Belarusian News - March 2014
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  Maksim Salahub
  Maksim Salahub
Partner
maksim.salahub@sorainen.com
   
  Yuliya Volozhinets
  Yuliya Volozhinets
Senior Associate
yuliya.volozhinets@sorainen.com
   
  Mila Vedernikova
  Mila Vedernikova
Associate
mila.vedernikova@sorainen.com
   
  Kirill Laptev
  Kirill Laptev
Associate
kirill.laptev@sorainen.com
   
  Nadezhda Fomenok
  Nadezhda Fomenok
Associate
nadezhda.fomenok@sorainen.com
   
Dear clients and cooperation partners,

We are happy to greet you again, and hope that 2014 has started well for everyone.

Unfortunately, the economic situation in Belarus does not give cause for optimism, especially when considering the long term perspective. The stabilisation reached after severe crisis in 2011 had almost faded away by the end of 2013: the slowdown of the Russian economy as the major consumer of Belarusian exports, the increased negative gap between exports and imports, unsatisfactory outcomes of proclaimed economic modernization, the increasing burden of servicing foreign debt have combined with other factors to feed expectations of another crisis. It has become clear that despite all the efforts by the Government to go back to the growth mode by relying on our own resources, even fragile stability is impossible without new borrowings and sale of state property.

But is it possible to find something positive in the current situation? Perhaps today an independent Belarus is closer than ever to living within its own means. There has been a massive reduction of the state apparatus (25% by headcount), subsidized housing construction has reduced, while efficiency standards for state investments are being raised. Since the end of 2013 we have observed various investment projects put into action, including joint industrial ventures incorporated with Russian partners and car production established with China’s Geely International Corporation. The Government has begun to discuss privatisation again. Besides, both state and private domestic business should finally prepare for competition with Russian and Kazakh partners within the Eurasian Union which should become fully effective from the beginning of 2015. Hopefully, all of these factors will contribute to modernising and strengthening the national economy.

Belarusian legislation is also continuing to develop. Below we highlight some of the most notable changes in Belarusian investment and public procurement laws, an overview of court system reform, and a digest of new privatisation procedures.



 

As of 2014 Belarusian common and commercial courts are merged into one system

From the beginning of 2014 a unified court system has started to function, following the merger of common and commercial courts. The reform is based on several Presidential Decrees and Edicts.

The Supreme Court of the Republic of Belarus (Supreme Court) became the single supreme authority among general courts. A new judicial panel for commercial matters was introduced within the Supreme Court along with existing panels for civil, criminal, and intellectual property matters. The new panel will consider cases at first instance, cassation instance, and upon discovery of new facts. From 1 July 2014 the military panel will be abolished as well as the whole military court system. Military court functions will be transferred to regional, Minsk City, and district (city) common courts.

Powers of the supervisory instance are transferred to the Presidium and the Plenum of the Supreme Court which include representatives of all judicial panels of the Supreme Court.  The Plenum will also issue Resolutions on certain areas of court practice which are legal acts under local law.

Since 1 January 2014 a unified system of enforcement departments has been in operation, consisting of the main enforcement department and regional departments of the Ministry of Justice.  A new law on enforcement procedures is expected soon.

The enforcement fee to be withheld from the debtors has been increased. Currently the fee is 10% of the amount collected based on proprietary claims, and 5 basic units (approx EUR 50) on non-proprietary claims by a natural person or 10 basic units (approx EUR 100) on non-proprietary claims by a legal entity for every execution order. 

The stated purpose of court system reform is to increase the quality of justice, specialisation among courts and judges, and greater uniformity of judicial practice.

Kirill Laptev

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Public procurement in construction: temporary suspension of electronic auctions and other material changes

Until 1 January 2014 selection of contractors and procurement of goods and services for construction financed wholly or partly by state funds was regulated by Law No. 419-З dated 13 July 2012 On Public Procurement of Goods (Work, Services) and Edict No. 58 of the President of Belarus dated 7 February 2005 On Conducting Tenders in Construction.

On 1 January 2014 Edict No. 590 of the President of Belarus (Edict No. 590) dated 31 December 2013 On Some Issues of Public Procurement of Goods (Work, Services) and Edict No. 591 of the President of Belarus (Edict No. 591) dated 31 December 2013 On Conducting Procurement Procedures in Construction came into force and abolished Edict No. 58.

The new Edicts amend public procurement procedures, most significantly as follows:

  • General regulations on public procurement procedures established by the Law On Public Procurement of Goods (Work, Services) and Edict No. 590 will not apply to procurement procedures in construction financed by budgetary or state non-budget funds to 1 January 2016. Procurement procedures in construction are regulated by Edict No. 591 and supporting regulations.
  • Public procurement may be carried out by one of the following procedures: tendering (bidding for a contract); bidding on buying goods for construction; and by negotiation.
  • Under Edict No. 591 bidding for a contract is mandatory in certain cases, for example if construction is financed by national or local budgetary funds, state non-budget funds, external state loans and external loans secured by the Government, credit facilities from Belarusian banks secured by the Government, oblast or Minsk City executive committees if the construction cost exceeds 6,000 basic units (approx EUR 60,000).
  • Bidding for a contract is also mandatory if construction is financed by other funds if the construction cost exceeds 100,000 basic units (approx EUR 1 million).
  • Bidding for a contract is not mandatory where construction financing is by foreign investors. In these cases procurement may be carried out via any of the established procedures or without any procedures at all.
  • Bidding for a contract is not mandatory and procurement may be carried out by tendering or negotiation on buying work for construction of objects within the Belarusian energy system, objects included in state program construction of local fuel energy sources, and some others.

