A
version of this article was published in the BNA Eastern Europe Reporter. Vol.
8, No. 19, November 1998
The Need for and
Future of Production Sharing Legislation in Ukraine
by Irina Paliashvili, Vadim Dmitriev, and
Ethan Burger
Russian
- Ukrainian Legal Group, P.A.[1]
To date,
investment in Ukraine’s oil and gas sector has been fairly limited. This situation can only partially be
explained by the existence of more attractive energy resources to develop
elsewhere in the region (such as in Azerbaijan, Kazakhstan, and Russia). Certain Ukrainian legislators and government
officials have recognized that the absence of a stable legal and tax regime has
discouraged investment in the country’s energy sector.
In late 1997, the Ukrainian Cabinet of
Ministers introduced a draft Law of Ukraine on Production Sharing Agreements
(hereinafter the “PSA Law”) to the Supreme Rada (the Ukrainian Parliament).[2] After the spring 1998 elections, this draft
PSA Law was reintroduced with certain amendments. In the view of many observers, whether it will be enacted will
serve as an important litmus test as to the seriousness of Ukraine’s
willingness to attract foreign investment to develop its energy resources. This article examines Ukraine’s need for
the PSA Law and analyzes the provisions of the current draft.
I. Overview of the Ukrainian Economic
Situation and its Energy Resources
Almost seven years ago, when Ukraine achieved independence, many observers were optimistic that the Soviet Union’s former “bread basket” would develop into an economically robust country. Blessed with an excellent climate and good soil, significant industrial resources, and an educated population, Ukraine’s potential seemed enormous. Unfortunately, Ukraine’s transition from a centrally planned to a market economy has neither been smooth nor complete.
It remains to be seen whether 1998 will
be the first year that the country will have positive GDP growth. Observers generally note several factors
that have contributed to Ukraine’s disappointing economic performance,
including: the unwillingness of the country’s leadership to reach a consensus
on the need to achieve real economic reform and privatization, a constant
stream of changing legislation (particularly in the tax area), and the absence
of a well-developed rule of law, combined with widespread corruption.
At the present
time, Ukraine imports the vast majority (approximately 80%) of its oil and
natural gas, the bulk of which comes from Russia. According to the U.S. Energy Information Administration, Ukraine
has proven oil reserves of 395 million barrels and natural gas reserves of 39.6
trillion cubic feet.[3] In the last 20 years, Ukrainian oil
production has declined by as much as 60%.
Ukraine is eager to reduce its foreign dependence on oil and natural
gas. To achieve this goal, it will need
to increase foreign investment in the Ukrainian energy sector.
While it is
unlikely that Ukraine will become a net exporter of energy, Ukrainian
authorities hope that significant investment in Ukrainian energy resources will
allow the country to increase its domestic oil production from 93,000 to
150,000 bbl/d by developing new reserves and expanding output from existing
fields. Similarly, Ukraine hopes to
increase its production of natural gas from 639 billion cubic feet to 1.6
trillion cubic feet per day so that a majority of natural gas consumed will be
of domestic origin. If these goals are
achieved, it will enhance Ukraine’s balance of payments situation and further
strengthen its political independence.
Some western experts consider such goals to be realistic if sufficient
assets are directed at the relevant projects.
In our view,
given the country’s current political and economic situation, such hopes will
remain mere pipe dreams unless Ukraine adopts new production sharing
legislation that will help to create an investment climate to give investors
the necessary confidence to make significant long-term investments in the
country’s natural resource sectors. In
fact, according to U.S. Ambassador to Ukraine Steven Pifer, some investors have
identified the absence of such legislation as the single largest impediment to
their involvement in Ukraine.
II. The
Current Ukrainian Regime for Subsoil Use and the Characteristics and Rationale
for Production Sharing Legislation
Before we discuss the potential
benefits for Ukraine of adopting a production sharing regime, it is necessary
to outline the features of Ukraine’s existing administrative-licensing regime for subsoil
use.
(A) The Current Legal Framework
for Subsoil Use in Ukraine
Generally, subsoil use in Ukraine operates under a
licensing regime pursuant to which an investor purchases from the state the
exclusive right to use a subsoil area by obtaining a license from the relevant
state body. The state unilaterally (in
theory – as negotiations do in fact take place) establishes the conditions
under which the investor may undertake its activity in the subsoil area. Such licenses are generally not
transferable, and under certain circumstances may be revoked by the state. In practice, the investor under such license
becomes the owner of any extracted raw materials, though as noted below, the
legal basis for the ownership of such extracted raw materials under Ukrainian
legislation is not entirely clear. The
investor bears all expenses and risks, makes payments to the state for the use
of the subsoil and all other taxes and fees envisioned by applicable law.
