Abu Dhabi Atlanta Austin Charlotte Dubai Frankfurt Geneva Houston London Moscow New York Paris Riyadh San Francisco Silicon Valley Singapore Washington, D.C. Overview Russian Environmental Regulation Over the past 20 years, Russia has enacted complex and strict environmental legislation that in many cases meets or exceeds commonly accepted international standards; however, the enforcement of this legislation has been uneven. Russia is continuing to develop its legislation and currently has new draft resolutions in the State Duma. www.kslaw.com Although it ratified the Kyoto Protocol on climate change in late 2004, it has only recently enacted the legislation necessary to advance joint implementation projects and the trade of carbon credits.
May 2012 General Environmental Legislative Framework Federal and Regional Legislation Pursuant to the constitution of the Russian Federation, environmental protection falls within the joint competence of the Russian Federation and its constituent entities; therefore, Russian environmental legislation is enacted at both federal and regional levels. The main federal laws regulating environmental protection are Federal Law No. 7-FZ, On Environmental Protection, dated 10 January 2001 (the Environmental Protection Law ), and Federal Law No. 174-FZ, On Environmental Expert Review, dated 23 November 1995 (the Environmental Expert Review Law ). The Environmental Protection Law: sets out the fundamental principles of Russian environmental regulation, provides an overall framework for environmental management, and imposes general environmental protection requirements related to the construction and operation of various facilities that may be harmful to the environment. Both the Environmental Expert Review Law and the Environmental Protection Law require the performance of an environmental impact assessment ( EIA ) prior to the implementation of a project that may have an impact on natural resources. Both laws further provide that the construction and operation of various facilities are permitted only after the receipt of a positive report from the unified State Environmental Expert Review ( SEER ) with respect to the relevant project documentation and proposed activity. The EIA evaluates the possible adverse environmental impact and ecological consequences and endeavors to develop measures for decreasing or preventing such adverse impacts. A positive SEER conclusion is an essential precondition for financing and implementing any project that may have an impact on the environment. Russian environmental legislation at the regional level comprises various standards and procedures related to environmental permits and approvals that largely fall within the regulations established by the federal laws. In most cases, the regional legislation simply provides additional details with respect to the federal laws rather than set forth entirely new region-specific regulations. International Regulation Russia is a party to most of the major international conventions and treaties in the sphere of environmental protection. Convention on Biological Diversity (1983), Vienna Convention for the Protection of the Ozone Layer (1985), Montreal Protocol on Substances Depleting the Ozone Layer (1987), Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal (1989), Convention on the Transboundary Effects of Industrial Accidents (1991). Pursuant to the Russian constitution, if the provisions of any environmental regulation established by an international convention or treaty and/or those established by the Russian federal or regional laws contradict, the provisions of the international convention or treaty prevail. Environmental Regulation In Russia any activity that may have an adverse impact on the environment is subject to (i) issuance of a special permit or license, (ii) establishment of limits with respect to the amount of such impact/pollution, (iii) payment of a fine for negative impact, and (iv) imposition of liability in case of violation. Environmental Permits Environmental permits allow an enterprise to conduct activities that may have a negative impact on the The EIA evaluates the possible adverse environmental impact and ecological consequences... 02 03
environment. They comprise: permits for general use of natural resources (e.g., a subsoil license or water use agreement): have limited transferability (i.e. they may be transferred to another entity only if the transferee meets certain criteria set by law and obtains the prior consent of an appropriate government authority); and permits for specific negative impact on the environment (e.g., hazardous waste management, operation of hazardous production facilities): are usually not transferable. An environmental permit may not be issued with respect to certain specially protected areas of high ecological importance, such as state parks and nature reserves, wildlife reserves, botanic gardens and areas designated for recreational or health purposes; activities that may cause pollution in such areas are strictly prohibited. Permits for General Use of Natural Resources Water Use - The right to use bodies of water that are under federal or regional ownership can be granted either on the basis of a water use agreement or a decision of the relevant authority to grant use rights for a body of water, depending on the designated purpose of the water use. Subsoil - A subsoil use license is generally issued by the Federal Agency for Subsoil Use and certifies the right of its holder to use subsoil