Business Community Sees the Draft Law on Investment as a Risk

19 november 2019

The draft federal law on the protection and promotion of investment, submitted to the State Duma, makes concession and public-private partnership mechanisms unprofitable for investors, creates default risks for concessions that have already been allocated and may lead to reduction of private investment in infrastructure projects. Such concerns were expressed by experts and business representatives at a round table held at the Analytical Center.

"The draft law is aimed at stimulating investment in industrial facilities," explained Vera Syrchina, Advisor to the Head of the Analytical Center. "The law is supposed tp become the main document regulating all investments, including investment in infrastructure. It also applies to concession agreements, meaning that concessions will have to comply, first of foremost, with the draft law, and only then with their core law, but they contradict each other".

She has also stressed that the lack of unified rules creates risks for all concession actors. Business community representatives explained that concessions and industry stimulation require different regulatory instruments. Even now, investors already consider the procedure for concession allocation to be too complicated and lengthy, and the latest changes will complicate participation in such projects even further. Investments will become unprotected, and their return will not be guaranteed. This will mean a decline in private initiative for the market. As a result, the state may run into problems trying to find investments for Comprehensive modernization and expansion plan, says Denis Shtirbu, Head of PPP and infrastructure practice at Vegas Lex law firm.

The expert also added: "Lawyers working for banks and concessionaires will analyze the new law and give their clients recommendations to be careful and to only look into concessions for a period of up to 10 years. This will prevent the launch of many new projects, not to mention the fact that lenders and concessionaires may demand early repayment, which will lead to a pre-default situation for public entities."

Participants of the discussion have concluded that the draft law aimed at stimulating private investment in the industrial sector will rewrite the rules of concession and PPP markets, and will lead to a result opposite to its goals, reducing investment in infrastructure.

In order to eliminate such risks, experts suggest removing concessions and public-private partnership projects from the scope of the draft law.