Under the Ukrainian Constitution, bodies of state
power and of local self-government exercise the right of ownership over subsoil
resources in the name of the Ukrainian people.
The 1994 Ukrainian Code “On the Subsoil” (hereinafter the “Subsoil
Code”) establishes the current legal regime for subsoil use, the rights and
duties of subsoil users and other issues related to mining, geology,
production, technology, environmental protection and other special rules for
subsoil use.
The Subsoil Code identifies various
types of subsoil use, including (i) geological research, which can encompass
the development of deposits of useful minerals having a national significance,
(ii) extraction of useful minerals, (iii) construction and exploitation of
subsoil structures for purposes such as storage of oil, gas, and other
substances, and (iv) the establishment of geological territories and objects
which have special scientific, cultural, recreational or health significance
(Article 14).
Under the Subsoil Code, the state
may grant the right to use the subsoil on either a permanent or temporary
basis. The temporary use of the subsoil
may be short-term (up to five years) or long-term (up to 20 years). In either case, the period of use may be
extended (Article 15).
The Subsoil Code recognizes three
acts that give rise to the right to use the subsoil:
n A special permit (license)
for the use of the subsoil issued by the Ukrainian State Committee for Geology
and the Use of the Subsoil (which is issued only with the consent of the
Ministry for Ecological Security and Environmental Protection);
n An act on the issuance of a
mining allocation within which subsoil use may be conducted.
n An act on the issuance of a
land parcel in accordance with the rules established in the Ukrainian Land
Code.
Under
this scheme, the license is of the greatest importance. The right to use the subsoil is based on the
existence of a license. The remaining
acts are supplemental – they only formalize the right of subsoil use contained
in a license.
The specific rules governing the issues of subsoil
licenses are contained in the “Procedure for the Granting of Special Permits
(Licenses) for the Use of the Subsoil”, approved by Ukrainian Cabinet of
Ministers Decree No 709, dated August 31, 1995. Unfortunately, the relevant requirements are not well defined,
which can lead to subjective decision-making by state bodies.
The state has the right in a unilateral procedure to
adopt a decision on the termination and revocation of a subsoil license. Article 26 of the Subsoil Code lists seven
grounds for the termination of the right to use the subsoil.[4] Several of these grounds are sufficiently
general so as to allow the authorities a great deal of discretion in adopting a
decision to terminate the right of subsoil use.
Certain negative characteristics of
the existing system of subsoil use are mitigated to an extent by provisions of
Article 26 of the Subsoil Code. In some
cases, the subsoil user is given the right to appeal a decision of the state
authorities to terminate its right to use the subsoil in a judicial procedure.
One would expect that the Subsoil Code might follow
world practice and state explicitly that the owner of a subsoil license would
obtain the right of ownership over minerals it extracts. Unfortunately, the Subsoil Code does not
directly state this. Instead, Point 2
of Article 24 of the Subsoil Code provides that the subsoil user has the right
to dispose of extracted useful minerals.
Under Ukrainian law, the right of disposal is just one of the elements
of the right of ownership (possession, use and disposal).[5]
The Subsoil Code provides that a subsoil user must
pay for the right to use the subsoil in a procedure established by the
Ukrainian Cabinet of Ministers. It does
not create a special tax regime for the subsoil user which is subject to the
array of taxes imposed generally by various Ukrainian laws, including special
taxes imposed on enterprises conducting activity in the oil and gas sector
(such as rent payments for oil and natural gas extraction and fees for
geological exploration).[6] Such taxes are constantly changing in terms
of their type, amount and procedure for calculation and payment. This creates a situation which precludes
long-range planning.
Furthermore, on the practical side, the process of
obtaining the right of subsoil use is complicated due to the existence of a
bureaucratic struggle among various state and local bodies involved in
overseeing the use of the subsoil which seek to assert their power over
proposed uses of the subsoil thus preventing such bodies from acting as
effective counterweights to the Ministry of Finance or Tax Service in trying to
lessen the tax burden on foreign investors contemplating investment activity to
develop Ukraine’s energy resources.
