GOVERNMENT TAKE. The relationship between the LNG project and the host government LAW OF LNG HOUSTON SEPTEMBER 14, 2004

Transcription

1 GOVERNMENT TAKE The relationship between the LNG project and the host government LAW OF LNG HOUSTON SEPTEMBER 14, 2004 ELIZABETH MANNETTE GOVERNMENT OF TRINIDAD & TOBAGO EMAD KHALIL JONES DAY, SINGAPORE

2 INTRODUCTORY CONCEPTS

3 LNG CHAIN Production on land/offshore Pretreatment/ liquefaction Natural Gas LNG Vaporization LNG Natural Gas Storage Storage LNG LNG LNG LNG Loading Transportation Unloading

4 BASIC PRINCIPLES Every project impinges on the laws and sovereign interests of several nations, each of which has an interest in seeing that its resources (mineral, capital, human, industrial) are efficiently utilized and the State properly compensated. This is accomplished by through the imposition of fiscal and non fiscal terms that are required as a consequence of legislation, and fiscal and fiscal terms that are required as a consequence of negotiation and contract. The Upstream segment of the LNG chain demonstrates the ways Host Governments participate in LNG projects in a manner that is repeated, to a greater or lesser extent, in other segments of LNG projects

5 CLASSIFICATION OF PETROLEUM FISCAL SYSTEMS PETROLEUM FISCAL ARRANGEMENTS The first branch deals with the title to the mineral resources. Concessionary systems allow private ownership. In contractual systems, the state retains ownership. CONCESSIONARY SYSTEMS CONTRACTUAL SYSTEMS The primary difference here rests upon whether the fee is taken in cash (service) or in kind (PSC). SERVICE CONTRACTS Divided primarily upon whether fee is based upon a flat fee (pure), or profit (risk). PRODUCTION SHARING CONTRACTS Also referred to as Production Sharing Agreements. PURE SERVICE CONTRACTS RISK SERVICE CONTRACTS

6 CONCESSIONARY SYSTEM FLOW DIAGRAM Contractor Share $9.00 $3.78 $ % One Unit of Petroleum $20.00 Royalties & Taxes 20% Royalty $4.00 $16.00 (Net revenue) Deductions (Operating costs, D&A, etc.) $7.00 (Taxable income) Local Taxes (Ad valorem, severance, income) 10% $.70 $6.30 Federal income tax 40% $2.52 Net income after tax $ %

7 PRODUCTION SHARING CONTRACT FLOW DIAGRAM Contractor Share $8.00 $4.00 ($1.60) $ % One Unit of Petroleum $20.00 Government 10% Share Royalty $2.00 $18.00 Cost Recovery (Operating costs, D&A, etc.) 40% (Limit) $10.00 Profit Petroleum Split 40%/60% (Taxable) $6.00 Taxes 40% $1.60 $ %

8 CLASSIFICATION OF PETROLEUM FISCAL SYSTEMS Operational Aspects Revenue or Production Sharing Elements National Legislation Gvt. participation Ownership transfer Arbitration Insurance Royalties Taxation Depreciation rates Investment credits Domestic obligation Ringfencing Contract Negotiation Work commitment Relinquishment Commerciality Bonus payments Cost recovery limits Production sharing

9 OWNERSHIP OF RESOURCES Outside of the U.S. ownership of petroleum resources is usually vested in the state: All natural resources in the soil and the waters of the country are under the jurisdiction of the State and shall be used for the greatest benefit and welfare of the people (Indonesia) All natural resources existing in the soil and subsoil, in internal and territorial waters, on the continental shelf and in the exclusive economic area, shall be the property of the State, which shall determine under what terms they are used, developed and exploited (Angola)

10 EXPLOITATION OF RESOURCES Petroleum legislation usually gives private entities the opportunity to participate in the exploration and exploitation of petroleum resources: Licence: The Secretary of State, on behalf of Her Majesty, may grant to such persons as he thinks fit licences to search and bore for and get petroleum (UK) Petroleum Agreement: Mineral resources are owned by the State and the exploration, development, utilization, and processing thereof shall be under its full control and supervision [and] the State may directly undertake such activities or it may enter into mineral agreements with contractors (Philippines)

11 EXPLOITATION OF RESOURCES Trinidad and Tobago framework: Mineral rights to all petroleum in State lands or submarine areas are vested in the State and exercisable by the President under the Petroleum Act No person shall engage in petroleum operations unless he first obtains a license or a PSC under the Petroleum Act.

