on Performing State Functions Associated with Issue, Execution and Registration of Subsoil Licenses, Amending and Enhancing Subsoil Area Licenses, and Re-Issue of Licenses and Adoption of Decisions on Early Termination, Suspension and Restriction of the Right to Use Subsoil Areas, inter alia, as Advised by the Federal Service for Supervision of Natural Resources and Any Other Authorized Bodies, approved by order of the Ministry of Natural Resources and Environment of the Russian Federation dd. September 29, 2009 No. 315[6].

Industrial safety requirements to organizations and personnel engaged in any activities at hazardous industrial facilities producing and storing oil, gas and gas condensate are stipulated by Federal Law dd. July 21, 1997 No. 116-ФЗ “On Industrial Safety of Hazardous Production Facilities”; federal rules and regulations in industrial safety “Safety Regulations in the Oil and Gas Industry” approved by order of the Federal Environmental, Industrial and Nuclear Supervision Service dd. March 12, 2013 No. 101.

Specifics of the legal regime of entities engaged in main pipeline transportation of oil will be considered in cl. 4) hereof, because cl.1, Art. 4 of Federal Law dd. August 17, 1995 No. 147-ФЗ “On Natural Monopolies” refers main pipeline transportation of crude oil and petroleum products to natural monopoly entities’ activities.

2) In reviewing the classification of energy companies in the oil industry depending on participation or nonparticipation of the government in the authorized capital of parties to private law relations in the oil industry, the following issues should be taken into account.

Currently, the following companies should be mentioned among companies of the oil industry with government participation: Zarubezhneft, OJSC, JSC Transneft, OJSC and Rosneft Oil Company, OJSC[7].

The legal status of companies with government participation is determined by such regulatory legal instruments as resolution of the Government of the Russian Federation dd. December 31, 2010 No. 1214 “On Improving the Management Procedure for Open Joint Stock Companies, which Shares are in Federal Ownership, and Federal Unitary Enterprises”[8]; order of the Ministry of Economic Development of the Russian Federation dd. May 7, 2010 No. 168 “On Approval of the Administrative Regulations for Performing the Function of the Authorized Body by the Federal Agency for State Property Management as Stipulated by Cl. 3, Art. 77 of Federal Law “On Joint-Stock Companies”[9], etc.

Let’s dwell on specifics of the legal status of Rosneftegaz, OJSC, wherein the government owns 100% of shares in the name of the Federal Agency for State Property Management. This company owns state assets in the oil and gas industry transferred as a contribution of the Russian Federation to this company’s authorized capital based on the Russian President’s Decrees[10].

In reviewing the issues of specifics of the said entity’s legal status, it should be noted that pursuant to Decree of the Russian President dd. May 22, 2012 No. 695 “On Measures for Privatization of Federal Shareholdings in the Largest Fuel and Energy Companies”[11], to ensure guaranteed income for the federal budget in 2012 and subsequent years from privatization of shareholdings in the largest fuel and energy companies prior to the beginning of 2015 Rosneftegaz, OJSC is an investor in relation to the fuel and energy companies, which shareholdings are to be privatized, if Rosneftegaz, OJSC is given a financing program for these transactions stipulating the use of dividends from shares of companies owned by the said joint-stock company.

This decree approved the program of sale of Rosneftegaz-owned shareholdings in the fuel and energy companies in 2013-2015 in view of market conditions.

3) The list of strategic companies approved by Decree of the Russian President dd. August 4, 2004 No. 1009 “On Approval of the List of Strategic Enterprises and Strategic Joint-Stock Companies”[12] include Zarubezhneft, OJSC; JSC Transneft, OJSC; Rosneft Oil Company, OJSC; Rosneftegaz, OJSC.

Specifics of the legal status of the companies included in the list of strategic joint-stock companies are that pursuant to cl. 3, Art. 7 of Federal Law “On Privatization of State and Municipal Property”, the strategic joint-stock companies’ shares and strategic enterprises are included in the prognosis plan (program) of privatization of federal property following the Russian President’s decision to reduce the extent of participation of the Russian Federation in management of strategic joint-stock companies or to exclude the relevant enterprises from the list of strategic enterprises.