within certain boundaries, on certain terms and for certain purposes. Typically, the exploration license is granted for up to five years (10 years for offshore), while the production term may be as long as is required (as evidenced in the feasibility study) for the full rational use of a deposit. The Subsoil Law does not expressly provide for the combined exploration/production term. However, in practice, a combined license may be issued for 25 years. The Federal Service for Supervision of Natural Resources Use oversees state control of subsoil management. Failure to comply with the terms of a subsoil license can lead to penalties, suspension or revocation of the subsoil license, with further termination of subsoil use rights. Continental Shelf - Russian legislation sets out different types of permits for continental shelf activities (e.g., permits for laying underwater cables and pipelines; for creating artificial islands, installation and structures; and for drilling operations). Forests - In order to use forestland, companies are generally required to enter into a forest plot lease agreement with the state authorities that own such land. In addition, each forestland user must prepare a forest development plan with data on the type of forest, planned volumes of forest use, actions aimed at the protection and rehabilitation of the forest, and actions relating to the construction and use of facilities that are not related to the establishment of forest infrastructure. Permits for Specific Negative Impact on the Environment Air Pollution The right to emit hazardous substances into the atmosphere requires a permit that sets out the maximum permissible emission levels of the applicable hazardous substances. In certain cases (e.g., during the commissioning of a facility), a company may operate under a permit that temporarily allows it to emit in excess of the established maximum permissible emission levels. The air pollution permits are issued by federal or regional authorities, depending on whether the relevant source of pollution is subject to regional or federal environmental control. Waste Treatment The collection, transportation and/or disposal of waste requires: - a positive report of the federal state expert review with respect to project documentation for waste treatment facilities; - the issuance of a waste management license or the conclusion of a services agreement with a specialized company that has a waste management license; 04 05
- the establishment of limits for the amounts of waste disposal; and - with respect to certain types of hazardous waste, the receipt of a passport of hazardous waste that specifys the class of hazardous waste in accordance with the established classifications of hazardous industrial waste. In certain cases, small and midsize companies can be exempted from some of the above obligations provided they regularly submit a report to the relevant authority regarding their generation, use, decontamination and disposal of waste. Hazardous Industrial Facilities - A company operating flammable, explosive or chemically hazardous facilities must be licensed by the Federal Service for Environmental, Technological and Nuclear Supervision. The companies that operate hazardous industrial facilities are also required to have adequate insurance in place so that they can pay for damage that might be caused in case of an accident. In addition, putting a production facility into operation requires a permit from the state authorities responsible for construction (i.e., the Ministry of Regional Development and the relevant regional or municipal bodies). The project documentation for facilities (specifically including hazardous, technically complex and unique facilities and defense and security facilities) planned for construction, reconstruction and capital repair within specially protected natural areas of federal significance requires a positive report from the SEER. Pay-to-Pollute The Environmental Protection Law includes a pay-to-pollute provision that requires companies to obtain permits and pay the respective tariffs for such permits for adverse environmental impact caused by their activities, including: emission of pollutants and other substances into the atmosphere; discharge of pollutants, other substances and microorganisms into bodies of water, groundwater and watersheds; pollution of subsoil and soil; disposal of industrial and consumption waste; However, criminal liability cannot be imposed concurrently with administrative liability, unless a violation can be attributed to different persons... environmental pollution caused by noise, heat, electromagnetic and ionizing radiation, and other types of pollution; and other activities that may have an adverse environmental impact. In addition to making the pay-to-pollute payments (which are considered a fiscal levy, rather than a fine or sanction, on a company that produces negative impact on the environment), a company must also remediate any environmental damage caused by its activities (regardless of the amount of pay-topollute payments it has made). Environmental Liability A violation of Russian environmental regulations may invoke civil, administrative, disciplinary and/or criminal liability. Multiple categories of liability may be applied to a single violation. However, criminal liability cannot be imposed concurrently with administrative liability unless a violation can be attributed to different persons (e.g., when a company commits a violation as a result of its officer s