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Outsourcing the Functions of State and Local Self-Government Bodies The rights of regional state power bodies and local self-government bodies with regard to carrying out control and audit measures within their sphere of competence are limited in the territory of Skolkovo IC. These limitations are associated with granting the respective powers to the managing company and are also targeted at reducing administrative barriers and the number of permits/approvals. The new concepts introduced by Law No.244-FZ of September 28, 2010 allow speaking about outsourcing of functions of state and local self-government bodies.

The law defines special status of Skolkovo Project managing company and its subsidiaries.

The functions of the Managing Company are as follows:

Holds the titles for land plots and owns infrastructure facilities within the territory of the Innovation Center;

Provides for overall organization management and coordination of Project implementation activities, in particular, approves the Project Rules defining the, aggregate of rights and responsibilities of Project participants;

Approves documents used instead of the general layout, land use and development regulations, as well as city planning documentation based in such documents;

RUSSIAN ECONOMY IN trends and outlooks Approves technical regulations, sanitary and epidemiological rules and other similar documents regulating legal relations in the territory of Skolkovo;

Issues invitations for foreign citizens to entry the Russian Federation to work in Skolkovo Innovations Center (soft regulations for obtaining work permits for foreigners are applied);

Approves the rules of medical and educational activities in the territory of the Innovations Center and issues permits for such types of activities (the law stipulates private medical organizations and non-government educational institutions rendering services in the territory of the Innovations Center);

Agrees the issues related to Skolkovo infrastructure, including installation of outdoor advertising;

Makes decisions about providing and terminating the Project Participant status, etc.

A non-government not-for-profit organization Foundation for Development the Center for New Technologies Promotion and Monetizing was assigned as the Managing Company for the Project of creation of a territorially delineated complex for research and development and monetization of their results. The Foundations mission is to assure formation of a full innovation process cycle in the territory of Skolkovo Center including educational and R&D activities and monetization of their results. The Foundation also performs such auxiliary functions as provision of centralized services in relation with organizing the innovation process, and participation in its funding. The following organizations are founders of the Foundation:

Russian Academy of Sciences (RAS);

State corporation Development and Foreign Economic Activity Bank (Vnesheconombank or VEB);

State corporation Russian Corporation for Nano-Technology (ROSNANO), Moscow State Technical University named after N.E. Bauman;

OJSC Rossiyskaya Venturnaya Kompaniya (Russian Venture Company);

Foundation for Support of Smaller Businesses in Research and Technology.

The Foundation has the following governing bodies:

Foundation Board is a top corporate governance body comprising at least ten members.

The Board shall be initially formed by the founders in agreement with the Commission for Russia Modernization and Technology Development with the President. Board members shall perform their functions on a pro bono (voluntary) basis. The Board shall be headed by two co-chairpersons;

Advisory Research Council is a specialized expert authority. The number of its members shall be defined by the Foundation Board based on the needs of projects currently in implementation. The Advisory Research Council shall be headed by two co-chairpersons;

Board of Trustees is a collegiate body approving the key objectives of the Foundation and supervising its activities and the use of its assets. The Board of Trustees shall perform its functions on a pro bono (voluntary) basis. The members shall be appointed based on the decision of the Commission for Russia Modernization and Technology Development with the President. The Board of Trustees shall be appointed for 3-year term and shall comprise at least seven members. Members of the Foundation Board and the Foundation President shall not be members of the Board of Trustees;

Annexes The Foundation President shall be appointed by the Foundation Board for the term of years. The Board shall be entitled for early termination of the Presidents term. Currently the functions of the Foundation President are performed by Victor Vekselberg.

As a result of granting outstandingly broad powers to the Managing company in accordance with Article 20 of Law No.24-FZ of September 28, 2010, regional authorities were deprived of their powers in the field of land provisioning, withdrawal of land plots for public purposes, road management and public transportation, setting the administrative liability norms, approving territorial planning and layout documents, as well as setting-up emergency rescue teams, carrying out energy saving measures, etc.

Local self-government bodies have also lost part of their previous powers.

The main purpose of transferring certain powers of regional and local authorities to the managing company and setting up specialized divisions of supervisory agencies in the territory of Skolkovo is to eliminate part of administrative barriers in the process of receiving permits and approvals from different levels of government in the above listed fields. The eventual outcome should be creating a friendly environment for investors.

The key specific feature of outsourcing the state and local self-government functions is that the managing company is a private entity (not a government agency or its subdivision).

Moreover, this company is allowed to transfer the outsourced functions to its subsidiaries.

So far the Russian Federation lacks such experience, which does not allow for comprehensive evaluation of potential consequences of state and municipal functions outsourcing in the sphere of regulations and control. However, certain complications may be assumed to arise during such practice.

