Belarusian News - November 2012
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  Maksim Salahub
   
  Maksim Salahub
Partner
maksim.salahub@sorainen.com
   
  Tamara Sakolchyk
   
  Tamara Sakolchyk
Associate
tamara.sakolchyk@sorainen.com
   
  Alesia Tsiabus
   
  Alesia Tsiabus
Associate
alesia.asiabus@sorainen.com
   
  Natalia Yurieva
   
  Natalia Yurieva
Associate
natalia.yurieva@sorainen.com
   
  Iryna Mitsianiova
   
  Iryna Mitsianiova
Associate
iryna.mitsianiova@sorainen.com
   
  Karyna Modnik
   
  Karyna Modnik
Legal Assistant
karyna.modnik@sorainen.com
   
Dear clients and colleagues,

The past few months in Belarus have been filled with events which must have sent pretty diverse messages to domestic and foreign businesses. On the one hand, revision of the privatisation of leading confectionery enterprises Kommunarka and Spartak could not go unnoticed and was not very encouraging for investors, especially considering the Government’s declared intention to revisit similar privatisations in the near future. Fiscal policy has become somewhat less stringent, especially on the eve of the parliamentary elections in September, again giving rise to expectations of devaluation. Belarus is approaching 2013, when foreign debt payments will double compared to 2012, which definitely does not help ease concerns. With the global economy and main export markets still far from full recovery, President Lukashenka has ordered an 8.5 % GDP growth in the coming year – a figure almost unseen anywhere in today’s world. Despite the atmosphere of enthusiasm and excitement created around the VII Belarus Investment Forum (15 – 16 November), the 2012 foreign direct investment plan has failed, and privatisation has come to a full stop.

The theory is that Belarus is now approaching the middle of the five year cycle between presidential elections. The second half of this cycle is supposed to be marked by improving relations with the European Union and the US, a political “thaw” inside the country and increased FDI flow. However, one cannot be sure if this theory will prove true again, as Belarus has never found itself in such an adverse economic setting and trust with the Western world seems to be at its lowest now.

Still, we would like to note several interesting recent trends in the country’s political and economic life. First, the idea of creation of a centrist party on the basis of the pro-President NGO “Belaya Rus” has been discussed publicly at all levels of power. Transformation of this organisation into a political party has been delayed several times, though. Second, President Lukashenka has called for total modernisation of the economy, appointing ministers and governors responsible for turning specific enterprises (some of them actually in quite gruesome condition) into modern production centers. The underlying reason is clear: perhaps the best strategic development option for Belarus is to become a self-sustainable modern export-oriented economy. However, can anyone recall historical precedents of such a transformation happening through a national leader’s orders alone? Third, the President has ordered gradual “rejuvenation” of the government, bringing younger politicians to power as he put it. At the same time, several important moves have been observed inside the Government lately. Long-standing presidential economic adviser Sergey Tkachev, allegedly one of the “fathers” of the famous “Belarusian model”, left the Administration to start a career in private business. The 70-year old former Head of the National Bank, Petr Prokopovich, who left his post in the middle of the 2011 crisis due to health issues, and still blamed by many for last year’s turmoil, was appointed a presidential aide for economic matters. Vice Prime Minister Sergey Roumas, a reputed advocate of market reform, left the Government to head the newly established Development Bank. Former Vice Head of the Presidential Administration Natalia Petkevich and Ambassador to Russia Alexander Kobyakov have been appointed heads of a commission tasked with preparing and conducting reform of the system of government bodies. Mr Kobyakov now also heads the Presidential Administration. Reform is actually about to start: the Ministry of Economy is now actively advocating a long awaited separation of functions related to management of subordinated enterprises from ministries and concerns. One cannot foresee any negative outcomes of this exercise.

So this is how the Belarusian Model is trying to renew itself. The process will be very interesting to watch in the coming years. 

Below please find information about the most recent and upcoming changes in laws which we considered to be the most important.

Maksim Salahub
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Belarusian Public Procurement Laws Brought in Line with Common Economic Area Legislation
Regulation of State Control and Supervision Activities Further Improved
Minimal Authorised Capital Amount for New Banks Raised
Bankruptcy Procedures to Become More Transparent and Efficient from January 2013
New Privatisation Concept Legalised by Presidential Decrees
Rosbank sells its subsidiary in Belarus to Alfa-Bank


 

Belarusian Public Procurement Laws Brought in Line with Common Economic Area Legislation

On 13 July 2012 the Belarusian President signed the Law on Public Procurement of Goods (Works, Services). The Law will enter into force on 1 January 2013 together with Resolution of the Council of Ministers of 22 August 2012 No. 778. Both legal acts were adopted in order to bring internal legislation into compliance with the international obligations of Belarus, in particular with the Agreement on Public (Municipal) Procurement signed in Moscow on 9 December 2010 within the framework of the Customs Union of Belarus, Russia, and Kazakhstan.

