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Problems of Legal Support of Energy Companies in the Course of Procuring Foreign-Origin Goods, Works and Services Performed or Provided by Foreign Entities
 
PIIS231243500022169-3-1
DOI10.18572/2410-4396-2019-4-76-81
Publication type Article
Status Published
Authors
Snezhana M. Saushkina 
Affiliation: Saint Petersburg State University of Economics
Address: Russian Federation, Saint Petersburg
Journal nameEnergy law forum
EditionIssue 4
Pages76-81
Abstract

In accordance with Decree No. 925 of the Russian Federation dd. September 16,2016 On Priority of Russian- Origin Goods, Works and Services Performed by Russian Entities over Goods of Foreign Origin, Works and Services Performed or Provided by Foreign Entities, Russian-origin goods, works and services performed by Russian entities are privileged over goods of foreign origin, works and services performed or provided by foreign entities in the course of procuring goods, works and services by way of bidding, auction, and other forms of procurement, except for single- source procurement.

In fact, customer companies are obliged to give Russian manufacturers of radio-electronic products an advantage of 30 percent of the offered price, and of 15 percent in all other cases.

The study analyses problems of legal support for energy companies in procuring goods of foreign origin, works and services performed or provided by foreign entities and gives the legal analysis of the judicial practice, explanations by public authorities, local by-laws of energy companies, and provisions of international treaties.

 

Keywordsenergy law, energy legislation, contractual regulation in the sphere of energy, procurement procedures
Received06.11.2019
Publication date01.12.2019
Number of characters18570
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1 For the purposes of supporting Russian manufacturers, Decree of the Russian Federation No. 925 dd. September 16, 2016 On Priority of Russian-Origin Goods, Works and Services Performed by Russian Entities over Goods of Foreign Origin, Works and Services Performed or Provided by Foreign Entities (hereinafter referred to as “Decree No. 925”).
2 The said Decree No. 925 stipulates privileging the goods of Russian origin or supplied by Russian entities over the goods supplied by foreign entities.
3 According to current legislation, the preferential treatment is manifested in that in the course of a procurement process where the winner is determined based on assessment criteria, bids comparison, and the lowest contract price, the commission (procurement organizer) is obliged to compare the bids’ prices with the values given by a Russian bidder deemed to be reduced by 15 percent.
4 While the contract should be entered into at the contract price specified by the bidder.
5 This can be irrelevant in case of minor procurements for an energy company. But when it comes to crucial production facilities, replacement of foreign equipment (in most cases, material and technical resources (MTR) required for repairs of out-of-service equipment) with Russian one can lead to major accidents. Energy companies’ attempts to specify more detailed characteristics of MTR or their manufacturer result in disagreements with supervising authorities who deem such requirements as competition limiting behavior.
6 Thus, a company faces the risk to get products of possibly the same quality but with a shorter service life due to poor compatibility with an existing plant.
7 Speaking of service procurement, such limitations lead to unnecessary resellers adding their commission to the existing financial burden.
8 Let us consider a particular situation: engaging a legal advisor in the territory of a foreign state. For example, we are opening a branch or representative office in the territory of a foreign state, or we are already operating a branch and a claim has been filed against it in accordance with the national legislation rules. We have to engage an expert in local legislation and announce bidding / invite quotations for advisory/consulting services. The customer will stipulate in the procurement documentation that the services will be provided in the territory of a foreign state. However, if both foreign and Russian legal entities are among the bidders, the energy company will have to privilege certain ones. Thus, a foreign bidder, even with the lowest price quotation, will most probably lose to a Russian rival.
9 In such situation, the company is not only forced to choose not the best financial proposal but, in the future, will also have to partially cover the expenses resulting directly from the fact that the service provider is not the resident of the country where the case is heard/service provided. Such expenses include business trip expenses invoiced to the customer and/or engagement of additional advisors (since provision of such services often requires the knowledge of national legislation in addition to international law).
10 Besides, Decree No. 925 does not apply to single-source procurement (at a single supplier/contractor) which seems rather reasonable. Single-source procurement agreements are usually required due to the uniqueness of the subject of procurement or the impossibility to conduct bidding. Thus, granting preferential treatment becomes irrelevant and impossible.
11 For example, Rosneft’s Procurement Regulations allow single-source procurement for goods with the exclusive rights therein belonging to the rights holder according to legislation [1]. Due to that, holding a bidding process is impossible, since at the time when the corresponding need arises the company needs a particular product with specific features, and the rights in that product are protected by the copyright rules.
12 In addition to that, Rosneft’s Procurement Regulations stipulate single-source procurement for technologically sophisticated equipment. For example, equipment/machinery used in offshore project implementation, as well as works/services that can be performed/provided exclusively by the manufacturer of such equipment by virtue of its copyright or developments using unique and/ or innovative technology.
13 It is expedient to procure component parts for such equipment at the supplying manufacturer irrespective of its country of origin. Such rules in the Rosneft’s Procurement Regulations are aimed at minimizing the risks of the equipmentrelated accidents and equipment failures caused by the incompatibility of the supplied MTR with the existing equipment.
14 One should note that the present rules of international law limit heavily the application of Decree No. 925 in general.
15 In accordance with Clause 8 of Decree No. 925, granting preferential treatment to Russian products is subject to the General Agreement on Tariffs and Trade (GATT) of 1994 and Treaty on the Eurasian Economic Union dd. May 29, 2014. Members of the Customs Union are the following states: Russia, Kyrgyzstan, Kazakhstan, Armenia, and Belarus. Accordingly, Decree No. 925 will not apply to procurement bidders residing in the counties listed.

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1. Rosneft’s Procurement Regulations. URL: http://zakupki.rosneft.ru/statements  (Положение о закупках ПАО «НК «Роснефть». URL: http://zakupki.rosneft.ru/statements). 
2. Annex No. 25 to the Treaty on the Eurasian Economic Union // Official website of the Eurasian Economic Commission. URL: http://www.eurasiancommission.org/,  June 5, 2014
3. Judgement of the Moscow Circuit Commercial Court in Case No. А40-37602/2018 dd. February 27, 2019. URL: http:// ras.arbitr.ru/
4. General Agreement on Tariffs and Trade of 1994 // Annex to the Russian Federation Code. 2012. No. 37. Part VI.
5. Judgement of the Moscow Circuit Commercial Court in Case No. No. А40-253934/2018 dd. July 25, 2019. URL: http:// ras.arbitr.ru/
6. Romanova V.V. Energy Law Order: Current State and Tasks. Moscow : Yurist Publishing House. 2016. 255 p.
7. Letters of the Ministry of Economic Development of the Russian Federation. URL: http://zakupki-inform.ru/

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