The Law “On subsoil” has changed. What will happen to the tenders for operating the deposits

Interfax, February 19. “Norilsky Nikel” and “Russkaya Platina (Russian Platinum)”, who dispute the license to the southern part of Norilsk-1 copper and nickel deposit (Taimyr peninsula) differ in their evaluation of the legal consequences of the ruling by the Court of Arbitration of Moscow, the first instance of which dismissed the GMK’s claim on February 11. One of the wordings by the court is potentially more important than the verdict itself, because it can deprive “Russkaya Platina” of the spoils of victory, even if the first instance judgment remains uncontested.

DISPUTE OVER THE SUBSOIL

Last June, “Russkaya Platina” owned by Musa Bazhaev, proprietor of the “Alliance” Group, won the tender of the Federal Agency on subsoil use (Rosnedra) for the southern part of Norilsk-1. Nornikel, the main subsoil user on Taimyr, believed that the Rosnedra’s decision had not been impartial, complained to the Ministry of Natural Resources and Ecology and filed a claim with a court. The MNRE supported Nornikel’s position and suggested that the Government should revoke the results of the tender. But that did not happen, and neither did the decision to grant the license to ““Amur” Artel of Prospectors” (a subsidiary of “Russkaya Platina”, tender participant – IF). Since then, the Government decided that licenses to strategic deposits will be sold on auctions instead of tenders, and the Law “On subsoil” was changed accordingly. In auctions, the amount of the payment is the main criterion for establishing the winner, while in tenders, the contenders’ offers are studied for the most complete extraction of the resources, contribution to the social and economic development of the territory, efficiency of ecology measures. Nornikel believed its suggestions to be more beneficial, but the GMK’s claim to rule the tender by the Rosnedra for Norilsk-1 invalid was dismissed by the first instance court.

The judge, in the declaration of the verdict dated February 11, which lated appeared at the court’s website, rebutted several arguments by Nornikel, which had insisted that the Rosnedra committee had breached the procedure of holding the tender. The court believed that the committee had been composed in accordance with the law, the tender procedure had been observed, and the necessity for the Rosnedra to publish the list of the persons composing the committee in the form of an instruction is illegal.

TENDER NO AUCTION

However, one argument by Nornikel received no obvious evaluation by the court. Nornikel pointed out the changes to the Law “On subsoil”, according to which the licenses to strategic mineral deposits were no longer distributed by tenders. Therefore, according to Nornikel, in any outcome of the dispute, “Amur” (and the GMK itself) would be unable to obtain the right to use Norilsk-1 anyway, unless an auction was held. The court made no clear pronunciation concerning that conclusion, but used it as an argument that Nonikel had failed to prove that its rights had been violated and could be restored by upholding the claim. As a result, the verdict that is favorable for “Russkaya Platina” may remain unenforceable, if the court has simultaneously confirmed that the company may only receive the license as a result of an auction. By the way, neither “Russkaya Platina” nor Nornikel have yet decided to participate in the auction.

NORNIKEL’S POSITION

According to Nornikel, the court has thus acknowledged that the right to operate the southern part of Norilsk-1 may only be obtained on an auction. Nonikel’s representative is convinced: “The legal position of Nornikel is that the auction as the mechanism of distribution of licenses to the right to use subsoil plots of federal significance, and it was practically confirmed by the court act”. He explained to Interfax that, according to the APC, if the court does not agree with the arguments of a party to a dispute, it should give motives of dismissal of those arguments. Nornikel believes that in this case, the court took Nornikel’s position positively – as an additional confirmation of the conclusion that it is impossible to judicially restore the GMK’s rights, when the legislation on subsoil use has changed. The company is of the opinion that as the Law “On subsoil” was changed, the court concluded that contesting the actions by Rosnedra of tender organization would not allow “Norilsky Nikel” to restore its rights.

THE POSITION OF “RUSSKAYA PLATINA”

“Russkaya Platina” does not agree with those far-reaching conclusions. According to Andrey Rumiantsev, spokesman for the “Alliance” Group, the court’s wording does not mean that it agrees with Nornikel regarding the opinion of the auction’s inevitability. The representative of “Russkaya Platina” believes: “The claimant himself has admitted that his right cannot be restored by upholding the claim within the frame work of this dispute. The court evaluated all arguments of the claimant and pointed out their lack of proof and wrongfulness. In other words, the right cannot be restored, because it was not violated”. A.Rumiantsev says that if a claimant files a claim knowing that it is wrongful, he is actually abusing his right.
The lawyers of “Russkaya Platina” point out that the law does not include the legal relations that arose before the changes to the subsoil law were enacted. A.Rumiantsev says that the Institute of State and Law of the RAS shares that position.

