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December 31, 2010, applicable to federally owned JSCs, and approved a pro-forma structure of the reports made by such JSCs, and some updates to the previously issued Russian Government regulations.

It was established that from March 1, 2011 federal executive bodies must cooperate on the issues regulated by the Provision on Management of Federally Held Shares of Joint stock Companies and the Use of the Special Right of Participation of the Russian Federation in Corporate Governance of Joint stock Companies (Golden Share) approved by Russian Government Order No. 738, dd. December 3, 2004, through an Internet-based Special Interdepartmental Portal on State-owned property Management operated by the Federal Agency for State Property Management.

The first stage of the Interdepartmental Portal was put into pilot production in 2010 and the second stage was scheduled for 2011. The Federal Agency for State Property Management used the Portal to control the activity of joint stock companies, in particular allocation of net profit retained as of the end of the previous year, reduction of expenses and management cots, implementation of investment programs.

The Portal was designed to play an important role in the set of public management tools, because representatives of state interests in the governing bodies of federally owned joint stock companies undertook to submit quarterly progress reports to the board of directors (Steering Committee) of JSCs and annual financial reports by posting thereof on the Portal.

The Ministry of Economic Development and Trade of Russia was put in charge of approving a form of the report made by those who represent the interests of the Russian Federation in the governing bodies of joint stock companies with federally held shares, and a filling-out manual, which the Ministry did by issuing Order No. 164, dd. 12 April1.

More details were specified as to the contents of the annual report on the management of federally held shares of JSCs and exercising the special right (golden share) in the previous year which the Ministry of Economic Development and Trade of Russia is to submit to the Government of Russia. The report must include information on: (a) execution of the orders issued by the President and the Government of the Russian Federation, including information on target and actually achieved characteristics and indicators of the sector-based performance in the previous year, (b) measures aimed at enhancing the corporate governance system, (c) all decisions on payment of dividends (including the amount dividends paid), including by sector, including large dividend payers, as well as JSCs which made a decision to pay no dividends, (d) business performance results, the dynamics of net profit and debt load against the sector average, including retrospective dynamics and analysis of capital adequacy, (e) the results of general meetings of shareholders which were held in the reporting year.

Formalized were the requirements to persons whom the state offers as independent directors and their relatives2, in nominating candidates for election to the board of directors of JSCs with state participation. Within the three recent years such persons must not:

The former standard forms of the reports to be made by representatives of the public interests in the management bodies of JSCs and general managers of FSUEs ceased to be in force under Government of Russia Regulation No. 499, dd. June 20, 2011.

Their family members (spouse, parents, children, adoptive parents, adopted persons), as well as blood and halfblood brothers and sisters, grandparents.

Section Institutional Issues hold management positions, be employed at an JSC or its subsidiaries and related companies, as well as hold management positions, be a member of the governing body or the manager of an JSC;

be an affiliate with any JSC or its subsidiaries and related companies, save for being a member of the board of directors (steering committee) of a joint stock company;

act as an auditor of an JSC (including an officer of an auditor), as well as be an affiliate with the auditor of the JSC;

perform obligations or be an officer of a company which performs obligations under an agreement with an JSC, if a total amount of transactions closed for the purpose of executing the agreement accounts for at least 10% of the book value of the JSCs assets within a period of one year;

represent the interests of persons or legal entities bound under an agreement with JSCs with whom a total amount of transactions accounts for at least 10% of the book value of the JSCs assets within a period of one year;

receive from JSCs remunerations, compensations or any other types of payment whose value accounts for at least 10% of the total annual income of the foregoing persons, safe for payments relating to the activity as an independent director and closing of transactions in order to satisfy personal, household, family or other non-business needs, as well as participate in optional programs of the company.

In addition, a person whom the state as shareholder nominates as an independent director in the board of directors, must not:

fill offices of state civil service or be a staff member of the Central Bank of Russia;

be an elected member of the board of directors (steering committee) of a company within the recent five years;

be in the capacity of manager or employed in any other JSC in which any member of the governing body of a company to which the person is nominated as independent director, is a member of the HR and remuneration committee under the board of directors of the company;

be in the capacity of independent director of more than three joint stock companies.

In addition, formal revisions replacing the previously used notion open joint stock company with joint stock company, meant that the foregoing regulations cover a wider population of business entities, because the state participates in the capital of some CJSCs besides OJSCs.

A new revision of a paragraph of the Provision on management of federally held shares of joint stock companies and exercise of the special right to participation of the Russian Federation in corporate governance of joint stock companies (golden share) approved by Russian Government Order No. 738, dd. 3 December 2004, with regard to the status of those who represent state interests in boards of directors, became the most important amendment in 2011.

First of all, it should be noted that representatives of state interests and the persons whom the state nominated as independent directors were differentiated.

After that, the state was entitled to vote for the election of persons as representatives of state interests whom the state as shareholder didnt nominate for the board of directors, if such persons entered into an agreement on representation of state interests in the governing body of JSCs with federally held shares.

The provision issued in 2004 was also supplemented with regulations concerning professional agents, i.e. persons who act under the foregoing document and agreement and may rep RUSSIAN ECONOMY IN trends and outlooks resent the state interests together with persons filling public offices or offices of state civil service.