The following risks may be stated as the key ones:

In the event of any disputes the transfer of powers assigned to the RF entities and municipalities in favor of the managing company may not necessarily be recognized as constitutionally acceptable. Article 72 of the RF Constitution directly states the fact that land use relations and some other types of relations (the regulation of which has been transferred to the managing company in Skolkovo case) pertain to joint competence of the Russian Federation and its constituent entities. No regional laws or other acts were adopted to formalize the transfer of powers from regional authorities to the managing company e.g., in the field of provisioning and withdrawing land plots, setting the administrative liability norms, etc.;

The border lines for Skolkovo IC jurisdiction have not been clearly defined in any legal document. It would be very important to establish the limits of applying this special legal regime, where local self-government powers are significantly reduced. This particular problem was highlighted by the State Duma Committee on Local Self-Government in its expert opinion on the draft legislation on Skolkovo (further enacted as Law No.244-FZ) No.87/1 of June 17, 2010. The Committee emphasized: "it remains unclear, what borders the Innovation Center will be operating within, as well as what is the correlation between the IC territory and the territory of Novoivanovskoye urban settlement of Odintsovo district of Moscow Region. The future of the local population (should there be any current residents of the territory allotted for Skolkovo), as well as the future of real property there is also vague.

Overall, one may agree with the concerns of the Committee: both the issue of the limits of special legal regime and the issue of the future for the current residents and real property may require additional regulation on behalf of the government;

RUSSIAN ECONOMY IN trends and outlooks The status of the Project Rules within the system of legal acts is not completely clear either (in particular, whether these rules should be recognized as a legal act or as a corporate regulatory document). Sub-paragraph 11 of Article 2 of Law No.244-FZ defines the Project rules as an aggregate of rights and responsibilities of entities participating in the Project implementation subject to approval by the managing company in accordance with the Federal Law hereof and designed to create mechanisms of interaction between the Project stakeholders; respectively, availability and compliance with such rules shall be necessary pre-requisites for these participant to operate.

Russian legal framework does not contain any clear definition of a legal act. Due to that judicial practice uses the definition of constituent elements of legal act stated by the Supreme Court of the Russian Federation in p. 9 of its Plenum Ruling No.48 On the Practice of Court Proceedings of Cases about Challenging Legal Acts Fully or in Part of November 29, 20071.

In its Ruling the Supreme Court determined the following:

- Normative legal act shall be issued in the prescribed order by the authorized state power body, local self-government body or a government official;

- Such act shall contain legal norms (rules of conduct) mandatory for general public, meant for multiple applications, and targeted at settling social relations or at change/termination of existing legal relationship.

Commenting the status of Skolkovo IC Project Rules, ConsultantPlus legal information system experts2 were completely and justifiably right to point that the Project Rules do not fully correspond with the definition of a legal act determined by the Supreme Court, because the managing company is not a state power body or a local self-government body. However, in their opinion, the fact of the managing company performing some of the functions of regional state power bodies and local self-government bodies allows for qualifying Skolkovo Project Rules as a normative legal act.

Overall such approach may be recognized as a correct one, however, outside judicial interpretation it may turn out inapplicable. In particular, until a particular court judgment is given it is impossible to say precisely:

- If the stakeholders including those not participating in the Project, appeal against the Rules in accordance with the procedure set in Chapter 23 of the RF Administrative Procedural Code or in Chapter 24 of the RF Criminal Procedural Code, and in particular bring an action in court to recognize certain clauses of the Project Rules (as of a legal act) null and void;

- What should the procedure be for holding liable for those having violated the Project Rules set by the private (managing) company and not by state power bodies with respect to civil liability and especially administrative and criminal liability3. Lets assume, civil These interpretations are widely used both by regular courts of general jurisdiction and by arbitration (commercial) courts (see also Determinations of the RF Supreme Court No.45-G10-7 of May 19, 2010 and No.88G09-7 of January 13, 2010; Determination of the RF High Arbitration Court No.VAS-7517/10 on case No.A582632/09 of June 23, 2010 and No.VAS-5892/10 on case No.VAS-17598/10 of May 24, 2010.

See ConsultantPlus: Analytical Overview of October 12, 2010. Federal Law No.244-FZ On Skolkovo Innovation Center of September 28, 2010.

According to p. 1 of Article 18 of Law No.244-FZ failure of entities/persons participating n the Project to comply with the rules and norms established and/or applied in the territory of the Innovation Center in particular, health and hygiene rules and standards, fire safety requirements, urban-planning requirements, advertisement placement and dissemination rules, technical regulation requirements, rules of medical and educational activities Annexes liability may be used with regards to Project participants based on the agreements executed between them. However, the RF Criminal Code and Administrative Offence Code do not contain any articles setting liability for violation of Project Rules established by a private managing company (that means not having the legal act status). Due to this the possibility of administrative and criminal prosecution of entities/persons violating sanitary, urban-planning and other norms acting in the Project jurisdiction may be disputable.

- The Law does not describe the procedures for the managing company to exercise control over the Project participants activities. At the same time, the right to establish a controlling division and hire full-time controllers is vested with the managing company. According to p. 3 of Article 18 of Law No.244-FZ, the managing company is obliged to approve the list of its employees directly involved in controlling the compliance with the established requirements and rules. In all appearances, the procedure for the managing company to perform checks and audits will be settled within the Project Rules. However, this may turn out to be insufficient. For example, being vested with both rule-making and controlling powers, the managing company may not be interested in sufficient guarantees of rights of other Project participants. Besides, Project participants may need special procedures for formalizing and challenging the results of checks and audits performed by the managing company, because these results may serve the basis for various sanctions (including exclusion of the respective participant from the Project).

In the process of discussing the draft Law No.244-FZ in addition to outsourcing government functions experts pointed at other potential problems in the Innovation Center activities1, including:

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