Belarusian News - June 2012
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  Maksim Salahub
   
  Maksim Salahub
Partner
maksim.salahub@sorainen.com
   
  Alesia Tsiabus
   
  Alesia Tsiabus
Associate
alesia.asiabus@sorainen.com
   
  Yuliya Liashenka
   
  Yuliya Liashenka
Associate
yuliya.liashenka@sorainen.com
   
  Iryna Mitsianiova
   
  Iryna Mitsianiova
Associate
iryna.mitsianiova@sorainen.com
   
Dear clients and colleagues,

Nowadays most economic news from Belarus sounds so much more positive than one year ago, when the country boarded the rollercoaster of hyperinflation and national currency devaluation. Indeed, there seem to be many reasons for optimism. For instance, exports in the first quarter of 2012 grew by over 40% year on year, the country achieved a positive trade balance of over USD 1 billion (EUR 769,231 million), average salaries in some industries again approached the much desired USD 500 (EUR 385) threshold, and gold and currency reserves remain at a record high (above USD 8 billion (EUR 6,153 billion)).

The first foreign roadshow of the newly elected Russian President Putin, started in Minsk at the end of May, and the meetings with President Lukashenko and his ministers were free of contention. With Russia’s support, Belarus is about to commence construction of a nuclear power plant. Belarus expects the third disbursement, USD 440 million (EUR 338 million), of the loan from the Eurasian Anti-Crisis Fund, and it is preparing to further enjoy the benefits of the emerging Eurasian Economic Community.

Is Belarus falling more than ever under the political and economic influence of Russia? Trade with its large eastern neighbour is breaking the USD 40 billion (EUR 30,769 billion) mark, high-ranking Russian politicians are warmly welcomed by the Belarus leadership in Minsk almost every week, and more high-value investment projects with Russian businesses are coming under spotlight. On the one hand, our country must take advantage of the reality of the growing Russian market and the Russian-led Eurasian Community. On the other, Belarus has always tried to avoid dependence on one economic partner and has treated the EU market as equally important, being ready to seize new trade and investment opportunities as soon as political contradictions are overcome, at least to some extent. During the same first quarter of 2012, trade with the EU grew by over 46% year on year, despite political complications. Also, a third power centre – China – was recently identified by the Belarus Government; Chinese business is setting foot on Belarusian soil very confidently.

Last but not the least: what is happening with the privatisation campaign in Belarus? Privatization campaign is taking a slow start in 2012. The reason is that in spring the Government has decided to change the very concept of privatization, switching from a 3 year plan-based campaign to “selective privatization”. According to the new concept, government enterprises will not be offered for sale by packs at auctions and contests as before. Instead, investors are expected to choose attractive targets (which do not have to be on any sale lists) and prepare their proposals. The Government would consider those proposals and, subject to approval by the President and exercise of pre-emptive rights by local executive authorities, organize the sales (still mostly in the form of auctions and contests). So far we observe that the process is slower than before and most likely less companies will be offered for sale. Please, follow further developments on our web site in the Highlights section and also in the editions of SORAINEN Belarus News.

In our opinion, if this idea is implemented, privatisation laws and procedures will need to be revised.  So far the government has not shed much light on the possible changes. Only a few things are clear.  If there is a privatisation campaign, it will commence later than usual (in previous years, it has started in June or July). The government also confirmed its commitment to eight  “pilot” privatisations with the support of the World Bank and selected financial and legal advisors.  However, as you can see from the news below, the sales procedure is not going to be simplified. Please read the coming issues of SORAINEN Belarusian  News for more details.

And now some news about Belarus legislation...


Offer price of state-owned shares will be based on their marked value
Local authorities to approve the sale of state-owned shares
New regulations on the leasing of state property
Anti-monopoly regulations becoming yet more stringent
Changes in public procurement rules
New China-Belarus free economic “superzone” established in Belarus


 

Offer price of state-owned shares will be based on their marked value

A new version of the Resolution of the Council of Ministers No. 1929 adopted on 29 March 2012 changed the rules for calculating the initial selling price of state-owned shares in privatisation auctions and contests. The selling price of such shares will now be based on their market value.