The new regulations do not apply to procurement of goods (work, services) where the procurement procedure was launched or contracts for supply of goods (work, services) were concluded before 1 January 2014.

Yuliya Volozhinets, Mila Vedernikova

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Privatisation: in the spotlight again

Privatisation in Belarus is slowly coming back to life after almost two years of lethargy. Most interested investors come from Russia. In August 2013 the Government approved two strategic investment bids for Minsk Margarine Plant and Konfa. 2014 has already marked its first transaction: sale of 99.5% shares in BELGIPS to the Russian Volma Corporation for USD 5.27 million (approx EUR 3.79 million) by Presidential Decree. The terms of this privatisation also include significant investment undertakings by the buyer. The most interesting transactions expected in the near future are sale of Mozyr Oil Refinery shares to the Russian Rosneft, and formation of a MAZ-KamAZ joint venture.

Open calls for investors interested in state enterprises are sometimes announced on the official web sites of the State Property Committee and of the National Agency for Investment and Privatisation of Belarus. In the fourth quarter of 2013 the Government accepted offers from prospective strategic investors for Medplast and Belgazstroy. There was also another, though unsuccessful, contest for sale of 51% of state shares in Mobile TeleSystems. Announcement of the terms and conditions of the Grodno-Azot privatisation – a major Belarusian chemical company – is expected in the near future.

Since October 2013 the State Property Committee has been analysing demand for various state property objects, in the shape of both assets and shares in enterprises. From time to time the Committee posts lists of enterprises and assets for sale on its web page. At present, in addition to open calls announced, an investor can file an expression of interest in any object from the lists available on the web page. This may later result in a tender or auction for the object, as the President decides.

A typical privatisation scheme may look like this:

Step Action Time-frame
1 Potential investor files a formal expression of interest with the State Property Committee Not established / for some objects the deadline may be established by The State Property Committee
2 A special commission within the Committee examines the expression of interest and sends a draft decision to the President of Belarus Not established
3 The President approves the sale of shares via contest, auction, or directly to a specific investor Not established
4 Contest / auction public notice At least 45 days before the contest / auction
5 Submission of bids Deadline at least 15 days before the contest / auction
6 Holding of contest / auction On a day set by the State Property Committee
7 The contest / auction winner pays the agreed price 3 business days from the date of the contest / auction
8 Share sale-purchase agreement signed 20 calendar days from the date of the contest / auction

Maksim Salahub, Nadezhda Fomenok

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New regulation on establishing and operating foreign representative offices in Belarus

On 1 January 2014 a new Regulation on the Procedure for Establishing and Operating a Foreign Representative Office in the Republic of Belarus (Regulation) approved by Resolution of the Council of Ministers No. 1189 of 31 December 2013 entered into force, though it was only published on 14 January 2014.

The aims of establishing representative offices for foreign commercial companies are changed. As a rule, a representative office of a foreign commercial company can only be established for auxiliary or preparatory activities. However, unlike previous laws, the Regulation directly prohibits operations by foreign companies in Belarus without establishing a representative office.

A permit for establishing a foreign representative office is now issued for a fixed term of three years (previously it was possible to choose a term ranging from one to three years). The number of foreign employees of a representative office is limited to five.

Ending activity by a representative office requires a Ministry of Foreign Affairs decision. The Ministry of Foreign Affairs may so decide in two cases: if the representative office is inactive for half a year or more, or if the head of the representative office fails to report on office activity within a set term and fails to react to written notification by the Ministry of Foreign Affairs.

These novelties were received dubiously by the business community.  A range of questions is still pending. For example, are currently operating representative offices obliged to bring their activity in line with the new Regulation? Does exclusion of provisions allowing business activity via a representative office prohibit such activity? We can only wait for additional clarification by the state authorities and follow the practice of applying the new Regulation.

Maksim Salahub

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Sumitomo Electric Bordnetze establishes joint venture in Belarus

SORAINEN Belarus assisted Sumitomo Electric Bordnetze, a group company from the Sumitomo Electric Industries Group, headquartered in Japan, in setting up a contractual joint venture with a Belarus-based manufacturer. The joint venture was implemented for supplying Volkswagen Group Russia with wire harnesses. The project is a major step in enlarging the activities of Sumitomo Electric Bordnetze in international growth markets.

Sumitomo Electric Bordnetze, headquartered in Wolfsburg, Germany, is a leading full-system supplier for the international automotive industry. The company currently employs more than 24,000 people at 21 locations worldwide and generated a turnover of approx EUR 900 million in 2012.

The SORAINEN team was led by office managing partner Kiryl Apanasevich and senior associate Maria Rodich. Norton Rose Fulbright LLP acting as international counsel to the client provided advice on foreign laws. 

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SORAINEN advises on MAZ/KamAZ holding formation

SORAINEN Belarus jointly with the Moscow office of Chadbourne & Parke is advising on trust management arrangements with regard to MAZ and KamAZ shares in the context of potential formation of a holding company.

MAZ and KamAZ are automotive giants in the Republic of Belarus and the Russian Federation respectively. The majority shareholder of KamAZ is Russian state corporation Rostec. MAZ is a state-run production company, also managing the Belarusian automotive holding BELAVTOMAZ.

The SORAINEN team is led by partner Kiryl Apanasevich and senior associate Ann Laevskaya.

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