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<P align="center"><font color="#660000"><b><font face="Arial, Helvetica, sans-serif" size="4" color="#990000">Frequent
Legal Issues for Contractors on <br>
Sakhalin Oil and Gas Projects<br>
</font></b></font><font size="2" face="Arial, Helvetica, sans-serif">(Appearing soon in the Russian Energy Law Journal)</font></p>
<p align="center"><font color="#990033" size="2" face="Arial, Helvetica, sans-serif"><strong>VIII.
Extreme North Considerations</strong></font></p>
<p align="left"><font size="2" face="Arial, Helvetica, sans-serif"><em>Presented
by <a href="../subpage/attorneys.html#dm">Denis Marchenko</a>, senior associate attorney in the Yuzhno-Sakhalinsk
branch
office of
Russin & Vecchi. Mr. Marchenko has been advising
clients on various issues of Russian law since 2001, specializing in
corporate formation and labor matters. Mr. Marchenko has worked on the
preparation of legal opinions related to the prevention and liquidation
of emergency situations for Exxon Neftegas Limited and various issues
related to construction of pipelines by Sakhalin Energy Investment Company.
He has also provided legal advice on issues pertaining to real estate
leases on Sakhalin. Mr. Marchenko graduated from the International Institute
of Economics and Law (Moscow, Russia) in 1997.</em></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">In addition to the
numerous guarantees and benefits provided by the Labor Code, some of
which are
set forth above, employees working in certain
regions of Russia are entitled to special “Extreme North” benefits
as a result of working under hardship conditions. Benefits exist for
regions that are approaching the Extreme North and for actual Extreme
North areas.</font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif"><strong>Extreme North Benefits Related to Employee Salaries</strong></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">The Labor Code requires
salaries of employees working in Extreme North areas and areas approaching
the
Extreme North to include amounts determined
by area coefficients and step increases. For example, for areas in the
north of Sakhalin Island, the maximum amount of area coefficients and
step increases<font size="1"> (96) </font>amount to 160% above an employee’s
basic salary. The Labor Code defers to separate federal laws to provide
the specific
amount of such coefficients and increases and the procedure for their
payment, however, such federal laws have not been adopted to date. <font size="1"> (97) </font> In
the absence of such laws, various, often contradictory, regulations of
the former USSR and subjects of the Russian Federation continue to regulate
these issues. </font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif"><strong>Area Coefficients</strong></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">An area coefficient is the amount by which the base salary of an employee
working in a location approaching the Extreme North or in the actual
Extreme North is multiplied in order to obtain the increased salary rate
for that particular region. Coefficients differ depending on their region.
One subject region of the Russian Federation may have several coefficient
rates applied in its various geographical areas.</font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">For example, there
are two rates of coefficients on Sakhalin Island. A coefficient of
1.8 is applied in the Nogliki and Okha districts, which
are actual Extreme North areas, and a coefficient of 1.6 is applied in
the remaining districts of the Island including the city of Yuzhno-Sakhalinsk,
which are areas approaching the Extreme North. <font size="1"> (98) </font> As
a result, in Nogliki and Okha districts, as a result of application of
the area coefficient,
an employee is entitled to his base salary plus 80% of his base salary,
and in the remaining districts of the Island, an employee is entitled
to his base salary plus 60% of the base salary. Clearly, these increases
are significant and should be considered when determining employee base
salaries. </font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif"><strong>Step Increases</strong></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">In addition to area coefficients, employees working in Extreme North
areas and areas approaching the Extreme North are entitled to step increases,
or increases over time, to their basic salary. The amount of step increases
also differs depending on the region of application.</font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">By way of example,
in Nogliki and Okha districts, which are actual Extreme North areas,
step increases reach their maximum at 80% of the basic salary.
<font size="1"> (99) </font> In the remaining districts of the Island,
which are areas approaching the Extreme North, step increases reach
their maximum at 50% of the basic
salary. <font size="1"> (100) </font> These increases are separate from
and in addition to the area coefficients described above.</font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Step increases are
granted over time, and in the Extreme North reach their maximum after
five
years of employment. The schedule for granting
increases is different in Extreme North areas and in areas approaching
the Extreme North. For the first three years of work in Nogliki and Okha
districts, the employer must increase the employee’s salary by
10% every six months. After both the fourth and fifth years of work in
these areas, the employer must increase the employee’s salary by
an additional 10% each. <font size="1"> (101) </font>In all the remaining
districts of Sakhalin an employee’s right to the step increase
arises in one-year increments, 10% for each year of work in areas approaching
the Extreme North until
the full benefit of 50% is achieved. <font size="1"> (102) </font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Employees under thirty
years of age, who were residing in either Extreme North areas or areas
approaching the Extreme North for at least five
years before their employment and who are employed for the first time
are entitled to the full step increase from the first day of their employment. <font size="1"> (103) </font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif"><strong>Additional Vacation</strong></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Employees working
in Extreme North areas and areas approaching the Extreme North are
entitled to additional paid vacation beyond the standard 28-calendar
day vacation afforded to all employees in Russia under the Labor Code.
