Like concession agreements, production sharing agreements are the most common agreements between the state (which is represented by the Government or authorized structures) and investors. They are regulated by Law No. 225-FZ “On Production Sharing Agreements”. From the article you can learn about how such legal relations are concluded, executed and terminated, as well as their main legal conditions.
General Provisions
According to Art. 2 of Law No. 225-FZ, a production sharing agreement is an agreement under which the Russian Federation, on a reimbursable basis and for a specified period, gives the investor exclusive rights to seek, conduct exploration and mining of mineral resources in a certain area, and the investor, in turn, must conduct data work for their own money and taking risks. The agreement provides for all possible conditions regarding the use of mineral resources, including the division of products between the parties.
From the definition, we can distinguish the features of the system of production sharing agreements. Firstly, the investor has exclusive rights as an object. They can be provided only for geological exploration or for exploration and production, including the use of industrial wastes and their processing, or for the construction and operation of underground structures or other works. In this case, geological exploration may precede subsequent work or be carried out with them. In the latter case, they talk about combined mode. But one way or another, natural resources are included in the circulation in the provision of the relevant rights.
Features of the legal regime
This legal regime is characterized by significant differences from the use of other property. In almost all countries, subsoil, which are important for the economy, are state property. They are inalienable, the statute of limitations or judicial recovery do not apply to them. Exploitation, extraction of raw materials from the subsoil and other types of use is a state monopoly. In our country, the same status applies.
According to Art. 9 of the Constitution, land and other resources are protected by the state as the basis for the life of the peoples who live in this territory. Land and other resources may be in different types of ownership (private, municipal, state). According to Art. 214 of the Civil Code, resources that are not owned by individuals, companies or the municipality are state-owned. And in accordance with Art. 1.2 of the Law of the Russian Federation "On Subsoil" No. 2395-1, subsoil plots cannot serve as an object for sale, inheritance, gift, pledge or alienation in any other form. The right to use can be transferred to individuals and transfer from one to another within the framework of the current legislation.
Exclusive Rights
Law No. 225-FZ does not explain what exclusive rights are and what property rights they relate to. In some countries, use is considered a lease (which is a binding right). In other countries, it is equivalent to real estate rights. But in one case or another, the exclusive right implies the obligation of the country to refrain from any activity on the site that is provided to the investor during the entire period provided for by the production sharing agreement. This obligation also includes the prohibition of other persons to this activity. At the same time, exclusive rights apply only to those minerals that are specified in the contract. Therefore, for other minerals, exploration and mining operations in this territory may be permitted. In this case, the condition under which the relevant work will not interfere with the original investor must be observed.
Production area
According to Art. 7 of the Law of the Russian Federation No. 2395-1, the corresponding section is a subsoil block as a mining allotment. It is located on the earth's surface and is limited by coordinates. In determining the boundaries, the space on which the minerals are located, the location of the construction site and the production site, the boundaries of safe operations, conservation zones, rock movements, openings of quarries, sections and other factors that affect the bowels and the earth's surface during geological exploration and use bowels. At the same time, the mandatory condition of a production sharing agreement includes the possibility of providing such a site, which is included in a special list. It is contained in the Law "On subsoil plots, the right to use of which may be granted under the conditions of production sharing" No. 112-.
Subject composition
Another feature of the production sharing agreement is the subject composition. It consists of private investors, on the one hand, and the state, on the other. Investors can be legal entities and associations of legal entities that invest borrowed or attracted money (either property or related rights) in order to search, conduct intelligence activities and extract raw materials, and also use subsoil resources, according to the concluded agreement.
It should be noted that the Law on Production Sharing Agreements, in particular Article 3, interprets the concept of an investor a little differently than is accepted in investment law as a whole. So, it does not say about the possibility of concluding an agreement with other states and international organizations, while the Law on Foreign Investments in the Russian Federation No. 160-FZ has a corresponding definition. Also, Law No. 225-FZ refers to investors who do not have the status of a legal entity (association of legal entities). Abroad, they received the name of consortia.