4) As mentioned above, pursuant to cl. 1, Art. 4 of Federal Law dd. August 17, 1995 No. 147-ФЗ “On Natural Monopolies”, activities in main pipeline transportation of oil, main pipeline transportation of crude oil and petroleum products is referred to natural monopoly entities’ activities. Specifics of the legal status of natural monopoly entities engaged in main pipeline transportation of crude oil and petroleum products are stipulated by the following regulatory legal instruments: resolution of the Government of the Russian Federation dd. October 18, 2010 No. 844 “On Standards of Information Disclosure by Natural Monopoly Entities Engaged in Main Pipeline Transportation of Crude Oil and Petroleum Products”[13]; resolution of the Government of the Russian Federation dd. March 29, 2011 No. 218 “On Provision of Non-Discriminatory Access to Natural Monopoly Entities’ Services in Transportation of Crude Oil (Petroleum Products) through Main Pipelines in the Russian Federation and Invalidation of Certain Acts of the Government of the Russian Federation”[14]; resolution of the Government of the Russian Federation dd. December 29, 2007 No. 980 “On State Regulation of Natural Monopoly Entities’ Transportation Tariffs for Crude Oil and Petroleum Products”[15]; order of the Federal Antimonopoly Service dd. November 28, 2011 No. 40 “On Approval of Forms, Terms and Frequency of Information Disclosure by Natural Monopoly Entities Engaged in Main Pipeline Transportation of Crude Oil and Petroleum Products, and Rules for Completion of these Forms”[16]; order of the Federal Tariff Service dd. January 19, 2011 No. 11-э “On Approval of Forms, Terms and Frequency of Information Disclosure by Natural Monopoly Entities Engaged in Main Pipeline Transportation of Crude Oil and Petroleum Products, and Rules for Completion of these Forms”[17].

Pursuant to cl. 11 of the Standards of Information Disclosure by Natural Monopoly Entities Engaged in Main Pipeline Transportation of Crude Oil and Petroleum Products approved by resolution of the Government of the Russian Federation dd. October 18, 2010 No. 844, the disclosed information includes information: 1) on transportation tariffs for crude oil and petroleum products (detailing each tariff component) under state regulation specifying a source of official publication of the regulating authority’s decision to set tariffs; 2) on key indicators of financial-and-economic activities in transportation of crude oil and petroleum products (including the structure of major production costs associated with regulated services); 3) on major consumer properties of natural monopoly entities’ regulated services and their compliance with national and any other approved quality standards; 4) on the technical (im)possibility to access regulated transportation of crude oil and petroleum products; 5) on registration and implementation of requests for access to transportation of crude oil and petroleum products and requests for connection (tapping) to natural monopoly entities’ main pipeline; 6) on any terms of regulated transportation of crude oil and petroleum products by natural monopoly entities and (or) connection (tapping) to natural monopoly entities’ main pipeline; 7) on the procedure for technological, technical and other arrangements associated with connection (tapping) to natural monopoly entities’ main pipeline; 8) on any investment programs (any projects of investment programs); 9) on any methods of acquisition, cost and amounts of goods needed for transportation of crude oil and petroleum products. This list is exhaustive.

5) In reviewing the classification of parties to private law relations in the oil industry depending on the territory of activities, it is important to consider specifics of the legal regime stipulated, inter alia, by the following regulatory legal instruments: Law of the Russian Federation dd. May 21, 1993 No. 5003-1 “On the Customs Tariff”[18]; resolution of the Government of the Russian Federation dd. September 26, 2013 No. 846 “On the Procedure for Preparation of Proposals on Application of Special Export Duty Formulae for Crude Oil Specified in Subcl. 2, Cl. 5, Art. 3.1 of Law of the Russian Federation “On the Customs Tariff”[19]; order of the Ministry of Energy of the Russian Federation dd. December 3, 2013 No. 868 “On Approval of the Guidelines for Analysis of Valid Application of Special Export Duty Formulae for Crude Oil Specified in Subcl. 2, Cl. 5, Art. 3.1 of Law of the Russian Federation “On the Customs Tariff”, Forms of Requests for Application of a Special Export Duty Formula for Crude Oil and Forms of Certificates on Expected and Actual Capital and Operating (Maintenance) Costs Incurred by the Subsoil User and Associated with Field Exploration and (or) Development, and on Actual Proceeds of the Subsoil User from Sales of Hydrocarbons Extracted in the Field”[20].

