1. Moscow Calgary Toronto Almaty Atyrau Caracas Rio de Janeiro 2008 March 4, 2008 Aydin Jebrailov LATEST DRAFT LAWS ON SUBSOIL USE IN RUSSIA: A SHIFT IN RIGHT DIRECTION? CERBA International Mining Conference “Mining in Russia – Business Opportunities”

2. Moscow Calgary Toronto Almaty Atyrau Caracas Rio de Janeiro Context A dozen of drafts proposed and declined since 2001: draft Subsoil Code (mega law attempting to encompass all subsoil related issues);draft Subsoil Code (mega law attempting to encompass all subsoil related issues); draft Subsoil law (new concepts introducing civil law elements in subsoil relationship);draft Subsoil law (new concepts introducing civil law elements in subsoil relationship); less ambitious amendments to individual provisions of the existing law;less ambitious amendments to individual provisions of the existing law; amendments restricting foreign participation in strategic properties;amendments restricting foreign participation in strategic properties;

3. Moscow Calgary Toronto Almaty Atyrau Caracas Rio de Janeiro Focus Draft law “On the procedure for realization in the RF of foreign investments in commercial organizations having strategic importance for the national security of RF” (second reading in the Russian State Duma to be held on 19, March); (Draft 1); Not publicly available.Draft law “On the procedure for realization in the RF of foreign investments in commercial organizations having strategic importance for the national security of RF” (second reading in the Russian State Duma to be held on 19, March); (Draft 1); Not publicly available. Draft amendments to Russian law “On Subsoil” (Draft 2)Draft amendments to Russian law “On Subsoil” (Draft 2) Each of the Drafts represents in its own way the political momentum and interests of Russian political and economical elite, as well, elevates bureaucratic discretion to a higher level; Given the fate of previous drafts hard to predict if these become laws at all.

4. Moscow Calgary Toronto Almaty Atyrau Caracas Rio de Janeiro Restricts foreign investments in 39 areas of Russian economy, including exploration and mining of minerals, such as precious metals and stones, uranium, high grade quartz and rare earths deposits;Restricts foreign investments in 39 areas of Russian economy, including exploration and mining of minerals, such as precious metals and stones, uranium, high grade quartz and rare earths deposits; 50% or more control in companies holding strategic deposits;50% or more control in companies holding strategic deposits; Appears to be more restrictive vis-à-vis the previous drafts on strategic deposits: acquisition of over 5% and in some cases over 10% interest in strategic deposits shall be approved by a special governmental commission headed by the Prime Minister of RF (previous drafts which were strongly criticized by international companies and institutions were milder and didn’t require such approval for acquisition by foreign companies of up to 50% in companies holding rights to develop strategic deposit).Appears to be more restrictive vis-à-vis the previous drafts on strategic deposits: acquisition of over 5% and in some cases over 10% interest in strategic deposits shall be approved by a special governmental commission headed by the Prime Minister of RF (previous drafts which were strongly criticized by international companies and institutions were milder and didn’t require such approval for acquisition by foreign companies of up to 50% in companies holding rights to develop strategic deposit). The final say in the approval process belongs to the chairman of the commission.The final say in the approval process belongs to the chairman of the commission. Draft 1: major issues

5. Moscow Calgary Toronto Almaty Atyrau Caracas Rio de Janeiro Draft 1: major issues (continued) Good news: The restriction will not apply to the existing properties. I.e. (a) foreign owners of companies holding strategic deposits would not be required to obtain such approvals or decrease their shareholdings in such companies and (b) Russian owners of existing properties may sell their shares to foreign companies w/o the approval of the governmental commission.Good news: The restriction will not apply to the existing properties. I.e. (a) foreign owners of companies holding strategic deposits would not be required to obtain such approvals or decrease their shareholdings in such companies and (b) Russian owners of existing properties may sell their shares to foreign companies w/o the approval of the governmental commission. Uncertainties: It remains to be seen if rights of holders of exploration licenses would be so grandfathered: i.e. what happens if after enactment of the Draft 1 as a law a subsoil user owned by a foreign company discovers a strategic deposit under exploration license issued prior to such enactment? Would such user be required to seek the governmental approval? If so, what happens if the approval is denied?Uncertainties: It remains to be seen if rights of holders of exploration licenses would be so grandfathered: i.e. what happens if after enactment of the Draft 1 as a law a subsoil user owned by a foreign company discovers a strategic deposit under exploration license issued prior to such enactment? Would such user be required to seek the governmental approval? If so, what happens if the approval is denied?