(B) The
Characteristics and Rationale for Production Sharing Arrangements
Production
sharing was first used as a method for subsoil development in Bolivia in the
1950s. It was subsequently applied
successfully with respect to the extraction of oil in Indonesia. It is currently widely applied as an
alternative to licensing or concession arrangements and serves as the basis for
the development of subsoil resources in over 40 countries including Angola,
Vietnam, Libya, Egypt, Malaysia, Peru, Syria, and the Philippines. In 1995, Russia enacted the Federal Law
“On Agreements for Production Sharing”, but while there are a number of
projects underway pursuant to production sharing agreements, the law is not
being widely applied because of the failure to enact certain enabling
legislation.
Under a
production sharing agreement (“PSA”), the state hires an investor[7]
to undertake certain specified work connected with the extraction of useful
minerals. At the same time, the state
undertakes the obligation to transfer to the investor for use the subsoil area
specified in the agreement. In a
majority of the world’s countries (including Ukraine), the subsoil belongs to
the state. Thus the state has a
monopoly over the use of the subsoil and the removal of natural resources from
it.
While the state acts under a PSA as a
party to a civil law agreement, it retains its state prerogatives. Thus it continues to have two roles: on the
one hand it must fulfill its obligations under the PSA, and on the other hand,
it preserves its regulatory functions.
These roles may converge or come into conflict with one another. Therefore, it is important to delineate in a
PSA the conditions that are governed by the terms of the agreement (in which
case the parties shall be treated as equal parties) and those areas where the
state has the right to exercise its authority on the basis of administrative
law.
The state grants
the investor exclusive rights during the term of a PSA’s validity, that is, the
state may not undertake activity within a given subsoil parcel (unless so
provided in the PSA) and must not permit such activity by third persons. The rights obtained by the investor are
limited in the PSA to the conduct of certain identified activities, involving
specified minerals or other subsoil resources for an established term. The investor does not obtain ownership or leasehold rights over a subsoil area. All raw materials extracted or processed by
the investor from a subsoil area remain the property of the state, until the
state pays the investor for its work with a portion of the produced production. This is the so-called production
sharing.
Production
sharing is the central part and the distinguishing characteristic of a
PSA. In order to determine the volume
of the extracted raw materials and to carry out production sharing, the concept
of the “point of measurement” is used – an arbitrary point related to the
movement of extracted raw materials specified by the parties in the PSA (the
mouth of the shaft, delivery point, etc.).
Up to the point of measurement, all the raw materials being extracted
are the property of the state.
Production sharing is also usually carried out at the same point using
the following procedure:
n
From the extracted production is separated that part which goes
towards the compensation of the investor’s expenditures (cost-recovery
production);
n
That part of the extracted production which remains (profit
production) is divided between the investor and the state in a proportion
provided in the PSA.
From the time of production sharing at the point of measurement,
the investor has the right of ownership to the cost recovery production and its
part of the profit production. The
conditions for production sharing between the state and the investor are
determined in each specific PSA.
As a result of
the production sharing, the state, without investing its own funds into the
exploration and extraction of mineral resources and without bearing any
commercial risks, receives a substantial part of the extracted production.
A special tax
regime is used with respect to the investor undertaking activities pursuant to
a PSA. During the PSA’s term of
validity, the existing state taxes and other mandatory payments are replaced by
a part of the profit production. They
are taken into consideration when an agreement is drafted to determine the part
of the production which remains in the ownership of the state. In this respect, no tax privileges are
granted to investors, rather the existing tax system is replaced in whole or in
part by production sharing.
What makes a PSA a more attractive basis
for conducting activity than under a licensing regime is that parties to a PSA
have the right to negotiate the terms of their arrangements. Of particular importance is that a PSA
usually provides for a stable legal regime between the state and the investor
for a long period of time. Such terms
are essential if an investor is to be expected to make considerable
expenditures with little to no expectation of an immediate return on its
investment.
III. Status and Analysis of the Pending PSA
Law
(A) Status of the PSA Law and the Need for
Enabling Legislation
For the PSA Law
to be enacted it must go through three readings by the Supreme Rada and be
signed by the Ukrainian President (if it is vetoed by the Ukrainian President –
an unlikely event, it could be nonetheless enacted by the Supreme Rada by a
subsequent 2/3 vote (see Ukrainian
Constitution, Article 94)).
Currently, the
PSA Law has been reviewed by the sponsoring Rada Committees and it is
tentatively scheduled for its first reading at the end of November 1998.