LAWYERS’ OPINIONS

Interfax has questioned independent lawyers, who generally support the way Nornikel interprets the court’s wordings.
Olga Snitserova, Chief of Corporate Law Section of Sameta law firm, told Interfax: “The way “Norilsky Nikel” interprets the declaration as the conclusion of the inevitable auction is valid. Starting January 11, the Government is formally unable to take the decision to grant a subsoil plot on tender, due to the changes to the Law “On subsoil”. That was what the court stated”.

However, she pointed out that the court had studied the correctness of holding the tender and not the application of the Law “On subsoil” to the situation. Sameta representative believes that Nornikel “runs a little ahead and draws a conclusion for the future – the Government took no decision on the results of the tender, and the company’s rights were de jure actually not breached”.

O.Snitserova said: “It would be more correct to resort to the argument based on the application of the Law “On subsoil” in the other dispute than this, which may follow the decision on the results of the tender. Nornikel may contest that decision for going against the Law “On subsoil””. She did not rule out that that moment would be studied in more detail, when the case is considered in the instances of appeal and cassation.

Evgeny Zhilin, Associated Partner of the Law Firm "YUST", concurs: “We may consider that Nornikel’s argument of the inevitable auction was one of the motives for the court to rule that the company’s rights were not violated”. He said: “If the Government took no decision to issue licenses after the tender, such decision cannot be taken anymore, since the law has changed. The tender is no longer recognized as a motive for issuing licenses by the legislation, and an auction will have to be held”.

E.Zhilin stated: “If the new edition of the Law “On subsoil” mentioned that it did not include tenders completed before its enactment, the issue of the license, taking into account the court decision, which has entered into force, would be possible. But the new edition contains no such exceptions, and I believe that there is currently no legal mechanism for issuing licenses according to the tender results”.

He added that the dispute has lost much of its topicality due to the changes of the legislation concerning the issue of licenses to the subsoil plots of federal significance.

OUT-OF-COURT OUTCOME?

Deputy Prime Minister Arkady Dvorkovich has recently said that the situation is complicated from the legal viewpoint, and the Government lawyers think about the problem. According to him, the Government still believes that licenses to strategic mineral deposits should be given on auctions.

Nornikel has not yet decided whether it will appeal against the court ruling dated February 11. The company itself has practically admitted that the trial regarding the legality of the tender is no longer relevant, but despite that Nornikel, according to its spokesman, is not ready to accept the court position of no violations.

“Russkaya Platina”, in its turn, reminds that the Court of Arbitration of Moscow is considering another claim involving the Norilsk-1 situation. “Amur” contests the non-issuance of the license and demands that the inaction of Rosnedra and MNRE be ruled illegal. In late January, the court suspended the proceedings until the enactment of the ruling on the claim by Nornikel. “Russkaya Platina” points out that Nornikel itself strived to suspend the proceedings on the claim by “Amur”, since the results of its consideration would depend on the results of the GMK’s claim against Rosnedra.

“Russkaya Platina” is convinced: “But then, according to that logic, upholding the “Amur” claim would be a consequence of dismissal of Nornikel’s claim and of ruling its demands unfounded”. According to Musa Bazhaev’s company, upholding of the claim should result in submitting by the MNRE to the Government of a draft resolution to approve the results of the tender and to give the license to “Amur”.

The second lawsuit further complicates an already complex situation. One of the dispute participants believes that the final judgment may be adopted as late as mid-May, provided the events develop quickly, without, for example an instance of appeal or cassation return one of the claims to the first instance.

The only commentary on the situation by Vladimir Potanin, General Director of “Norisky Nikel”, was given last June, when the head of “Interros” was yet to become a member of Nornikel management. He declared that the Rosnedra necision was non-transparent and illogical: “I see no logic: no competition is created, nothing new is done, and just a foreign body appears inside the Norilsk industrial district. It is clear that it would be more comfortable for Nornikel to operate Norilsk-1, with all due respect to any other investors including the winner”.

Still, V.Potainin’s diplomatic resource is more significant than Vladimir Strzhalkovsky’s, his predecessor at the position of the General Director of Nornikel. The latter rejected all compromise on the issue of Norilsk-1. According to a source close to the heads of the companies, V.Potanin and M.Bazhaev have not yet negotiated the subject with one another, but actively discuss the situation with the Government. Even formally considering the time limits for claims, it may be concluded that progress is more likely to be achieved by negotiations. The auction involves large payments to the state budget, and any of the companies are hardly interested in their expenses exceeding 4,4 billion roubles, which were transferred to Rosnedra in June of 2012 as the advance payment for participation in the tender. The results of the latter still await approval.