The agreement must stipulate that professional agents are entitled to initiate a discussion with relevant government authorities and invite other representatives of state interests in a joint stock company to discuss the issues brought up for meetings of the board of directors, and receive information which they need to exercise their powers and duties.

The agreement specifies the following powers to delegate to professional agents: (1) exercise in good faith and reasonable manner the delegated powers and duties within the scope of competence of board of directors, (2) notify promptly of their meetings whose agenda includes the issues which require directives to be issued, (3) vote in accordance with the issued directives (if issuance of directives is specified in the agenda of a meeting of the board of directors), (4) participate in the committees and commissions of the board of directors (if an agent is elected as a member of such committees and commissions), (5) convene a meeting of the board of directors and add to the agenda thereof the issues proposed by the Russian Federation as shareholder (if an agent is elected the chairman of the board of directors)1.

Following the Ministry of Defense of Russia, the Department for Presidential Affairs of the Russian Federation was entitled to exercise on behalf of the state the rights of shareholder of joint stock companies established through privatization of subordinated federal state unitary enterprises with federally held shares.

With regard to FSUEs, the aforementioned Russian Government Order No. 1214, dd. December 31, 2010, established a threshold to the value of property on which various decisions must be made on the basis of decisions of the Government of Russia, the Chairperson of the Government of Russia or decisions made by Deputies Chairperson by Chairpersons order2.

With regard to FSUEs which are not enlisted into the Forecast Plan (Program) for Federal Property Privatization, such a threshold was established to coordinate (1) transactions relating to management of a contribution (share of) to the charter (pooled) capital of business entities or partnerships, as well as shares held by a company, and (2) make decisions on participation of companies in business and non-profit organizations, as well as conclusion of simple partnership agreement.

With regard to FSUEs which are enlisted in the Forecast Plan (Program) for Federal Property Privatization, such a threshold was established to coordinate (1) closing of large transactions as well as transactions relating to the extension of loans, issuance of sureties, banking guarantees, other encumbrances, assignment of claims, debt transfer, fundraising (2) transactions relating to the management of a contribution (shares of) to the charter capital of business entities or partnerships, as well as the shares held by an enterprise, (3) decisions on participa Previously, the issues related to the activity of proxies were regulated by still applicable Government of Russia Regulation No. 625, dd. May 21, 1996, which approved the Standard Agreement on Representation of State Interests in the Governing bodies of Joint stock Companies (Business Partnerships) Whose Stocks (Interest, Contribution) are Partially Held by the Federal Government and the Procedure for conclusion and registration of such agreements. This aspect, however, was not adequately reflected in the legal framework in the 2000s, concerning the management of state held shares (special Provisions which were approved by following each other government regulations issued in 2000, 2003 and 2004).

More than Rb 150m pursuant to the law on valuation activities. This threshold value and the specified procedure for coordination have been applied in different variations since 2003 for the purpose of regulating FSUEs transactions with the federal immovable property located in Russia and assigned to them for economical management.

Section Institutional Issues tion of companies in business and non-profit organizations, as well as conclusion of simple partnership agreement1.

Russian Government Order No. 499, dd. June 20, 2011, established that federal government executive bodies (FGEBs) should interact with regard to corporate governance of FSUEs which are basically governed by regulations concerning the functioning of entities of this type2, the same way as with JSCs with state participation, namely through the interdepartmental portal dedicated to the management of state-owned property assets.

The Federal Agency for State Property Management was placed in charge of regulation of interaction of FGEBs with regard to corporate governance of enterprises through the portal, while government authorizes themselves must start to approve corporate development strategies for the period of three to five years. Relevant guidelines were approved by Order No. issued on November 18, 2011 by the Ministry of Economic Development and Trade of Russia.

Important amendments were made to the Procedure for the Reporting of Managers of FSUEs3 and other regulations in force which regulate their functioning.

For example, Russian Government Ordinance No. 228, dd. April 10, 2002, On the Measures of Enhancing Effective Use of the Federal Property Secured to Federal State Unitary Enterprises for Economic Management with regard to approval by FGEBs of development strategies of their subordinated entities, established that they should be based on the approved programs and decisions made by the President and the Government of the Russian Federation.

Corporate development strategies must be duly approved by a government authority4 by engaging (as may be appropriate) representatives of other federal government executive bodies, while FSUEs activity programs must be based on their duly approved corporate strategy.

Russian Government Regulation No. 739, dd. December 3, 2004, On the Powers of Federal Government Executive Bodies to Exercise the Title to the Property of Federal State Unitary Enterprises was supplemented with a regulation on that FGEBs shall make decisions on coordination of (1) closing of large transactions as well as transactions relating to the extension of loans, issuance of sureties, banking guarantees, other encumbrances, assignment of claims, debt transfer, fundraising (2) closing of transactions in which the manager of an enterprise acts as stakeholder, (3) transactions relating to the management of a contribution (shares of) to the charter capital of business entities or partnerships, as well as the shares held by an enterprise, (4) decisions on participation of companies in business and non-profit organizations, as well as conclusion of simple partnership agreement, provided that such deci The scope of actions was also changed for this group of FSUEs. To do such actions, a decision of industryspecific authorities requires a motivated position of the Federal Agency for State Property Management, which is to be submitted in written within 10 working days from the date of receipt of relevant proposals from them.

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