The Ukrainian
legal system requires that any new law that changes existing legislation be
followed by an enabling law that introduces relevant changes and amendments to
existing legislation. The PSA Law
introduces several fundamental changes to existing Ukrainian legislation,
primarily in the area of taxation.
Therefore, in order for the PSA Law to be enforceable, a Law “On the
Introduction of Changes and Amendments to the Legislation of Ukraine on the
Basis of the ‘Law on Production Sharing Agreements’”, (hereinafter the
“Enabling Law”), must be adopted. The
best scenario would be for the Enabling Law to be adopted together with the PSA
Law. Then the PSA Law would be
enforceable immediately. Delays in the
adoption of the Enabling Law may result in a repeat of the situation in Russia
where the PSA Law was adopted in December 1995, but it is not being enforced
even now because the Russian Enabling Law is still pending in the State Duma.
(B) Analysis
of Key Features of the PSA Law
The PSA Law is
organized into six sections: (I) General Provisions,[8]
(II) Execution of Production Sharing Agreements, (III) Implementation of
Production Sharing Agreements, (IV) Currency Regulation in the Course of the
Implementation of Production Sharing Agreements, (V) Peculiarities of the
Regulation of Employment Relations during the Implementation of a Production
Sharing Agreement, and (vi) Miscellaneous. We will not cover all of these
topics in this article, but will only discuss certain of the PSA Law’s key
features.
The PSA Law provides that the
“Authorized Body” shall hold a tender for the right to conclude a PSA. The winner of the tender shall then conclude
with the Authorized Body a draft PSA consistent with the requirements established
in the tender. One of the advantages that the PSA Law has over its Russian
counterpart is that lists of subsoil areas subject to PSAs in Ukraine are
approved by the Cabinet of Ministers, rather than the Parliament.
We set out below a brief list of typical
investor concerns with respect to PSA legislation in general and then note
briefly how the PSA Law deals with these concerns.
· Domestic Supply Requirements
– the PSA Law provides that unless otherwise provided by the PSA, the Investor
may freely dispose of its portion of the produced production. The Investor is not subject to licensing or
quotas restrictions when exporting nor similar restrictions on sales in
Ukraine. A PSA may require the Investor
to sell to the state or within Ukraine a portion of its production at world
prices (Article 22).
· Local Content
Requirements – PSA Law, Article 8 provides that the PSA should set forth the
investor’s obligations to grant preference to products, works, and services of Ukrainian origin,
but is silent as to what those obligations should be. The intent of Article 8 appears to be that such obligations would
exist only with respect to Ukrainian works, products and services meeting
“international standards”.
¨
Local Employment and Training - Similarly, Article 8 of the PSA
Law envisions that a PSA should set out the investor’s obligation to hire and
train Ukrainian nationals, but the precise obligations seem to be left to the
parties to negotiate. We note further
that Article 35 provides that the Investor may hire foreign citizens “within
the scope and for the positions (specialty) determined by the PSA without the
need for obtaining a work permit.”
¨
Assignment of Rights – PSA Law Article 26 allows the possibility
for the Investor to assign its rights and obligations under a PSA. However, the automatic re-registration of
relevant licenses and permits to the assignee is not explicitly provided
for. Such re-registration of licenses
and permits should be added to both the PSA Law and the Enabling Law.
¨
Unrestricted Carry-Forward of Losses – although the Ukrainian Law
“On the Taxation of the Profit of Enterprises” limits the carrying forward of
losses to five years, the PSA Law provides specifically that an investor’s
expenses may be attributed to subsequent tax periods for taxation purposes
without any limitation (Article 25, Point 3).
¨
Unrestricted Use by Investors of their Share of Production –
Article 22 of the PSA Law provides that unless otherwise agreed by the parties
to a PSA, the Investor has the right to freely dispose of its portion of the
extracted production. It explicitly
exempts the exporter from any regime of export licensing and quotas.
¨
Guarantees against Unfavorable Legislative Change – The PSA Law
contains two provisions in this area, both of which contain certain
limitations. The first provides that
Ukrainian legislation in force on the date of execution of a PSA shall apply to
the rights and duties of the parties, unless otherwise provided in the PSA, with
the exception of changes in legislation in the areas of “national security, ensuring civil order, and the environment”. The second exempts investors from “normative
and legal acts of executive and local authorities in the event that such acts
limit the investor’s rights provided for in the PSA with the exception of directives of state control
and supervisory bodies issued pursuant to Ukrainian legislation in order to
establish conditions for the safe performance or works, protection of mineral
resources, people’s health, as well as the guarantees of public and national
security”. While the above language
is not unusual in PSA legislation throughout the world, such guarantees are
often difficult to implement in practice and there is of course the
considerable risk that these exceptions will be broadly construed.