In pursuance of the special export duty formulae for crude oil specified by Law of the Russian Federation “On the Customs Tariff”, resolution of the Government of the Russian Federation dd. September 26, 2013 No. 846 approved the Rules of Preparation of Proposals on Application of Special Export Duty Formulae for Crude Oil Specified in Subcl. 2 and 3, Cl. 5, Art. 3.1 of Law of the Russian Federation “On the Customs Tariff”, and Monitoring of Their Valid Application.

The results of the brief legal analysis of specifics of the legal status of parties to private law relations in the oil industry lead to the following conclusions. The identified specifics of the legal status are primarily attributable to specifics of the legal regime of such a strategic energy resource as oil, and specifics of the legal regime of energy facilities in the oil industry. The said circumstances necessitate additional requirements to persons engaged in production, refining, transportation and storage of crude oil and petroleum products. These requirements mostly focus on provision of industrial, energy and environmental safety.

Specifics of the legal status of parties to private law relations are also attributable to the fact that main pipeline transportation of oil is referred to natural monopoly entities’ activities. This circumstance prompts certain requirements imposed on the relevant entities, including requirements to provide non-discriminatory access to their services. In this regard, it should be noted that, as is rightly recognized by A.G. Lisitsyn-Svetlanov, the issue of compliance with anti-monopoly policies for the oil and gas sector with its traditionally high concentration of productive-and-financial capital typical of its entities was, is and for a long time will be topical. It is attributable to many factors, including high cost, technologically complicated and science-intensive development of fields of raw hydrocarbons and their production, and high risks. All these factors necessitate pooling of resources by many parties to this process to enhance probable sustainable profits in the competitive market[21].



[1] Vershinin, A.P. Energy Law: Training-and-Practical Course. St. Petersburg: Publishing House of the Law Department of Saint Petersburg State University, 2007 (in Russian); Kalanda, L.V., Salieva, R.N. Legal Support of Business Entities’ Activities in the Oil and Gas Economic Sector. Moscow: Statut, 2001 (in Russian); Kleandrov, M.I. Oil and Gas Legislation in the Russian Law System. Novosibirsk: Nauka. Siberian Publishing Firm of the Russian Academy of Sciences, 1999 (in Russian); Lisitsyn-Svetlanov, A.G. The Role of Law in Modernization of Russia’s Economy. Moscow: Institution of the Russian Academy of Sciences “Institute of State and Law of the Russian Academy of Sciences”, 2011, pp. 30-45 (in Russian); Salieva, R.N. Legal Support of Entrepreneurial Development in the Oil and Gas Economic Sector: Thesis … Doctor of Legal Sciences. Tyumen, 2003 (in Russian).

[2] For more details, see: Romanova, V.V. Energy Law. General Principles: Textbook. Moscow: Yurist, 2013, pp. 111-124 (in Russian).

[3] Law of the Russian Federation dd. February 21, 1992 No. 2395-1 “On Subsoil” // Rossiyskaya Gazeta, May 5, 1992 (in Russian).

[4] Resolution of the Government of the Russian Federation dd. June 15, 2009 No. 787-р “On Approval of the List of Federal-Status Subsoil Areas Granted for Use without Tenders and Auctions and on Granting the Right to Use Kirinsky perspective, Ayashsky, East Odoptinsky and West Kamchatsky Subsoil Areas to Gazprom, OJSC” (in Russian).

[5] See, e.g.: Resolution of the Government of the Russian Federation dd. October 11, 2010 No. 1699-р “On Enhancement of the List of Federal-Status Subsoil Areas Granted for Use without Tenders and Auctions with Subsoil Areas in the Waters of the Barents, Kara and Black Seas, and on Granting the Right to Use the Said Subsoil Areas to Rosneft Oil Company, OJSC and Gazprom, OJSC” (in Russian); Resolution of the Government of the Russian Federation dd. January 31, 2013 No. 103-р “On Enhancement of the List of Federal-Status Subsoil Areas Granted for Use without Tenders and Auctions with Subsoil Areas located in the Waters of the Laptev, Barents, Kara and Chukchi Seas and on Granting the Right to Use the Said Subsoil Areas to Rosneft Oil Company, OJSC” (in Russian).

