The Russia Journal

Chairman of the State Duma Property Committee Viktor Pleskachevsky, a member of the pro-Kremlin Unity Party, speaks about the historic passage of the Land Code and its implications for the Russian economy.

Viktor Pleskachevsky is chairman of the State Duma property committee. An academic and financier from St. Petersburg, Pleskachevsky is a member of the pro-Kremlin Unity (Yedinstvo) Duma faction.

The property committee is widely seen as a key committee in the lower house of parliament. It helped formulate the Land Code and is currently working on the draft law on privatization and legislation regarding property rights and ownership.

If the first installment of a two-part interview, Pleskachevsky discusses issues surrounding the Land Code. Next week, he talks about the problems of privatization, including the rights of property owners.

THE RUSSIA JOURNAL: The Land Code has now cleared the Federation Council. Replying to senators' remarks, Economic Development Minister German Gref said that all comments would be taken into account. But how can this be done if all that remains is for the president to sign it into law?

VIKTOR PLESKACHEVSKY: Any law can be improved, especially one as important as the Land Code. Land ownership is the last big hurdle we've inherited from 70 years of Soviet history. We will have to sign more than 20 draft laws in order to develop the Land Code over the next one to two years. There will also be amendments to the code itself.

RJ: No doubt some things will only become clear as the law starts being applied, but are there some areas of further work that are already clear?

VP: The question of foreign ownership of land has been left for the president because there wasn't time to sign a detailed instrument regulating this issue. If you take the term "border region," for example, we have to work out how many km of land this term covers. In some regions it will be more, in some less. This will all have to be included in a presidential decree and later introduced into the code. There will also be procedural amendments. The issue of land on which residential buildings stand, for example. There's ambiguity as to whether just anyone can buy this land unless the owners of the housing have formed a cooperative. The code directly prohibits this, but this has to be more clearly formulated.

Then there's the fact that for some regions, like Saratov Oblast, for example, which has gone further ahead in land ownership since 1997, this code will act as a brake. Under the code, foreigners are only allowed to rent, not to buy agricultural land, for example, and in Saratov, this is a step back, not forward. We will have to work with the regions to make sure that the code's provisions have an incentive effect.

RJ: So, does the code's application depend on local authorities?

VP: Some aspects are within the jurisdiction of local authorities. The code obliges local authorities to define local land values, but within a framework set by federal law.

RJ: But who calculates these values: local legislators, the executive authorities or the market?

VP: Precision is important here. Only 2 percent of land is covered by the new code's provisions. Most of this 2 percent is land that can't be privatized in any case – streets, roads, squares, public facilities – or there's already something built there, in which case the owner of the building is first in line to buy the land. So you can't exactly call it the market. Property owners have rights, and the state has an obligation to give them first chance to buy the land on which their buildings stand. Legislation covers this land, so that bureaucrats have to work within certain limits. Market prices will only concern the tiny percentage of land that is currently free. This land will be sold only through auctions and bids, and in accordance with urban planning requirements.

We've tried to make sure in the law that information about upcoming auctions will be widely available so as to let the maximum number of potential buyers know what's on offer. Market prices will, of course, form on the secondary market. What the Land Code is doing now is laying the foundation for a future market-based land market. It's this initial step that is important; from here, the market will take over and the state will return to its main role as referee in the process and guarantor that the laws will be enforced.

RJ: How will the legal value be calculated?

VP: The legal value is the land tax, which is collected by local authorities. In his report, Gref said there is a 360-point scale that can be used here. So, when some regions say that this limits their authority, this is not so. I think there's plenty of room here for them to exercise their authority.

RJ: Concerning existing buildings, an owner on good terms with the officials concerned could get the land at a cheap price, while in other cases, officials could demand a high price from building owners, knowing that they're hostage to the land their buildings stand on.

VP: There are two things to remember here. First, the privatization process had its problems, but on the whole, it was based on tenders. The location of buildings was included in their price. We don't want to make people pay twice. There were proposals to include land at its market value in a company's charter capital, but this amounts to deprivatization – to an increase in the state or municipal share – and this worsens the investment climate. This is why we've set a maximum threshold, so as to limit bureaucrats' scope for arbitrary application of the law.

The second factor to take into account is the nature of business activity itself. But ultimately, this is up to the local authorities. We've just set the thresholds. [Gennady] Kulik and I proposed an amendment to Gref. You have to decide what's more important – budget income from land sales or establishing an effectively working legal framework for land ownership. Of course, the latter is more important. We had to give officials enough freedom and at the same time make things clear for entrepreneurs, this is why we've set a differentiated scale. If a private school wants to buy land, it shouldn't be subject to the same price scale as for a casino wanting to buy land. It's impossible to make the system fair for everyone, especially during initial privatization, but there have to be some rules.

RJ: Will real-estate owners be able to keep renting the land their buildings stand on?

VP: This is their right, but if the owner decides at a later date to buy the land, it could end up costing more.

RJ: Will the next step in the process – a law on agricultural land – end up having to go through the communist-controlled agricultural committee?

VP: It's the Duma that decides. We would have to work together, in any event, as the basic law comes under our committee and we'd at least have to ensure we all use the same terminology. The government already has one draft law, the agricultural committee has an alternative draft and, as far as I know, so does SPS (Union of Right Forces). So, I think it won't be long before this draft law is also introduced to the Duma, most likely this year.

But this issue is more controversial than the Land Code. Our country is traditionally agricultural, but we don't have a market mentality in this area. We have huge amounts of agricultural land, but we don't use it well. Back in 1985, I saw a UNESCO report that contained some interesting figures: In 1974, only 0.3 percent of arable land in Russia was in private hands – dachas, private garden plots, etc. – but in some years it produced 30 percent of the gross agricultural product. If Russia put just 10 percent of its agricultural land in private hands, it would soon stop importing agricultural produce and become an exporter.

RJ: But do you see a battle with the left coming up?

VP: There's a lot of speculation on this issue because it's the last threshold we have to cross. This means there's a lot politics involved, and a lot of work to be done on specific technical details. What to do, for example, about the presidential decree of 1991 dividing agricultural land into allotments? You had, say, 600 hectares and divided it among 100 people, giving them 6 hectares each. But that's on paper, and if you really start dividing the land, people will protest, because someone will get 6 hectares by the dump, and someone else will get 6 hectares by the river.

It's estimated that up to 70 percent of agricultural land already has an owner, as it was handed out and divided up according to this or that decree, but you run into problems when you try to divide it for real. Say, someone bought most of the rights to those 600 hectares and theoretically could now establish himself as the owner of this land. But imagine he hasn't bought one allotment, the owner of which wants his 6 hectares in the middle of the rest of the land. The only way out is to do what people in communal apartments do and reach individual agreements along the lines of: I'll get you a flat in another building if you give me your room in this flat.

RJ: And how will the law protect the owner of the 6 hectares, who is in a much weaker position than the owner of all the other allotments?

VP: This is a serious issue, and there are a lot of technical questions to be resolved. There will have to be mechanisms enabling conflicts to be settled through the courts. But we haven't heard any specific proposals from our opponents. This suggests to me that they are not, in fact, so interested in the fate of these land allotments, or the fate of their owners. They're more interested in the political opportunities these issues give them as a pretext to speak out. There's also speculation that people will want to buy land, then find oil there and start extracting it. But we have to make it clear that the Land Code covers what is on the surface of the land, while what is underneath it is covered by the law on minerals. We also have laws covering forest land, water resources, etc.