¨
Dispute Settlement and Waiver of Sovereign Immunity -- the PSA Law allows the
parties to determine the method of dispute resolution themselves, thus
providing an opportunity for the use of international arbitration. If the PSA does not address this issue,
disputes will be resolved by Ukrainian courts.
Also of importance, the PSA Law contains an explicit waiver by Ukraine
of its sovereign immunity with respect to its obligations under a PSA, including
with respect to the preliminary enforcement of a claim or enforcement of a
court ruling.
¨
No need for Local Partners – The PSA Law does not require an
investor to take on a local party. That
being said, the Ukrainian Government
and its local instrumentalities are likely to encourage it.
¨
Ease in obtaining various approvals, licenses, permits, quotas,
etc. (hereinafter “official acts”) related to the performance of work under a
PSA – the PSA Law provides for government guarantees with respect to the
granting of such official acts in favor of the investors. PSA Law, Article 4, however, states that
such official acts shall be issued in accordance with the requirements set
forth in Ukrainian legislation. The PSA
Law and the Enabling Law must provide for a streamlined procedure for the
investor to obtain such official acts.
¨
Customs Treatment of Goods and Property Imported for the Purposes
of Implementing a PSA – the PSA Law does not currently provide for a simplified
procedure for the customs clearance of items imported in connection with the implementation
of a PSA. In addition, the PSA Law
neither provides for an excise tax exemption for property imported into Ukraine
nor allows for the temporary import of goods (equipment) for a period longer
than one year.
The PSA Law’s tax
provisions deserve a detailed examination that space constraints do not
allow. Article 25 establishes a special
tax regime for the investor. It
provides that the investor is only subject to the following taxes and mandatory
payments throughout the term of the PSA’s validity (up to fifty years):
· Value-added tax;
· Tax on the profit of
enterprises;[9]
· Fee for geological
exploration works performed at the expense of the state budget;
· Payroll taxes such as
payment for mandatory social insurance and payment for mandatory state pension
insurance;
· Payments for the use of
mineral resources specified in the production sharing agreement;
· Payment (fee) for the
issuance of special permits (licenses); and
· Excise taxes (including
during the importation of excisable goods, though this is not stated explicitly
in the PSA Law).
Some
of the major criticisms of Article 25 are that it does not adequately set out
what expenses are deductible for profit tax calculations. In addition, foreign investors have
complained that it does not exempt them from having to make VAT payments (which
would be difficult to recover if the investor were to export the extracted
production).
IV. Conclusion
Ukraine’s adoption of the PSA Law
would be an important step towards making its subsoil resources more attractive
to foreign investors. That being said,
the text of the law itself, however, requires further refinement. In particular, the procedures dealing with
the conclusion of PSAs, the relationship between the Authorized Body and
relevant bodies of local self-government, applicable rules with respect to the
issuance and assignment of licenses and permits when there is more than one
investor need to be refined.
Ultimately, whether foreign
companies invest in the Ukrainian natural resource sector will depend on their
assessment of the potential rewards and the political risk.
* * * *
THE RUSSIAN - UKRAINIAN
LEGAL GROUP, IN ITS CAPACITY AS LEGAL COUNSEL FOR UKRAINIAN MATTERS TO THE U.S.
DEPARTMENT OF ENERGY, REQUESTS THAT PERSONS WISHING TO PROPOSE IMPROVEMENTS TO
THE DRAFT PSA LAW OR SUBMIT COMMENTS ON IT, SEND SUCH COMMENTS BY E-MAIL TO
GENERAL@RULG.COM. SUCH COMMUNICATIONS
WILL BE PROVIDED TO THE U.S. DEPARTMENT OF ENERGY AND MAY BE IN TURN GIVEN TO
THE APPROPRIATE UKRAINIAN OFFICIALS. AS
MENTIONED ABOVE, THE FULL TEXT OF THE EXISTING VERSION OF THE DRAFT PSA LAW IS
PROVIDED IN ENGLISH LANGUAGE TRANSLATION ON OUR WEB SITE WWW.RULG.COM.
