The work of agreements on the protection and promotion of investment is proposed to be adjusted again
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The work of the main mechanism for stimulating private investment in the Russian Federation – agreements on the protection and promotion of investment (SPPK) – is proposed to be adjusted again. The amendments should add flexibility to agreements in changed conditions: investors will have the opportunity to change them in agreement with the relevant working group. At the same time, the amendments will limit the applicability of the mechanism only to new investment projects, concentrate it on modern projects using the best available technologies and reduce the possible scope of benefits for investors. In conditions of contraction of the budgetary stimulus, the SZPK mechanism is de facto immersed in the general basket of support measures, excluding situations where the state almost completely subsidizes a formally private investment project.
According to Kommersant, today a draft amendment to the law “On SZPK” will be submitted to the State Duma – the document was prepared by the head of the economic policy committee Maxim Topilin and deputy chairman of the Federation Council Nikolai Zhuravlev. Businesses asked for adjustments to the mechanism at the end of 2022 – due to sanctions, the conditions for the implementation of investment projects have changed (see Kommersant of December 12, 2022). According to Maxim Topilin, after the latest amendments, the SZPK mechanism has been working for more than a year. “We saw technical inconsistencies that hinder the conclusion of agreements and create difficulties. Economic conditions change, amendments to agreements are required, but the mechanism practically does not imply them. These are technical amendments, but they will make the procedures easier for investors,” he explained the need for amendments. It is expected that the bill will be adopted in the spring session.
One of the main changes, however, is the limitation of the objectives of the SZPK to projects, the main component of which is the object that generates the profit (for example, a plant), rather than the accompanying or supporting infrastructure. The document also reduces the amount of possible compensation for costs within investment projects: according to the law, investors, in addition to benefits under the SZPK, can receive other measures of state support, but the amount of support cannot exceed the cost of the project. Until now, it has not taken into account benefits under the SZPK: reimbursement of costs for the construction of infrastructure, which the state can subsequently buy, and interest on loans for the construction of the main facility. The amendments propose to take into account these state expenses within the framework of the general ceiling of state support – given the current loan rates and the desire of the authorities to reduce budgetary stimulation of the economy, this seems rational. As a federal official explained to Kommersant, “compensation for infrastructure costs is also a support measure; it is necessary to exclude situations where the state can fully finance a private investment project. So far, reimbursements have not begun, and we do not have agreements under which the volume of state support together with the SZPK would exceed the volume of capital investments,” he says.
The amendments also expand the list of grounds for changing the volume of capital investments, the timing of the project and the exclusion of objects from it. It will be possible to adjust both new and old agreements, and after the changes, the conditions for minimum capital investment thresholds and non-increase in the volume of cost recovery must be met. The amendments will be considered by a working group under the Ministry of Economy, created earlier to discuss investment projects with which SZPK were concluded. “Since they could potentially affect the regional economy, it will be necessary to additionally obtain the region’s conclusion on budgetary efficiency. In this part, we are strengthening the role of the constituent entities of the Russian Federation,” Nikolai Zhuravlev explained to Kommersant. Director of the Department of Taxes and Law of the DRT, Yuri Khalimovsky, evaluates the changes as an element of “manual management” designed to find a solution for situations that do not fit into other grounds, for example, if the implementation of a project under existing conditions has become impossible due to unforeseen circumstances – economic or foreign policy.
To reduce investors’ costs, it is proposed to soften the requirements for state expertise – it will be required only for infrastructure facilities, the costs of which are subject to reimbursement. At the same time, it is proposed to transfer the technological and price audit to the Federal Treasury. The document clarifies the behavior of the parties if the investor deviates from the terms specified in the agreement: at the first stage, controllers record deviations from control points of up to 40% of the term, in which case the investor is given another two years, during which the agreement is not terminated, but during this time compensation ceases costs.
The amendments will allow the SZPK system, the ideologist of which is First Deputy Prime Minister Andrei Belousov, to concentrate on another area of state interest – technological projects. Thus, the document extends the stabilization clause for six years if the project is implemented using the best available technologies. “There are not so many direct tools to support the implementation of BAT, although such activities usually require significant costs, and many of such projects can be qualified as investment projects within the meaning of the SZPK,” notes B1 partner Natalya Aristova.
The Ministry of Economy told Kommersant that they are ready to discuss and finalize the bill together with deputies, senators and business associations. According to the department, 66 SPPs have been concluded in the Russian Federation for almost 4 trillion rubles.
Experts on the innovations of the SZPK regime
Changes to the list of grounds for amending SZPK projects can be very popular in practice, given the complexity and long implementation time of the projects in respect of which agreements are concluded, notes Anna Batueva, director of legal practice at TeDo. “However, the very mechanism of action of such a new basis is unclear – we are talking about the decision of a working group created at the federal level. And the procedure for making relevant decisions is not yet entirely clear,” she says. Director of the Department of Taxes and Law of the DRT Yuri Khalimovsky points out that investment projects implemented within the framework of the SZPK are subject to the influence of the same factors as projects implemented in other forms of interaction with the state or without its participation at all. “In recent years, since the beginning of the pandemic, the risks of failure to meet deadlines have increased significantly and are materializing more often,” he states. The expert considers linking the establishment of the right to receive compensation with compliance with the deadlines for the implementation of the investment project to be a consistent measure aimed at ensuring the contractual discipline of the investor. “A delay in timing means a delay in both the socio-economic effects of the project and its revenues to the budget. It seems that in the event of a justified impossibility of implementing the project on time, the investor will be able to apply for a change in the SZPK,” he explains.
The bill prepared by parliamentarians also suggests a change in the approach to assessing the “novelty” of an investment project – now it will be determined on the basis of a construction permit issued in relation to the main object of the investment project, and not its infrastructure. Partner B1 Natalya Aristova notes that previously, novelty was determined by the timing and fact of obtaining construction permits for infrastructure facilities, and not the main facility, which was illogical and significantly complicated the process of preparing documents and justifying the possibility of concluding a contract for an investment project.
According to Anna Batueva, the criteria for the novelty of the project have not changed significantly, but for projects that do not require obtaining a construction permit, the link to the permit for the purpose of determining the novelty of the project is excluded. “This means that such projects will finally be able to apply for the conclusion of the SZPK,” she says. According to Yuri Khalimovsky, the current version of the law very strictly ties the possibility of applying for the conclusion of the SZPK to obtaining a construction permit, thereby cutting off or complicating access to those potential projects that fall under Part 17 of Art. 51 of the Town Planning Code of Russia and a construction permit is not required.
Partner B1 Natalya Aristova notes that the bill does not imply any direct changes or clarifications to the current taxation regime for SZPK participants. “It is likely that the legislator continues to collect information regarding the effectiveness and shortcomings of existing tax support measures within the framework of the SZPK in order to take them into account in the future, since these tax support measures are still relatively new and the practice of their application is still being formed,” she suggests. At the same time, she adds, it is already possible to note a number of provisions of the Tax Code of the Russian Federation that do not contribute to the active use of tax support measures within the framework of the SZPK – in particular, the need to submit a notice of deduction in advance indicating the distribution of capital investments incurred between tax deductions for specific taxes creates objective difficulties from a planning point of view.
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