unlawful act or decision, the officer can be held criminally liable for the violation while the company can be held administratively liable for the same violation). Civil Liability can be imposed upon a person/entity that actually caused the damage or, in the case of damage caused by so-called sources of increased danger (e.g., nuclear facilities, highly toxic substances) - upon the owner of such facilities (regardless of whether his acts are attributable to the damage or not). Pursuant to Russian civil law, damages are divided into actual damages and lost profits. Compliance with environmental law (i.e., obtaining a SEER or making pay-to-pollute payments) does not release the company from its liability for damage caused to the environment. Russian law provides for a 20-year statute of limitations for filing claims based on environmental liability, starting from the moment when the injured person learned or should have learned of the damage. Administrative Liability can be imposed on individuals, officials or companies by orders of the relevant state authorities, generally in the form of an administrative fine or an order of suspension or revocation of license. While administrative fines for noncompliance with the environmental legislation are often relatively insubstantial, orders of suspension or revocation of license often can have a significant impact on the company s operation and business. 06 07
The statute of limitations for the imposition of administrative liability is one year from the date when the offense was committed. If the offense is a continuing violation, the limitation period starts from the moment when the relevant state authority learned about the violation. Disciplinary Liability can be imposed by an employer on employees who fail to perform their duties related to the environmental protection obligations of their employers (e.g., duties included in the company s internal regulations, or an instruction related to the operation of a production facility). This type of liability is available only with respect to an intentional action or omission. The statute of limitations is usually one month from the date when the employer learned about the disciplinary offense. Criminal Liability can be imposed upon individuals, including governmental officials and general directors and managers of companies, for material violations of law that may present a serious danger to the public. Criminal liability may be imposed only by courts if such liability is envisaged by a specific provision of the Criminal Code of the Russian Federation. Preexisting Environmental Liability A person or company that acquires an asset (e.g., land or facilities) generally will not be liable for environmental violations that occurred prior to its ownership. Nevertheless, there is a risk of inheriting environmental liability if the environmental violation resulted in environmental damage and such damage...the current owner may continues to exist after the change in ownership of have the right to claim the asset. In such case, the environmental damage recourse against the previous may be deemed a continuing violation and the current owner may be held jointly and severally owner, subject to any liable with the previous owner for past violations contractual arrangements (particularly if it is not possible to allocate liability they might have. for damage). In such case, the current owner may have the right to claim recourse against the previous owner, subject to any contractual arrangements they might have. Kyoto Protocol The Kyoto Protocol went into effect on 16 February 2005 90 days after the submission of Russia s ratification document to the United Nations. Russia s Commitment under the Kyoto Protocol - Russia is entitled to maintain its 1990 level of emissions during the Kyoto compliance period from 2008 through 2012. Joint Implementation Projects - Article 6 of the Kyoto Protocol allows participating countries to transfer or acquire emission reduction units through joint implementation projects (the JI projects ). Sberbank, Russia s largest state-owned bank, is authorized to select the applications submitted for the tender and to finance the transfer and acquisition of carbon units. The power to grant ultimate approval of JI projects is reserved by the Ministry of Economic Development and Trade. 08 09
King & Spalding s Environmental Practice received the Law360 Environmental Group of the Year Award in 2010. About King & Spalding King & Spalding s global energy practice has handled matters in more than 88 countries across six continents, including Russia, where our lawyers also provide counsel on environmental regulation at the regional, federal and international levels. Several members of the King & Spalding energy team are resident in the firm s Moscow office, which is home to 14 lawyers (many of them ranked in Chambers Global and Chambers Europe) who serve clients across a full range of legal services, providing Russian, English and U.S. law capabilities. They work particularly closely with our extensive transactions practices in London, the historic legal centre for transactions originating in Russia, as well as our highly regarded international arbitration practice in Paris, an important venue for Russian disputes. In addition to the energy industry, the office offers particular expertise in real estate, life sciences, financial services, automotive and telecommunications/media/technology. Contact: Jennifer A. Josefson jjosefson@kslaw.com +7 495 228 8502 10 11