[1] The Russian - Ukrainian Legal Group is a Washington, D.C.-based law firm with affiliated offices in Moscow (the Legal Practice Group, LLC) and Kiev (the Ukrainian Legal Group, LLC). It provides legal services to Western corporate clients, tracks Russian and Ukrainian legal developments and analyzes their implications. This article is derived from materials prepared for a seminar organized by the Russian - Ukrainian Legal Group for Ukrainian legislators and government officials held in Kiev in September 1998 which was sponsored by the U.S. Department of Energy under the auspices of the U.S.-Ukrainian Binational Commission. To obtain more information about the Russian - Ukrainian Legal Group, please visit its Web Site at www.rulg.com.
[2] Although the focus of this article is on the PSA Law from the standpoint of foreign investors, its provisions cover investment by Ukrainian investors as well whose concerns are similar to those of foreign investors.
[3] A brief but thorough analysis of Ukraine’s energy situation appears on the U.S. Energy Information Administration’s Web Site at www.eia.doe.gov/emeu/cabs/ukraine.html.
[4] The
seven grounds identified are: (i) if the necessity for the subsoil use ends;
(ii) in the event of the expiration of the period for the subsoil use; (iii) in
the event of the termination of activity by the subsoil user to which was
transferred the right of use; (iv) if the subsoil use is being conducted with
the application of methods and means which negatively affect the condition of
the subsoil and cause pollution of the environment or harmful consequences to
the population; (v) in the event of the use of the subsoil not for that purpose
for which the right to use the subsoil was granted, or the violation of other
requirements envisioned by the permit (license) for the use of the subsoil
area; (vi) if the user without justification does not begin to use the subsoil
within a period of two years; and (vii) in the case of the withdrawal in the
procedure established by legislation of the subsoil area granted for use.
[5] We
note that the Subsoil Code states that in other legislative acts or in the license
itself may be envisioned another procedure for the disposal of extracted useful
minerals – other acts or licenses may address the ownership issue.
[6] These
taxes currently include: (i) Taxes Which are Included in the Sale Price Over
the Cost of the Producer such as Value-added tax - at a 20% rate of the
taxable base (the cost of goods (works, services); Excise tax – at rates for
specific types of goods; Import duties - at rates set out in the Unified
Customs Tariff; (ii) Taxes Which are Paid out of Profit, such as the
Profit Tax on Enterprises - at a 30% rate of the sum of profit which is
determined as the difference between gross income, gross expenditures and the
sum of amortization payments; the Payment (Tax) for Land – as a percentage of
the monetary value for each hectare of a land parcel (the rates depend on land
type and location); the Rent payment for oil and natural gas which are
extracted in Ukraine -for 1 ton of oil – US$ 19 and for 1000 cubic meters of
gas – US$ 23; the Tax on owners of transportation means - at specific annual
rates; (iii) Turnover Taxes, such as payments and fees for construction,
reconstruction, repair and maintenance of automobile roads for public use
- at the rate of 0.4 -1.2% of turnover
volume; Fee to the State Innovation Fund - at the rate of 1% of turnover
volume; (iv) Payroll Taxes, such as Fee to the Fund for the Liquidation
of the Consequences of the Chernobyl Catastrophe and the Social Protection of
the Population - at the rate of 5% of the wage fund (soon to be abolished); the
Fee for mandatory social insurance - at the rate of 5.5% of the wage fund; and
the Fee for mandatory pension insurance – at the rate of 32% of the wage fund;
and (v) Other Taxes and Fees, such as the State Duty – at specific rates
for actions for which the state duty is levied; Fees for the use of natural
resources (payment for the special use of the subsoil during the extraction of
useful minerals, payment for the special use of fresh water resources, payment
for the special use of forest resources) – in accordance with norms established
by legislation; the Payment for the
pollution of the environment – in accordance with norms and limits on releases
of polluting substances and the placement of wastes; Fees for geological
exploration performed at the expense of the State budget - at specific rates in
accordance with the type of useful mineral; Payment for the licensing of
separate types of entrepreneurial activity – as a percentage of the minimum
non-taxable income of citizens; the Communal tax – as a percentage of the of
the minimum non-taxable income of citizens, but no more than 10% for each
average paid worker; and Other local taxes and fees.
[7] The PSA Law’s use of the term “investor” rather than “contractor” is motivated in part to ensure that companies acting as contractors under PSAs enjoy special guaranties and other protections found in relevant foreign investment legislation and bilateral investment treaties.
[8] We have provided our unofficial English language translation of the PSA Law at the time of publication of this article on our Web Site at www.rulg.com.