On August 14, 2018 the Federal Law On Amendments to the Federal Law On Seaports in the Russian Federation and Amendments to Certain Legislative Acts of the Russian Federation (hereinafter the "Law") came into force.
Under the Law, prices (tariffs or rates) for services at seaports must be "expressed in rubles, except in the cases envisaged by federal laws" (to date, no special exceptions have been formulated for the Law).
The rule that the Law introduces means that stevedores are prohibited from "expressing" (that is denominating) prices for their services in foreign currency or "conditional units". The Law does not set down any restrictions on paying for services in foreign currency – such restrictions are already imposed by existing legislation, in particular Federal Law No. 173-FZ of December 10, 2003 On Currency Regulation and Currency Control.
Neither does the Law specifically state that it extends to relationships under contracts which were entered into previously, nor does it order that such contracts be brought into line with the new requirements. Consequently, one can assume that the terms of contracts for services at seaports that were entered into before August 14, 2018 and set tariffs in foreign currency or conditional units will still be effective, although we cannot completely rule out the possibility of the regulator taking a different approach when enforcing the Law.
The Law does not apply until January 1, 2025 to Russian legal entities that, as at January 1, 2018, had obligations in foreign currency that they undertook for the purposes of investment projects aimed at developing seaport infrastructure. This deferral has been provided because, when the Law was being debated, many stevedores said that they had long-term loans in foreign currency. Based on the average implementation period for an investment project, the majority of companies are planning to fulfil those obligations by 2025. This said, the procedure for calculating and proving the existence of obligations in foreign currency and the criteria for these investment projects have yet to be defined.
The background to the introduction of the Law is that the Russian Federal Antimonopoly Service (the "FAS") brought a series of cases against Russian stevedores based on a 2016 FAS study of the market in stevedoring services at seaports. That study found that, on average, prices for stevedoring at Russian ports rose 2.5 times between 2013 and June 2016, with a more than tenfold increase in the price for some services.
The outcome of those anti-trust cases was that several stevedores were found guilty of abusing a dominant position by setting and maintaining monopolistically high prices. The FAS issued the offenders with orders to remit the proceeds from their monopolistic activities, in total around RUB 17 billion, to the federal budget.
The antimonopoly service's main argument for finding that stevedores had set monopolistically high tariffs was the fact that prices they had denominated in foreign currency were not commensurately reduced following the sharp fall in the exchange rate for the Russian ruble in 2008 (this situation could arise, in particular, where the services contract was entered into with a foreign legal entity in the same group as the stevedore). According to an investigation by the FAS, the vast majority of costs for stevedores were set in rubles and this gave rise to an artificial gulf between their costs and income and enabled stevedores to make excessive profits. Apart from this, a situation was created whereby, in the opinion of the FAS, the Russian consumer was burdened with all of the risk entailed by the instability in the ruble exchange rate.
Despite the fact that many stevedores have been able to get the FAS's decision overturned in court or to enter into an amicable agreement with the regulator, the FAS has managed to get statutory amendments through that make it impossible for stevedores to denominate their tariffs in foreign currency or conditional units, although it was originally planned that the changes would be made via a different route.
For instance, similar amendments to the RF Civil Code were put forward in 2017. These would have extended not only to stevedores but to all participants in commercial transactions. This previous version expressly allowed pecuniary obligations to be discharged with a ruble amount equivalent to a sum in foreign currency set using the official exchange rate for the currency in question on the day that the demand was paid, unless another exchange rate or another date for setting it was established by law or agreed by the parties.
The Law is, therefore, the upshot of a lengthy battle by the antimonopoly service to have tariffs for services provided by stevedores at seaports set in rubles. The FAS initiative enjoyed the support of RF President Vladimir Putin, who gave instructions for it to be implemented at the end of a meeting concerning the development of Russia's transport infrastructure that took place on August 16, 2017.
The intention of the regulator is that the Law will enable costs to be reduced for Russian consignors by preventing price setting in foreign currency, which, in the event of sharp fluctuations in the ruble exchange rate, can lead to significant increases or changes in the price for stevedoring. Given the current trend towards a weakening of the ruble exchange rate, these changes could prove to be very appealing to exporters who make their income in foreign currency and to international shipping lines.
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.