Such additional vacation is 24 calendar days in Extreme North areas and
16 calendar days in areas approaching the Extreme North <font size="1"> (104) </font>,
resulting in 52 and 44 calendar days, respectively. </font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif"><strong>Travel Expenses</strong></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">An employee working
in Extreme North areas or in areas approaching the Extreme North is
entitled,
every two years, to round-trip company funded
vacation travel within the territory of Russia and to 30 kilograms of
luggage transportation. Employers must also pay the travel expenses of
those members of the employee’s family who do not work. An employee’s
right for company funded vacation travel arises after 12 months of work
and lapses if not exercised within 2 years, from the time which vacation
was due. <font size="1"> (105) </font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Employees from other
parts of Russia and foreign employees, as well as members of their
families, are also entitled to company funded travel
to the location of their new employment within Extreme North areas and
areas approaching the Extreme North and to luggage transportation of
up to 5 tons per family. Luggage transportation for these purposes is
limited to the railroad tariffs. Furthermore, employees traveling to
these regions for new employment are also entitled to compensation in
the amount of a one time double monthly salary payment, and a one time
half monthly salary payment for each family member traveling with such
employee. Additionally, such employees are entitled to a 7-day paid vacation
for settling. <font size="1"> (106) </font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Upon termination
of a labor agreement for any reason (including the employee’s
death), with the exception of dismissal for misconduct, the employee
and family
members are entitled to company funded travel
to their new place of residence located in another part of Russia and
to transportation of up to 5 tons of luggage per family. Luggage transportation
for these purposes must also be paid within railroad tariffs. <font size="1"> (107) </font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif"><strong>Accommodation</strong></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">An employee, working
in areas approaching the Extreme North and Extreme North areas is entitled
to
company funded accommodation. If a company
cannot provide such accommodation, it must reimburse the employee’s
expenses related to lease or purchase of accommodation. <font size="1"> (108) </font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif"><strong>Other Extreme North Benefits</strong></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">There are other Extreme North benefits including, but not limited to,
the following:</font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Women working in
Extreme North areas and areas approaching the Extreme North are entitled
to a 36-hour workweek. This is four hours less than
the 40-hour standard workweek required for all employees under the Labor
Code. Salaries for these women may not be less than salaries paid for
a full 40-hour workweek. <font size="1"> (109) </font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Employees working
in Extreme North areas and areas approaching the Extreme North are
entitled to one non-paid day off per month if they have children
under the age of 16. Such day off must be provided only for one of the
parents. <font size="1"> (110) </font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Employees in these
regions are entitled to use unscheduled annual vacation to accompany
a child under 18 years old entering an educational establishment
located in another area. <font size="1"> (111) </font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Employees in these
regions who are terminated due to liquidation of the employing company
or reduction in staff, are entitled to receipt
of their monthly salary while they are looking for a new job, for a time
period not to exceed six months from the date of their firing. <font size="1"> (112) </font>This
is three months more than the standard three-month period provided for
all
employees under the Labor Code.</font><br>
</p>
<p align="left"> <font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(96)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Labor
Code, Article 315. <br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(97)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Labor
Code, Articles 316 and 317. <br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(98)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Decision
of the Executive Committee of the Sakhalin Regional Council of People’s
Deputies “On Area Coefficients to Salary of Workers and Office Employees” No.130
dated April 24, 1991, Section 1.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(99)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Instruction ”On
Procedure for Providing Social Guarantees and Compensations to Persons Working
and Residing in Extreme North and Areas Approaching Extreme
North According to Effective Normative Acts,” Section 16, Subsection (b),
introduced by the Order of the Russian
Federation Ministry of Labor No. 2 dated
November 22, 1990 (“Ministry of Labor Instruction”)<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(100)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Ministry
of Labor Instruction, Section 16, Subsection (v),<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(101)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Ministry
of Labor Instruction, Section 16, Subsection (b),<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(102)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Ministry
of Labor Instruction, Section 16, Subsection (b),<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(103)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Russian
Federation Law “On Guarantees and Compensations for Persons Working
and Residing in Extreme North Areas and Areas Approaching Extreme North.” No.
4520-1, dated February 19, 1993 (“Law No. 4520-1”), Article 11, part
2.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(104)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Labor
Code, Article 321.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(105)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Labor
Code, Article 325.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(106)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Labor
Code, Article 326.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(107)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Labor
Code, Article 326.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(108)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Law
No. 4520-1, Article 18.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(109)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Labor
Code, Article 320.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(110)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Labor
Code, Article 319.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(111)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Law
No. 4520-1, Article 18.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1">(112)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Labor
Code, Article 320.</font><font size="2" face="Arial, Helvetica, sans-serif"><br>
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