The new legislation on public procurement introduces the following major innovations:

Public procurement procedures unified

The Law merges regulation of public procurement in construction with regulation of other types of public procurement following the recommendations of the World Bank and bringing legislation into line with the Moscow Agreement, which requires procurement issues to be governed exclusively by public procurement laws. Before, these relations in Belarus were regulated by acts of the President.

Closed list of public procurement procedures established

The Law provides for six types of procedure that can be used for public procurement:

  1. open tender;
  2. closed tender;
  3. e-auction;
  4. request for quotation;
  5. single source procurement;
  6. exchange bidding.

The Law almost completely repeats the provisions of the Moscow Agreement, except for the closed tender which is not included in the agreement.

  • Closed tender will be used for information on goods which is a state secret, while open tender will be used for procurement of all other goods.
  • E-auctions and exchange bidding will be used for procurement of goods that fall within the lists of goods (works, services) approved by the Council of Ministers for each of the two procedures.
  • Information on public procurement made publicly accessible and more transparent

Firstly, the Law provides that information on public procurement should include: annual procurement plans, invitations to participate in tenders, documents provided to participants in open tenders and e-auctions for preparation of bids, information on the results of tenders, list of suppliers temporarily blocked from participating in public procurement procedures, and minutes of open tenders and e-auctions on bid opening, rejection of bids, and closing the books.

Secondly, an official web-site http://www.icetrade.by was created to accumulate information on public procurement as well as statistics and legal acts that regulate public procurement.

Thirdly, if procurement is by means of e-auction, the information must also be published in an electronic trading facility.

National treatment granted to foreign goods (work, services)

The new legislation introduces national treatment for foreign goods (work, services) and bidders offering those goods (work, services) provided that Belarusian goods (work, services) and bidders enjoy similar treatment by the respective foreign state.

Public procurement commissions to be established

The Law imposes upon the customer an obligation to establish commission(s) on organisation and to conduct procurement for all types of procurement procedures except for single source procurement and exchange bidding. A commission should be established either temporarily or permanently.

The customer must ensure that:

  • the commission includes a member with expertise in the subject matter of the tender;
  • one third of the commission is rotated annually;
  • the same person takes part in the commission no longer than three years in a row.

Special public procurement authority to be established

The President of Belarus is vested with powers to appoint a government body with regulatory functions in the area of public procurement. As at the moment of releasing this news, the decision was pending.

Tamara Sakolchyk
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Regulation of State Control and Supervision Activities Further Improved

On 1 October 2012 Edict of the President No. 332 On Certain Measures Aimed at Improvement of Control (Supervision) Activity in the Republic of Belarus came into force. The Edict is aimed at optimising control and supervision activity, as well as at reducing the number of inspections.

The Edict introduces a new form of control - monitoring - which is defined as surveillance and assessment of conditions of business activity in order to identify and prevent violations. Monitoring is done without on-site inspections or removal of documents. If violations are detected during monitoring, the company should be given recommendations for eliminating them. If the violations are eliminated by the company itself, then unscheduled inspection is not carried out and no sanctions on the company or its management follow.

The Edict also changes the frequency of scheduled inspections of businesses. Scheduled inspections can be conducted not more frequently than once in five calendar years if the entity complies with the following requirements:

  • permanent and correct payment of taxes and other fees to the budget; and
  • absence of violations.

Under the Edict, state control and supervision authorities may demand suspension or prohibition of business activity only if they detect violations that threaten national security, or that could harm people’s life and health or the environment.

The new procedure in the area of state control and supervision of business is expected to reduce the number of inspections and ease the administrative burden on business.

Iryna Mitsianiova
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Minimal Authorised Capital Amount for New Banks Raised

By Resolution No. 249 effective from 6 June 2012, the Board of the National Bank of Belarus set the minimum amount of authorised capital for newly established banks (including those created as a result of reorganisation) at 25 million euro (equivalent). Previously, the amount was set at five million euro.

Deputy Chairman of the Board of the National Bank, Sergei Dubkov, stated that the increase was aimed at strengthening the responsibility of investors for the quality of banking services, as well as at protecting the Belarusian banking market from non-transparent capital.

Adoption of the Resolution also contributed to harmonisation of national laws with the legal framework of the Common Economic Area. The minimal amount of authorised capital of banks in Kazakhstan and Russia is 26 million euro and 7.2 million euro respectively.

Karyna Modnik
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Bankruptcy Procedures to Become More Transparent and Efficient from January 2013

The Law On Insolvency (Bankruptcy) of 13 July 2012 comes into force on 25 January 2013. The law is not introducing bankruptcy of individuals despite many voices raised in favor of this concept so far unknown to the Belarusian legal system. However, other important novelties may be summarised as follows:

  • An online, publicly accessible Unified Bankruptcy Register will be created. Published data will include, e.g., information on opening a bankruptcy case, introducing a protection period and instituting bankruptcy proceedings, appointment and dismissal of the bankruptcy trustee, public sale of the debtor’s property.
  • Grounds have been specified for creditors to file a claim.  A claim may be filed after expiry of three months after receipt of the debtor’s notification about own liquidation, provided that the debt has not decreased.
  • Matters of professional liability of bankruptcy trustees and their insurance are regulated more specifically.
  • The period for debtor rehabilitation (a bankruptcy procedure alternative to liquidation) can now be extended to a maximum five years upon application of the government authority approved by the Council of Ministers (the previous maximal rehabilitation period of 30 months was considered insufficient).
  • In the light of precedents of hostile takeover, procedures related to valuation of debtor’s property, public sale of the property, writing the property off the debtor’s balance sheet are now regulated in greater detail.

