Frequent Legal Issues for Contractors on
Sakhalin Oil and Gas Projects
(Appearing soon in the Russian Energy Law Journal)

XV. Water Use Licensing

Presented by Natalia Prisekina, senior associate attorney and Director of the Vladivostok branch office of Russin & Vecchi.

The Water Code of the Russian Federation and its implementing regulation, establish the main parameters for the regulation (161) of water use in Russia. Although the Water Use Regulation establishes that the RF Ministry of Natural Resources (MNR) or its territorial bodies (162) license water use, a subsequent MNR Order clarifies that construction, exploitation, exploration, amenities, and operation of undersea deposits including hydrocarbon resources, are licensed by the MNR in Moscow. (163)

As a general rule, rights to use water areas are acquired on the basis of a water use license issued by a state authorized body, and under an agreement for the use of the water area concluded in conformity therewith. (164) In the event the agreement for use and the provisions of the water use license are contradictory, the agreement shall be deemed invalid. (165)

Short-term use of a body of water may be established for a period of up to three years, and long-term use for a period from three to 25 years, with the opportunity to prolong at the initiative of the water user. (166) The MNR has taken the position that advances in drilling technology are so frequent that long-term licenses are inappropriate.

The licensing body considers water use license applications within 30 days of their receipt along with the necessary accompanying documentation. Depending on the complexity and volume of materials, the licensing body may extend the term of its consideration by an additional 30 days. Moreover, if deemed necessary, the licensing body may order additional study of the application and its accompanying documentation, but must then issue its decision on licensing within 15 days of receipt of the results of the additional study, and in no case later than 60 days from the initial date of filing. (167) Rejection of a water use license application must be accompanied by a decision of the licensing body explaining the rejection (168). Decisions and other actions of RF licensing bodies may be judicially contested. (169)

Although a positive ecological examination is a mandatory prerequisite for the MNR to grant a water use license (170), it alone is not a guarantee of license issuance, as the application may be rejected, for example, due to the inadequacy of the license application or the necessary accompanying documentation.

The MNR must form a commission of independent experts to conduct the ecological examination within 30 days of receipt of an application accompanied by all of the necessary documentation and payment of the required fee. (171) The commission must reach its conclusions within four months from the date of issuance of a receipt confirming the applicant’s payment of the fee. Where the MNR determines that an ecological examination is complex, the term for consideration may be extended for two additional months.

Ecological examination conclusions must be either positive or negative and must be approved by a majority of the independent experts on the commission. Special consideration (which is undefined in the Law on Ecological Examination) must be given to the opinions of independent experts who disagree with the conclusions of the majority. The MNR must approve conclusions, and the head, the responsible secretary, and each independent expert of the commission must sign them in order for them to have legal force. Such conclusions cannot be altered without the consent of these individuals. This statutory framework appears to provide the MNR with the ability to delay the implementation of positive conclusions and the granting of a water use license by acting deliberately in approving or rejecting positive conclusions. Ecological examination conclusions may be judicially contested.

Once issued, a water use license, depending on the manner and objectives of use of a water area, must contain the following:

- information on the water area;
- information on the water user;
- information on the water consumers;
- a statement of the manner and objectives of use of a water area;
- an indication of the spatial limits (coordinates) of the water area or part thereof made available for use, and whenever necessary, the places of intake (drainage) of water;
- information on the limits of water use;
- information on the obligations of the water user with respect to the water consumers;
- the period of license validity;
- requirements for the rational use and protection of water areas and the environment. (172)

(161) Decision No. 383 “On Approval of Regulations on Granting Use to Water Areas which are State Property, Setting and Revising Water Use Limits, and Issuing Water Use Licenses and Managerial Licenses” dated April 3, 1997 (“Water Code Regulation”).
(162) Water Code Regulation, Point 20.
(163) MNR Order No. 226 “On Distribution of Authority in Accordance with Objects of Licensing,” October 14, 1998, Addendum 1, Points 2.4 and 2.6.
(164) RF Water Code, Article 46.
(165) RF Water Code, Article 56.
(166) RF Water Code, Article 42.
(167) Water Code Regulation, point 32.
(168) Water Code Regulation, point 33.
(169) Water Code Regulation, point 47.
(170 )Federal Law No. 174-FZ “On Ecological Expertise.” November 25, 1995, Article 11, Point 7.
(171) Section II of the Regulation promulgated to implement the Law on Ecological Expertize (RF Government Decision No. 698 “On Approval of the Regulation on the Procedure for Conducting State Ecological Expertize” of June 11, 1996).
(172) RF Water Code, Article 49.