myanmar - financial knowledges in production sharing contract

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FINANCIAL KNOWLEDGES IN

PRODUCTION SHARING CONTRACT Oliver Massmann – Partner, General Director


I Would like to Extend My Warmest

Greeting to All of You

I would like to share FINANCIAL KNOWLEDGES IN

PRODUCTION SHARING CONTRACT(PSC) between

Myanmar Oil and Gas Enterprise (MOGE) and International

Oil Companies (IOCs)(CONTRACTORS).


CONTRACTORS’ obligation to deposit Data Fees & Bonuses

In course of entering into PSC, all IOCs (CONTRACTORS)

need to deposit followings:

to pay Data Fees within 30 days after the effective

date.

to pay Signature Bonus within 30 days after

entering into Initial Exploration Period.


CONTRACTORS’ obligation

to provide Guarantee In PSC, all IOCs (CONTRACTORS) need to conduct

followings:

to provide Parent Company Guarantee on the effective

date.

to provide Performance Bank Guarantee (PBG) issued by

State Owned Banks in Myanmar in respect of minimum

expenditure commitment of CONTRACTOR, within 30

days after entering into Study (TEA) Period, Initial

Exploration Period or any extension of Exploration Period

which is equivalent to 10 % of minimum expenditure

commitment for the relevant Period.


CONTRACTORS’ concerns

in Financial Matters

We have found most of (IOCs )(CONTRACTORS) are

worrying about ;_

How to submit Performance Bank Guarantee

How to deposit Data Fees and Signature Bonus

How to open Bank Accounts in Myanmar


• In this regard, we issued three Letters mentioning

as follows;- 1. Banking Detail of Myanma Foreign Trade

Bank. 2. Banking Detail of Myanma Investment and

Commercial Bank (MICB), together with the correspondent banks list including swift codes.

3. How to open Bank Account in Myanma Foreign Trade Bank and Myanma Investment and Commercial Bank.

• If these Letters are needed to receive, please do not hesitate to contact us.


How to submit Performance Bank Guarantee

• Incase of submitting through overseas banks • The best way to submit PBG is through MICB.

• Banking Detail of (MICB) is already mentioned together with the correspondent banks list including swift codes.

• Out of these correspondent banks (including swift codes) of MICB , the most convenient bank (with your opening bank) will be chosen.

• Then contact such chosen correspondent bank of MICB , submit the PSC clause in respect of PBG , remit the PBG amount to that bank mentioning for GUARANTEE in the narration.

• After receipt your remittance , the recipient correspondent bank of MICB will inform MICB Myanmar Branch and MICB Myanmar Branch will issue PBG.

• The Governing Law of PBG will be the Law of The Republic of Union of Myanmar.

• All charges in course of obtaining PBG shall be borne by contractor.


Incase of submitting PBG through Authorized

Dealer Banks in Myanmar

• Any Authorized Dealer Bank in Myanmar is correspondent bank of MFTB and MICB and customer of those banks.

• Contractor is the customer of Authorized Dealer Bank and needs to submit to such bank the PSC clause in respect of PBG and request contact with MFTB or MICB to reissue PBG.

• Authorized Dealer Bank will serve all process of obtaining PBG on behalf of Contractor.


Auditing

• CONTRACTOR shall –

keep books and accounts reflecting all Petroleum Costs as well as monies received from sale of Petroleum with effect from signing (effective) date.

in consultation with MOGE appoint an independent auditor of international standing to audit the accounts and records of Petroleum Operations.

submit expenditure of Petroleum Operations to MOGE quarterly after entering into Initial Exploration Period.

MOGE and Government shall -

have the right to inspect and audit CONTRACTOR ‘s books and accounts relating to PSC for any Financial Year.

In auditing , MOGE will inspect-

if CONTRACTOR ‘s expenditures are relating to Petroleum Operations or not, if not MOGE will treat such cost as Non Cost Recovery(NCR).

Incase the expenditures are under stipulated Authority Limit ( USD 300,000 for offshore , USD 100,000 for onshore) , if CONTRACTOR informs MOGE or not, while over Authority Limit , if CONTRACTOR follows the procedures stipulated by

MOGE or not. if not MOGE will treat such cost as Non Cost Recovery(NCR).

if CONTRACTOR deposits income taxes of national staffs & expatriate staffs and

deducts & deposits withholding taxes fully to IRD or not , if not MOGE raise query insisting CONTRACTOR to do soonest without fail and submit evidence .


The Structure of Taxation in PSC

I would like to submit The Structure of Taxation in Production Sharing Contract (PSC) between Myanma Oil and Gas Enterprise (MOGE) and International Oil Companies (IOCs)(CONTRACTORS).

All Myanmar’s taxes except Income Tax imposed upon CONTRACTOR , its contractors and sub-contractors shall be assumed by MOGE throughout the project life under the old (PSCs) while before the date of commencement of commercial production under the new (PSCs).


Taxes which are liable to be

paid by CONTRACTORS

• Corporate Income Tax 25% of net profit • Individual Income Tax for The same as

expatriate staffs Myanmar citizens • Capital Gain Tax @the rate as per net

profit on sale of share • All kinds of taxes are to be deposited to Internal

Revenue Department (IRD)directly or through MOGE. • No need to pay taxes twice (not only to MOGE but also to

IRD).


Union Taxation Laws(UTLs)

• 2014 and 2015 Union Taxation Laws were enacted.

• Pursuant to that Laws, almost all kinds of goods and services procured locally by CONTRACTOR , its contractors and sub-contractors shall be imposed Commercial Tax (CT) which will be 5% of sale value.

• Pursuant to UTLs , all materials suppliers and service providers invoice to CONTRACTOR , its contractors and sub-contractors @ the price inclusive of 5% (CT).


Commercial Tax in Old PSCs

• Since the time of enactment of (UTL), all operators of the

ongoing projects have to pay their vendors @ the price

inclusive of 5% (CT).

• They rein voice to MOGE to reimburse 5% (CT).

• This is the first time for MOGE to reimburse 5% (CT). So we

are now trying to seek approval and revise our

2015-2016 Budget for reimbursement of 5% (CT).


Thank you!

Oliver Massmann – Partner, General Director

[email protected];