Myanmar - Financial Knowledges in Production Sharing Contract

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FINANCIAL KNOWLEDGES IN
PRODUCTION SHARING CONTRACT
Oliver Massmann – Partner, General Director

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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).

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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.

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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.

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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

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• 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.

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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.

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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.

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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 .

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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).

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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).

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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).

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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).

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Thank you!
Oliver Massmann – Partner, General Director
omassmann@duanemorris.com;