6. Moscow Calgary Toronto Almaty Atyrau Caracas Rio de Janeiro Draft 2: major changes Affected areas: 1. License amendments; 2. Tenders; 3.Grounds for termination of licenses; 1.License amendments Tender/Auction terms set forth in a license may be amended by approval of Tender/Auction commission. Positive: allows to move currently unmovable impediments to rational use (e.g. extension of boundaries of license area to accommodate a deposit in its entirety); Negative: may lead to abuse and restriction of competition. General 30 days “for making the amendments” – overall term for consideration of applications not defined;Tender/Auction terms set forth in a license may be amended by approval of Tender/Auction commission. Positive: allows to move currently unmovable impediments to rational use (e.g. extension of boundaries of license area to accommodate a deposit in its entirety); Negative: may lead to abuse and restriction of competition. General 30 days “for making the amendments” – overall term for consideration of applications not defined; Restriction of current possibilities to extend terms for subsoil use (exploration and development): Extension is subject to compliance of subsoil user with license terms to be confirmed by relevant subsoil authorities no later than one year prior to date of application;Restriction of current possibilities to extend terms for subsoil use (exploration and development): Extension is subject to compliance of subsoil user with license terms to be confirmed by relevant subsoil authorities no later than one year prior to date of application; Amendment can’t be made if as of the date of application there is a pending notice by relevant subsoil authority on the violation of license terms (bureaucratic discretion);Amendment can’t be made if as of the date of application there is a pending notice by relevant subsoil authority on the violation of license terms (bureaucratic discretion);

7. Moscow Calgary Toronto Almaty Atyrau Caracas Rio de Janeiro Draft 2: major changes: 2. Tenders: Elevation of authority on tenders from ministerial level (MNR, Rosnedra) to the level of Government which approves: (i) lists of subsoil subject to tenders;(i) lists of subsoil subject to tenders; (ii) composition of tender commission and(ii) composition of tender commission and (iii) rules and procedures for holding tenders;(iii) rules and procedures for holding tenders; New criteria for investment tenders – size of investment; efficiency and ‘depth’ for the processing of minerals; timeframe Social-economic contribution to regions - gone

8. Moscow Calgary Toronto Almaty Atyrau Caracas Rio de Janeiro Draft 2: major changes: 3. Termination. Generally restrict current wide formulations for termination. However License may still be terminated, among other grounds, for failure to make payments for use of subsoil (should be material, not any); gross repeated violation of subsoil license terms or the legal requirements (e.g. failure to file accounting reports twice within the term envisaged by the licenses for period longer than one month) Penalties should be established, whereas the right to use subsoil can be terminated only in exceptional cases. 4. Other. State contract: subsoil use w/o license

9. Moscow Calgary Toronto Almaty Atyrau Caracas Rio de Janeiro Draft 1 and 2: Conclusion Continued technical flaws and inconsistency with subsoil legislation (geological and mining allotments under combined license);Continued technical flaws and inconsistency with subsoil legislation (geological and mining allotments under combined license); Additional formalities and restrictions (e.g. breakdown per annum of exploration works and minimum work obligations; detail obligations on the processing of minerals).Additional formalities and restrictions (e.g. breakdown per annum of exploration works and minimum work obligations; detail obligations on the processing of minerals). Draft 1 – Anticipated formalization of the current practice (except thresholds). Draft 2 – Many reasonable amendments along certain inconsistencies and potential aggravations. Positive experience of previous drafts is still missing in many areas of the law requiring change. Implementation would be the key.