Previously, only shares in companies that had real estate in Minsk or in regional centres were offered at their market value. Shares of all other state-owned companies (besides strategically important enterprises, banks and companies whose net assets value fell below the amount of their authorised capital) were offered in privatisation auctions and contests at a price based on their balance value.

Under the new regulations, the initial selling price of shares will be defined on the basis of either their maximum market value or their balance value as at the date of appraisal. In addition, the regulations give new formulas for calculating the balance value of state-owned shares. However, it is expected that the maximum market value of state-owned shares will be primarily used as the initial selling price.

The initial selling price of shares is determined as at 1 January of the year when the shares are offered. Later the price of shares will be indexed in accordance with coefficients established by the National Statistics Committee. If at the date of auction or contest the selling price is below the nominal value of the shares, then these shares should be sold at their nominal value.

Alesia Tsiabus
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Local authorities to approve the sale of state-owned shares

Since March 2012, the disposal of state-owned shares of open joint stock companies must be agreed with the relevant regional executive committees and Minsk City Executive Committee. This rule was introduced by the Edict of the President of Belarus No. 127 dated 6 March 2012.

The official purpose of the new regulation is to expedite decisions regarding the sale of state-owned shares. The decision to sell the state-owned shares of most companies is made by the Belarus President and it usually takes considerable time to coordinate presidential decisions with all interested authorities.

In accordance with Edict No. 127, the local authorities have up to ten days to give their opinion on a presidential draft decision and to make comments. No other authorities are now involved, which is hoped will simplify the process. The time needed to issue presidential decisions regarding the sale of state-owned shares should be shortened and the privatisation of state-owned enterprises thus facilitated.

Alesia Tsiabus
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New regulations on the leasing of state property

The Edict of the President of Belarus No. 150 of 29 March 2012 on “Certain Issues of Lease and Free Use of Property” came into force on 1 April 2012 and abolished the famous Edict No. 518 regulating the leasing of state property and small shops in shopping centres.

The new edict only regulates leases and the free use of real estate and car parks belonging to companies in which 50% or more of the shares are state-owned. Small shops in private shopping centres no longer fall under the regulation.

The edict establishes a new base for calculating rent – the so-called “basic rent unit”, which is BYR 54,000 (EUR 5) as of today. The government will establish a new basic rent unit from 1 April each year taking into consideration inflation.

A landlord can choose a coefficient (from 0.5 to 3) to be applied to the basic rent unit depending on demand and the state of the leased property. Previously, coefficients were applied by mutual agreement of the parties. However, any change to the applied coefficient is still subject to mutual agreement.

According to the edict, property improvements carried out by a tenant will not change the amount of rent paid.

The edict also determines which companies can use a property under free-use agreements.

Lease agreements concluded before 1 April 2012 and effective after 1 April 2012 must be brought into compliance with the new edict by 31 August 2012.

Yuliya Liashenka
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Anti-monopoly regulations becoming yet more stringent

On 27 February 2012, the President of Belarus signed Edict No. 114 on “Certain Measures to Strengthen State Anti-monopoly Regulations and Control”, which is aimed at more efficient prevention of violations of anti-monopoly laws.

The main amendments introduced by the edict are as follows.

Firstly, the edict entitles the heads of the Department of Price Policy of the Ministry of Economy and regional (Minsk City) executive committees to make unannounced inspections to check compliance with anti-monopoly laws. The main objective of this measure is to identify and prevent price-fixing arrangements (collusions) and other violations of anti-monopoly laws.

Secondly, the edict introduced fines for certain violations of anti-monopoly laws, such as:

  • the abuse of a dominant position in the market – the management will be fined from 20 to 100 basic units (currently equivalent to approximately EUR 180 to 900), the company will be fined up to 10% of its sales in the relevant market in the preceding year, but not less than 500 basic units (EUR 4,500);
  • the failure of a government official or company management to comply with orders or lawful demands, or information and document requests of the anti-monopoly authorities, or provision of false information – with fines ranging from 20 to 100 basic units (EUR 180 to 900);
  • conclusion and execution of agreements, concerted actions, as well as other arrangements or concerted actions aimed at restricting competition or constituting unfair competition – the management will be fined from 100 to 200 basic units (EUR 900 to 1,800), the company will be fined up to 10% of its sales in the relevant market in the preceding year, but not less than 400 basic units (EUR 3,600).