Consortium
The consortium is a very popular form of uniting investors in the field of subsoil use, especially regarding mining and oil and gas industry projects. Despite the lack of legal entity status, the consortium acts as a single investor. In the Russian Federation, these legal entities are regulated by the provisions of Chapter 55 of the Civil Code, devoted to simple partnership.
Investor
An investor may transfer his duties and rights to a selected legal entity or natural person with the consent of the state, if the relevant person has sufficient financial means, technical capabilities and management experience that are necessary when fulfilling the production sharing agreement. The state must give its consent, since in this case the transfer of debt is carried out simultaneously. But, according to Art. 391 of the Civil Code, this is possible only with the consent of the creditor. Therefore, the authorized structures should first carefully study the potential investor, as well as the motives of the current investor, prompting him to make such a decision.
The creditor's rights can be transferred not only by assignment of the claim, but also by law, and also within the framework of the circumstances provided for by him. The latter is a universal succession, provided for by Art. 387 of the Civil Code of the Russian Federation. Such circumstances arise during the reorganization of a legal entity by way of merger, merger, spin-off, transformation or separation. This is stated in Art. 17.1 of the Law of the Russian Federation No. 2395-1. However, according to the provisions of this article, this right cannot be transferred to third parties, including assignment of rights.
State
The legislation does not speak clearly about the quality of the state in the agreement under consideration. Law No. 225-FZ describes it as an equal participant in legal relations. At the same time, there is another concept according to which the state cannot transfer the right to use to private owners in the field of subsoil use, since they relate exclusively to state affiliation. Therefore, the relevant legal relations from this point of view are administrative and administrative. This concept is reflected in the Law of the Russian Federation No. 2395-1. Although since 1995, when the law was adopted, many norms have been relaxed, the concept as a whole has remained the same. Subsoil is provided for use by issuing a state permit. Moreover, the will of the parties is limited by the conditions specified in the license.
According to paragraph 2 of Art. 2 of Law No. 225-FZ, subsoil use may be limited, suspended or terminated in accordance with the terms of the agreement. Similar provisions are enshrined in part 2 of article. 11 of the Law of the Russian Federation No. 2395-1, in accordance with which the license makes it possible to use the subsoil on the terms specified by the agreement. Thus, the permit document (license) is subject to the terms of the agreement, as it must comply with it.
Tax issues
In the case of a production sharing agreement, taxation is carried out under one of the special regimes. It is intended for organizations engaged in the extraction of mineral raw materials, and is indicated in chapter 26.4 of the Tax Code. In this case, the tax payer must submit to the tax office:
- Production sharing agreement.
- Decision on approval of the auction results.
Special taxation in the implementation of the production sharing agreement is used throughout the entire period of the contract. It replaces the tax payment by the division of production according to the terms of the concluded document. There are 2 types of use of this mode. Let's consider each of them.
Two options for using the special tax regime
In the first case, the investor pays the following fees:
- VAT.
- Income tax.
- Mining tax.
- For the use of resources.
- For negative impact on the environment.
- Water collection.
- State duty.
- Customs payments.
- Land collection.
- Excise.
When executing the production sharing agreement, regional and local taxes do not need to be paid to him. So, when using the TS to carry out the activities stipulated by the agreement, it does not need to pay the transport tax. In addition, VAT, tax for the use of resources, land and customs duties, state duties and fees for negative environmental impact are reimbursed to him. It turns out that in fact he pays only:
- Profit collection.
- Mineral collection.
In the second case, when concluding a production sharing agreement, the investor must pay the following taxes:
- State duty.
- Customs duty.
- VAT.
- For negative impact on the environment.
However, he also does not pay fees at the regional and local levels.
Conclusion
As you can see, the production sharing agreement is a very specific agreement, to which, moreover, different concepts are applied at the legislative level. If the federal law “On Production Sharing Agreements” provides for the approach of the state with the investor “on an equal footing”, then the RF Law “On Subsoil” presumes an administrative nature, since this requires obtaining permits.