Проект

December 11, 2001 Moscow

The participants of the Russian Energy Summit «PSA’ 2001: Investment into the XXI Century» have discussed a broad range of issues related to political, legal, economic, environmental, and social aspects of attracting investment through production sharing agreements. Based on these discussions the participants indicate that in the current situation production sharing remains the only mechanism capable of securing major long-term investment in the development of mineral resources both from foreign and Russian sources and within a reasonably short time.

We are convinced that investment in the fuel and energy sector which the PSA legal and regulatory framework may and should encourage is a major prerequisite to the positive dynamics in the buildup of Russia’s other industries and the entire national economy.

Experts believe that proper PSA instruments may help to attract up to US$85 billion to the Russian economy from now to 2008. The growth of the fuel and energy sector/mineral raw materials production assisted by the PSA mechanism will create favorable conditions for further development of the domestic machine-building, chemical and metallurgical industries as well as other economic sectors. In the longer term, that would result in higher employment levels and better living standards for all Russian nationals.

The Summit participants are pleased to acknowledge good progress achieved last year in creating a favorable investment regime and establishing PSA terms and conditions beneficial to Russia. The reform and optimization of the legal and regulatory system of government control over the implementation of production sharing agreements have resulted in the establishment of new organizations and procedures capable of addressing outstanding issues accumulated over preceding years.

Political stability, a stronger “vertical chain of power”, President Putin’s strong belief that production sharing agreements may and should form a cornerstone of Russia’s investment policy lay the groundwork for broad practical enforcement of the PSA mechanism.

This is a priority to Russia in the current situation. On the one hand, the falling world prices of oil call for the establishment of such “rules of the game” as to allow efficient development of hydrocarbon fields with high capital and operating costs and long payout periods. On the other hand, the recent outburst of international terrorism on unprecedented scale underscores the need for West European countries and the US to reduce their unduly high dependence on the Middle East energy resources and emphasizes the need for investment risk diversification with regard to hydrocarbon development projects.

The investment community showed understanding of the inevitable need to suspend negotiations while reforming the system of government control over PSA projects. However, the absence of actual results of the enforcement of the PSA Law passed as early as 1995 requires even greater dedication from the present federal government in moving from the phase of establishing a background for negotiations to actual drafting, execution and implementation of production sharing agreements.

The participants of the Russian Energy Summit “ PSA’2001: Investment into the XXI Century” propose the following recommendations to the Russian Federation President, the State Duma, the Federation Council of the Russian Federation Federal Assembly, the Russian Federation Government, and the Administrations of the Russian Federation constituent members. These recommendations are aimed at improving the efficiency of practical enforcement of the PSA principles in order to attract major investments in petroleum projects of highest value to the Russian economy and ensure significant involvement of Russian contractors in their implementation:

1. The first priority is to ensure the drafting and passage of the PSA Chapter of the Tax Code governing the specifics of taxation levied on the PSA Parties. In preparing the said bill for the first reading the RF Government should hold broad consultations with the RF Duma Deputies, the administrations of the RF constituent members, officials of Russian and foreign major petroleum companies. Such consultations should be held with a view to creating a workable fiscal regime securing an efficient tax base for the federal budget revenues and, at the same time, providing investors with a guarantee of stability and no change in their tax exposure throughout the life of the PSA project. Any deviation from the basic tax principles set forth in the PSA Law and confirmed in the applicable tax laws should be deemed unacceptable.

2. The legal and regulatory framework needed for drafting, execution, and implementation of production sharing agreements should be promptly completed. The RF Government Schedule for preparing appropriate regulations should be faithfully maintained. The Summit participants point out to the RF Government the need to include Guidelines for PSA Drafting, Execution, Implementation and Control Procedures in the RF Government Schedule for preparing the PSA legal and regulatory base. Such Guidelines constitute a core document governing the procedure for Government involvement in PSAs and establishing performance criteria for members of the government committees.

3. The investment community is concerned over a significant number of bills submitted for review to the State Duma proposing diverse and often contradictory amendments and additions to the PSA Law. This largely spontaneous process may lead to a distortion of the investment policy pursued by the federal executive bodies and critical worsening of the investment climate. In this respect, it is critical to have criteria and approaches to introducing changes to PSA legislation clearly worded at the RF Government level. It is also critical to establish close interaction between the executive and legislative bodies in improving PSA legislation.

4. Practical implementation of the Sakhalin I, Sakhalin II, and the Kharyaga PSAs executed prior to the effective day of the PSA Law is of critical importance to PSA investors. In view of which the RF Government should ensure that its commitments under these agreements, including VAT refund to investor, are strictly honored.

5. In the process of reforming the legal and regulatory system of government involvement in PSAs the place and role of a constituent member of the Russian Federation in whose territory the subsoil area is located or PSA operations are conducted should be clearly identified. The scope of its responsibilities and the level of authority with regard to drafting and implementation of PSAs should be clearly outlined.

6. The Summit participants support the administrations of the RF constituent members in their willingness to use the PSA mechanism for securing project financing for the development of small and medium-sized hydrocarbon fields. This initiative needs support of the RF Government, which is expected to provide legal and regulatory support to simplified procedures for entering into negotiations for small and medium-sized PSAs in compliance with the existing legislation.

7. The establishment of objective preconditions for actual enforcement of applicable legal provisions stipulating preferential award of contracts under PSAs to Russian companies remains high priority. At the same time, the Summit participants express hope that the RF Government would address this issue not only by method of compelling the investors, but also through actual support to domestic manufacturers.

8. The Summit participants believe the dialogue between the government and the investment community should become regular. Hence, it would be advisable to establish a consultative body under the RF Government or the RF Ministry of Economic Development and Trade to include representatives of Russian and foreign companies interested in moving PSA projects forward.