Details of Russia's new production sharing agreement (PSA) law are coming to the surface.
The state Duma, or lower house of parliament, passed the landmark PSA law this month (OGJ, June 19, Newsletter). Lack of a legal framework for PSAs has stalled major oil and gas projects in Russia for a number of years.
Still to come are votes by the Federation Council, or upper house of parliament, and President Boris Yeltsin's signature, both expected. Moscow's Commersant daily reports pending and future oil and gas PSAs could represent foreign investment of $7-8 billion/year.
The PSA law would protect foreign investors from unpredictable tax changes while it assures the investor a share of oil and gas production stipulated in the PSA.
The foreign investor will pay directly only a profits tax, bonuses, rentals, and royalties, while other payments will be in kind.
Under the PSA law, state oil monopoly Rosneft, slated for eventual privatization, will be Moscow's legal agent in PSA operations. The PSA law:
- Sets out conditions and procedures for production sharing.
- Provides a license for use of underground resources within 30 days of PSA signature.
- Provides for export of production free of previous restrictions.
- Grants relief from taxes, fees, and duties under current law other than the profits tax and royalties plus a one time signing or milestone bonus and acreage rentals during exploration.
- Ensures an investor's adequate return by modifying the PSA if other laws or regulations reduce the value of that investment.
Copyright 1995 Oil & Gas Journal. All Rights Reserved.
