Calgary  Toronto  Moscow  Almaty  Caracas  Rio de Janeiro THE FINANCIAL CRISIS IN RUSSIA: RESOURCE NATIONALISM REDEFINED? Aydin Jebrailov Partner CERBA International Mining Conference Toronto, March 8, 2010

Macleod Dixon International law firm Serving clients via offices on four continents One of the longest established track records of working in Russia Only practice in Russia with first tier Chambers & Partners' ranking in mining

Introduction Resource nationalism May 2008 – legislation adopted re subsoil strategic properties is strongest manifestation of Russian resource nationalism since break up of Soviet Union Russia’s pre-crisis confidence: “Russia will be an island of stability.” (Alexei Kudrin, Russia’s Minister of Finance) End of Russia’s “anti-crisis” measures have no impact on subsoil

Legislative Changes/Remedial Measures New legislation: IEnforcing pledges and mortgages IIBankruptcy IIIShareholders’ agreements recognized IVReforms of limited liability companies VProfit Tax reduced VIAntimonopoly law amended VIIPossible changes in strategic sector investment restrictions

Enforcing Pledges And Mortgages Private Enforcement Enforcing security ex-Russian courts was impractical Now clarified and usable Simplified Foreclosure Pledgee may seize from unco-operative pledgor Direct access to judicial bailiffs But foreclosure on individuals’ housing and state-owned property only through courts

Bankruptcy Shareholders’ liability Challenging debtor transactions Other Accelerated bankruptcy proceedings Stricter definition of debtor's related party Creditors' claims due at "observation" instead of “liquidation” stage Amendments under consideration Consolidating corporate group bankruptcy proceedings Cross border bankruptcies

Shareholders’ Agreements Recognized Scope of SHA –to vote in certain manner –to agree on voting option –to acquire/dispose of shares at certain price or in certain circumstances Remedies –damages, penalties, compensation Outstanding issues –distributions –financing options –management decisions etc.

Reforms Of Limited Liability Companies LLCs) Notary public required for transactions in participation interests Authority of Board of Directors vs. General Participants' Meeting

Profit Tax Reduced Rate of Profits Tax 24% 20%

Antimonopoly Law Amended $233 mln $100 mln $333 mln $200 mln $13 mln $6.5 mln $13 mln $6.5 mln aggregate assets revenue aggregate assets revenue Merger Thresholds Increased –prior approval by FAS –notification to FAS

Improvements in strategic sector: consist mostly of words - not action Outside SSL Within SSL Framework EXCLUSIVENON-EXCLUSIVE (mining requires government’s approval) POSSIBLENOT POSSIBLE ≥ 50% ≥ 10% A company whose domicile, main activity and management are in Russia is not a foreign investor Any Russian company having a foreign affiliate is deemed and treated as a foreign investor for SSL purposes 1.Preliminary and equivalent (RF Constitution) 2.Fair market value (RF’s international agreements) Exploration expenditures plus certain premiums not corresponding to market or being equivalent in principle Is not retroactive unless otherwise stated Although not stated, effectively retroactive Possibility to explore after production has started Definition of Control Foreign Investor Compensation in case of requisition Combined Licence Major Anomalies of SSL Effect of Law

Proposed Changes To Strategic Sector Laws Proposed changes for subsoil strategic properties: Apply general regime for strategic type of activity to subsoil strategic properties, in particular increase threshold for acquisition of subsoil strategic properties from 10% to 50% Replace state’s right to confiscate newly discovered subsoil strategic properties with right to demand decrease in foreign investor’s ownership to 50% minus one share Exempt exploration stage properties from restrictions pertaining to strategic properties Abolish requirement to complete all exploration works prior to commencement of production Increase “strategic” threshold for gold properties

Other Changes establish transparent mechanism securing a subsoil user land rights with respect to subsoil plot in question establish clear cut rules for use of subsoil within protective forests and certain other restricted categories of forest land provide for possibility to enlarge mining allotment beyond license area, in cases where ore deposit is extended

Conclusion “Despite introduction of legal improvements, the Russian Government and the Legislator have yet to re-define resource nationalism whereby the rules governing subsoil strategic properties are modified and aligned to match the realities presented by the financial and economical crisis”

Contacts Macleod Dixon Moscow Office Tel.: Fax: Aydin Jebrailov, Partner Macleod Dixon – Local Depth, International Expertise