To speed up liquidation of a bankrupt business, write-off of the debtor’s bad debts is eased.

Natalia Yurieva
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New Privatisation Concept Legalised by Presidential Decrees

Over eight months have passed since the President announced the intention to shift from a three year plan-based privatisation campaign to “selective privatisation”. Finally new legislation has been adopted to legalise this new approach.

The main changes in privatisation laws which were actually more or less expected and predicted are the following:

  • Three-year privatisation plans with approved lists of enterprises are cancelled.
  • The State Property Committee may now decide neither on decrease of the sale price of state-owned shares sold at privatisation auctions nor on additional issue of shares of strategic companies.
  • Municipal authorities continue to enjoy pre-emptive rights of acquisition of shares of privatised companies but must adopt an exhaustive list of those companies.

New rules are set forth in Presidential Decree No. 8 of 10 September 2012, Presidential Edict No. 456 of 4 October 2012 and Regulations of the Council of Ministers No. 900 of 1 October 2012 that followed Decree No. 8.

Cancellation of Privatisation Plans

Decree No. 8 directly specifies that further privatisation of state property is performed without formation of three year privatisation plans.

The first three-year privatisation plan was introduced in 2008. The Government announced that the privatisation campaign would cover 519 large state unitary enterprises and 147 state joint stock companies in 2008 – 2010. The three-year planning concept was also included in the new Law on Privatisation adopted in 2010.

Only a handful of small enterprises covered by the 2008 – 2010 plan were sold. The plan for 2011-2013, which included around 370 companies, resulted in sale of over 30 enterprises in 2011 alone, although the targets were also small and the average sale price was about 0,5 million US dollars (0,4 million euro).

However, the approach changed completely in March 2012, when the effectiveness of three-year privatisation plans was questioned and it was decided to centralise the privatisation process, letting the President decide on most sales.

It has been unclear how investors could initiate the privatisation process with regard to certain enterprises. The State Property Committee gave close to no guidance on how to act under the new circumstances. From March until early November 2012, no auctions were announced.

Issue of shares of strategic enterprises

Decree No. 8 also changed the procedure for approval of additional share issued by privatised joint stock companies.

Decree No. 8 mentions that the State Property Committee no longer approves an additional issue of shares of joint stock companies which are included in the list of strategic enterprises. However, any additional issue of shares of so-called agricultural companies (companies that process agricultural products) is still subject to approval of the President.

Price adjustments at privatisation auctions

In 2011 the State Property Committee received powers to decide on sale of shares of companies included in the privatisation plan and to decrease the initial price of shares of privatised joint stock companies. These powers were not broad enough to cover strategic enterprises, but gave certain freedom to the Committee and to a certain extent facilitated the privatisation process.

Starting from autumn 2012 the State Property Committee no longer decides on these issues, which remain fully within the competence of the President.

Pre-emptive rights of municipal authorities

The President issued Edict No. 456 of 4 October 2012 which changes the rules on sale of municipal shares.

Initially the Presidential consent was required only if municipal authorities decided to sell their shares in strategic and agricultural companies. As of December 2012 presidential consent will be required only for disposal of shares in agricultural companies.

Moreover, local municipal authorities will have a pre-emptive right to purchase shares of companies which were initially acquired by citizens at a reduced price during mass privatisation / in exchange for privatisation vouchers, or received after transformation of collective enterprises in the 1990s. Previously, as of January 2011, this pre-emptive right of municipal authorities related only to shares in strategic and agricultural companies.

To make the process more transparent, Edict No. 456 obliges municipal authorities to prepare a full list of companies whose shares fall under the pre-emptive right.

Alesia Tsiabus
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Rosbank sells its subsidiary in Belarus to Alfa-Bank

Rosbank and banking group Alfa-Bank reached an agreement on sale of shares in Belrosbank.

Belrosbank is a full-service bank founded by Rosbank in 2003. The bank employs 765 people across 29 offices in all regions and major cities of Belarus, and serves more than 100,000 customers. More than 99,99% of shares in Belrosbank belong to JSC Rosbank, which is a part of Société Générale Group.

It is expected that the deal will be completed by the end of 2012, which requires the approval of the regulating authorities.

This is one of the biggest M&A deals in Belarus in 2012, and is expected to double Alfa-Bank’s assets in Belarus upon completion.

SORAINEN Belarus is a local counsel to Rosbank in this transaction. SORAINEN team assistance included preparation of the data room for legal, financial and tax due diligence and its operational supervision; advice on regulatory and tax aspects of the deal; and the revision of the transaction documents, including the share purchase agreement.

The SORAINEN legal team was led by Maksim Salahub, partner, and Ann Laevskaya, senior associate.

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