[6] Order of the Ministry of Natural Resources and Environment of the Russian Federation dd. September 29, 2009 No. 315 “On Approval of the Administrative Regulations of the Federal Agency for Subsoil Use on Performing State Functions Associated with Issue, Preparation and Registration of Subsoil Licenses, Amending and Enhancing Subsoil Area Licenses, and Re-Issue of Licenses and Adoption of Decisions on Early Termination, Suspension and Restriction of the Right to Use Subsoil Areas, inter alia, as Advised by the Federal Service for Supervision of Natural Resources and Any Other Authorized Bodies” // Bulletin of Normative Acts of Federal Executive Authorities, 2010, No. 10 (in Russian).

[7] See the companies’ official websites: Zarubezhneft, OJSC (URL: http://nestro.ru/ru/about_company/); Transneft Oil Company, OJSC (URL: http://www.transneft.ru/about/); Rosneft Oil Company, OJSC (URL: http://www.rosneft.ru/).

[8] Resolution of the Government of the Russian Federation dd. December 31, 2010 No. 1214 “On Improving the Management Procedure for Open Joint Stock Companies, which Shares are in Federal Ownership, and Federal Unitary Enterprises” // Collection of the Legislative Acts of the Russian Federation, 2011, No. 3, Art. 550 (in Russian).

[9] Order of the Ministry of Economic Development of the Russian Federation dd. May 7, 2010 No. 168 “On Approval of the Administrative Regulations for Performing the Function of the Authorized Body by the Federal Agency for State Property Management as Stipulated by Cl. 3, Art. 77 of Federal Law “On Joint-Stock Companies” // Bulletin of Normative Acts of Federal Executive Authorities, 2010, No. 31 (in Russian).

[10] See: Decree of the President of the Russian Federation dd. November 21, 2007 No. 1560 “On Rosneftegaz and Kamchatgazprom Open Joint Stock Companies” // Collection of the Legislative Acts of the Russian Federation, 2007, No. 48, Art. 5953 (Part II) (in Russian); Decree of the President of the Russian Federation dd. April 8, 2008 No. 464 “On Further Development of Rosneftegaz Open Joint Stock Company and Amending the List of Strategic Enterprises and Strategic Joint-Stock Companies Approved by Decree of the President of the Russian Federation dd. August 4, 2004 No. 1009” // Collection of the Legislative Acts of the Russian Federation, 2008, No. 15, Art. 1526 (in Russian); Decree of the President of the Russian Federation dd. April 9, 2009 No. 375 “On Development of Rosneftegaz Open Joint Stock Company” // Collection of the Legislative Acts of the Russian Federation, 2009, No. 15, Art. 1813 (in Russian).

[11] Decree of the President of the Russian Federation dd. May 22, 2012 No. 695 “On Measures for Privatization of Federal Shareholdings in the Largest Fuel and Energy Companies” // Collection of the Legislative Acts of the Russian Federation, 2012, No. 22, Art. 2756 (in Russian).

[12] Decree of the President of the Russian Federation dd. August 4, 2004 No. 1009 “On Approval of the List of Strategic Enterprises and Strategic Joint-Stock Companies” // Collection of the Legislative Acts of the Russian Federation, 2004, No. 32, Art. 3313 (in Russian).

[13] Resolution of the Government of the Russian Federation dd. October 18, 2010 No. 844 “On Standards of Information Disclosure by Natural Monopoly Entities Engaged in Main Pipeline Transportation of Crude Oil and Petroleum Products” // Collection of the Legislative Acts of the Russian Federation, 2010, No. 43, Art. 5514 (in Russian).

