The Regulation of Subsoil Resource Usage: The Erosion of the "Two-Key" Principle and Its Inclusion into the Framework of Civil Law

Abstract

AbstractThe article analyses the two main changes in direction in the regulation of subsoil use and management evident in Russia over the past twelve months. The first set of changes—effective as of 1 January 2005—significantly alter the relative authority of federal and regional executive bodies with regards to both the development of licensing programs and the procedures established for issuing the licenses themselves. The author asks whether the transfer of authority to federal executive bodies is realizable in practice, and whether or not the provisions of the Draft Law on subsoil—published by the government in March 2005—suggest that the federal authorities will establish a framework for licensing and the management of use that provides the predictability required by investors. This material was presented at a seminar "Law, Judicial Practice and the Russian Petroleum Sector" held at the Royal Institute of International Affairs in June 2005.The author then goes on to discuss the legal nature and potential effect of a subsoil use contract, the new instrument for regulating subsoil use relations as envisaged by the draft Law "On Subsoil" use, focusing on the security and transferability of the property right that is created. To illustrate what he perceives to be a general reluctance of the state to allow the transfer of forms of use right to be free from administrative control, comparisons are made with the uneasy balance of civil and administrative law regulations in product sharing agreements, and the problems in enacting the civil law transfer of other natural resources such as agricultural land.The article concludes by discussing the potential applicability of the provisions of the Draft Law on subsoil, the possible consequences of the failure of the Draft Law to define the grounds upon which executive bodies may develop criteria to restrict or terminate the rights of the user, and the general absence of a clear definition of the function and competence of different state bodies.