It is expected that these measures will help to counter groundless increases in prices for goods and services.

Iryna Mitsianiova
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Changes in public procurement rules

New requirements for public procurement were given in the Resolution of the Council of Ministers dated 15 March 2012 No. 229 and are subject to observance by:

  • the republic’s unitary enterprises;
  • state authorities;
  • state associations;
  • other legal entities whose property is owned by the state; and
  • companies, where more than 25% of their shares are owned by the Republic of Belarus or its administrative and territorial units.

The main requirements are as follows:

  1. As a general rule these organisations should purchase goods and services through public tenders, online auctions and other competitive procurement procedures.
  2. The resolution lists situations where competitive procurement procedures are not mandatory (eg  when there is an urgent need for certain goods, work or services, or when the tender procedure has failed and a replacement procedure is not feasible). In such cases goods should be purchased from producers or their official sales representatives.
  3. The time limit for the preparation and submission of procurement bids should be at least 20 calendar days; if the value of the purchases does not exceed 3,000 basic units (currently EUR 27,000) the time limit is not less than five calendar days.
  4. Invitations to public tender and other information on procurement procedures will be made publicly available from the information system “Tenders” on the website of the Republic’s Unitary Enterprise National Centre for Marketing and Market Tendencies.
  5. The resolution has measures to prevent corruption (in particular, a prohibition on the participation in a procurement commission of people with an interest).

These regulations do not apply to the procurement of specific goods and services (eg oil, gas, utilities and insurance services).

Iryna Mitsianiova
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New China-Belarus free economic “superzone” established in Belarus

By Edict No. 253 dated 5 June 2012, the President of Belarus ordered the creation of a China-Belarus Industrial Park. This is a new free economic zone, whose main goal will be to foster trade and investment cooperation between Belarus and China.  With a total area of 8,048 ha  (close to Minsk-2 international airport), comprising about 0.4 % of Belarus, the Park will become the largest free economic zone in Belarus.  The initial lifetime of the Park is expected to be 50 years.

The Park will be managed by an inter-governmental coordination council and the Park administration – a state institution subordinated to the Council of Ministers of Belarus.  Additionally, a joint Belarus-China development company will be created, whose main tasks will be the design and construction of the Park’s real estate and infrastructure, and land management.  Belarus will hold a 40% share in the company, China 60%.

Even more impressive than the size of the Park are the exemptions and privileges granted to the joint development company and the future Park residents. The latter will enjoy, inter alia, the following privileges:

  • real estate may be designed and constructed according to the building standards of China or other foreign states, subject to local restrictions and health and safety requirements;
  • there will be a ten-year full exemption from tax on profits for goods, work and services of own production, real estate tax and land tax;  and in the following ten years, a 50% exemption will be granted;
  • profit and income taxes will not be charged on dividends and similar income paid to foreign shareholders during the first five years starting from the year when the profit was first earned;
  • until 2027, the rate of personal income tax for employees of the joint development company and the Park’s residents will be 9% (instead of the usual 12%);
  • full refund of VAT paid for imported goods, work and services used in the design and construction of real estate in the Park;
  • until 2027, exemption from mandatory sales of foreign currency proceeds received from activities in the Park;
  • exemption from customs duties and import VAT for goods imported into the Park for implementing the investment projects;
  • relaxation of social security payments for employees, immigration procedures and costs, and compensation for environmental damage.

In the Park, priority will be given to the development of industries such as electronics, biomedicine, high-quality chemicals and machine tools.

Within three months of the issue of this edict, the Council of Ministers is to elaborate and adopt special regulations for the Chinese-Belarus Industrial Park, which should, inter alia, establish procedures for obtaining residency.

Maksim Salahub

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