[14] Resolution of the Government of the Russian Federation dd. March 29, 2011 No. 218 “On Provision of Non-Discriminatory Access to Natural Monopoly Entities’ Services in Transportation of Crude Oil (Petroleum Products) through Main Pipelines in the Russian Federation and Invalidation of Certain Acts of the Government of the Russian Federation” (in Russian).

[15] Resolution of the Government of the Russian Federation dd. December 29, 2007 No. 980 “On State Regulation of Natural Monopoly Entities’ Transportation Tariffs for Crude Oil and Petroleum Products” // Collection of the Legislative Acts of the Russian Federation, 2008, No. 2, Art. 104 (in Russian).

[16] Order of the Federal Antimonopoly Service dd. January 28, 2011 No. 40 “On Approval of Forms, Terms and Frequency of Information Disclosure by Natural Monopoly Entities Engaged in Main Pipeline Transportation of Crude Oil and Petroleum Products, and Rules for Completion of these Forms” // Bulletin of Normative Acts of Federal Executive Authorities, 2011, No. 18 (in Russian).

[17] Order of the Federal Tariff Service dd. January 19, 2011 No. 11-э “On Approval of Forms, Terms and Frequency of Information Disclosure by Natural Monopoly Entities Engaged in Main Pipeline Transportation of Crude Oil and Petroleum Products, and Rules for Completion of these Forms” // Rossiyskaya Gazeta, March 2, 2011 (in Russian).

[18] Law of the Russian Federation dd. May 21, 1993 No. 5003-1 “On the Customs Tariff” // Rossiyskaya Gazeta, June 5, 1993 (in Russian).

[19] Resolution of the Government of the Russian Federation dd. September 26, 2013 No. 846 “On the Procedure for Preparation of Proposals on Application of Special Export Duty Formulae for Crude Oil Specified in Subcl. 2, Cl. 5, Art. 3.1 of Law of the Russian Federation “On the Customs Tariff” // Collection of the Legislative Acts of the Russian Federation, 2013, No. 40 (Part III), Art. 5077 (in Russian).

[20] Order of the Ministry of Energy of the Russian Federation dd. December 3, 2013 No. 868 “On Approval of the Guidelines for Analysis of Valid Application of Special Export Duty Formulae for Crude Oil Specified in Subcl. 2, Cl. 5, Art. 3.1 of Law of the Russian Federation “On the Customs Tariff”, Forms of Requests for Application of a Special Export Duty Formula for Crude Oil and Forms of Certificates on Expected and Actual Capital and Operating (Maintenance) Costs Incurred by the Subsoil User and Associated with Field Exploration and (or) Development, and on Actual Proceeds of the Subsoil User from Sales of Hydrocarbons Extracted in the Field” // Rossiyskaya Gazeta, December 30, 2013 (in Russian).

[21] Lisitsyn-Svetlanov, A.G. Op. cit., p. 44 (in Russian).

Bibliography:

  1. Kalanda, L.V., Salieva, R.N. Legal Support of Business Entities’ Activities in the Oil and Gas Economic Sector / L.V. Kalanda, R.N. Salieva. Moscow: Statut, 2001 (in Russian).
  2. Kleandrov, M.I. Oil and Gas Legislation in the Russian Law System / M.I. Kleandrov. Novosibirsk: Nauka. Siberian Publishing Firm of the Russian Academy of Sciences, 1999 (in Russian).
  3. Lisitsyn-Svetlanov, A.G. The Role of Law in Modernization of Russia’s Economy / A.G. Lisitsyn-Svetlanov. Moscow: Institution of the Russian Academy of Sciences “Institute of State and Law of the Russian Academy of Sciences”, 2011, pp. 30-45 (in Russian).
  4. Romanova, V.V. Energy Law. General Principles: Textbook / V.V. Romanova. Moscow: Yurist, 2013, pp. 111-124 (in Russian).
  5. Saliyeva, R.N. Legal Support of Entrepreneurial Development in the Oil and Gas Economic Sector: Thesis … Doctor of Legal Sciences / R.N. Salieva. Tyumen, 2003 (in Russian).
  6. Vershinin, A.P. Energy Law: Training-and-Practical Course / A.P. Vershinin. St. Petersburg: Publishing House of the Law Department of Saint Petersburg State University, 2007 (in Russian).