12 GOVERNMENT WORKING INTERESTS In a license regime the government is unlikely to hold a working interest Where concessions take the form of PSCs, active government participation is more likely: CNOOC shall, by means of calling for bids and signing petroleum contracts, co-operate with foreign enterprises to exploit petroleum resources in accordance with the zones, surface areas and areas of cooperation (China) Any foreign legal entities wishing to perform activities of prospection, research and exploitation of liquid hydrocarbons, can do it only in partnership with a national company within terms and conditions provided by this law (Algeria)

13 GOVERNMENT WORKING INTERESTS Limits of Government s participating interest China: 0-51% Indonesia: 10% Nepal: Negotiable Mandatory or optional participation? Buy-in or free-carry? Cash payment or payment from production

14 CONCESSION FEES AND BONUSES Pay to Play: Application fees Purchases of existing geophysical data Signing fees Pay to Stay: Production bonuses Licence fees Royalties

15 PETROLEUM PRODUCTION OPERATIONS Minimum work & expenditure obligations Obligations Relinquishments Carry forward rights Approval to move from exploration to production activities Declaration of commerciality / approval of development plan Grant of production licence/lease Cost recovery (and cap) Ringfencing Profit sharing

16 Resource rent tax Income / corporate profits tax Other corporate taxes: Payroll taxes and mandatory social security contributions VAT on domestic purchases and sale of product Special tax concessions: Accelerated depreciation of equipment Exemptions: RECOVERY THROUGH TAXES import and export duties import / export licensing and quotas VAT on exported product Withholding tax on profit repatriation

17 Ownership of assets/equipment to vest in Government Approval of work programs & AFEs Environmental protection Compelled unitisation NON-FISCAL TERMS Restrictions on assignment of interests Third party access to infrastructure Priority to domestic procurement of goods Minimum percentage of workforce and contractors to be nationals Education of communities and training of workforce Technology transfers to national oil company

18 LNG LIQUEFACTION PLANT Participating interests may differ from the concessions supplying the gas for liquefaction Project structure and national legislation will influence whether the host government will participate directly via ownership, or indirectly via its taxing and regulatory powers. Issues faced in government participation can be similar to the gas production element: Taxes, fees and indirect costs on land, facilities, equipment, project company, personnel, product export, etc Requirements of technology transfer, local content, transfer of facilities Issues of operation control, control of product, management control

19 SHIPPING Direct ownership in shipping Regulation of ports, port facilities and ships Siting of ship construction (local content/technology transfer) Participation in or ownership of port facilities Taxes and fees on shipping

20 IMPORT FACILITIES May involve host government participation through ownership of all or any aspect of project/facilities Regulation of ports, port facilities, LNG storage, re-gas facility and offtake facilities (pipeline and gas storage) Taxes, fees and indirect costs on land, facilities, equipment, project company, personnel, product import, product sales, etc Dedication of output Requirements of technology transfer, local content, transfer of facilities Issues of operation control, control of product, management control

21 GOVERNMENT TAKE! Confiscation, expropriation, nationalization, deprivation, forced abandonment, forced divestiture, change of law, termination of concession, foreign exchange restriction, political force majeure, unfair calling of bond, embargo or import/export license restriction...

22 A TYPICAL GIVE AND TAKE.

23 SPONSOR PROPOSAL Concession terms Tax breaks Land use rights Revenue repatriation

24 GOVERNMENT S RESPONSE Concession terms Tax breaks Land use rights Revenue repatriation Government participation Free carry Operatorship Compulsory listing of project company

25 THE TRINIDAD EXAMPLE

26 TRINIDAD LNG TRAIN 1 Amoco Trinidad (LNG) BV British Gas Trinidad LNG Limited Repsol International Finance, BV Cabot Trinidad (LNG) Limited NGC Trinidad and Tobago LNG Limited Technical Services Agreement Shareholders Agreement Bechtel EPC Contracts Guarantee of Cabot LNG Sales Agreement Cabot Trinidad Gas Supply Contract Atlantic LNG LNG Sales Contract Cabot LNG ATOC Gas Transportation Agreement LNG Sales Contract Enagas LNG Project Agreement Environmental Indemnity Agreement License Agreement Government of Trinidad and Tobago Phillips

27 TT GOVERNMENT TAKE IN LNG Exploration and Production (75% of Gov t take) Pipeline transport Liquefaction Other Gas Producers (BP, BG, Petrotrin) E&P (royalty, 55% petroleum profits tax) PSC (profit split of 50-70%) fees, bonuses dividends from state- owned Petrotrin NGC- Pipeline Co pipeline tariffs corporate tax dividends ALNG Corporate tax training, local content commitments local property tax NGC (ALNG shareholder) Corporate tax and dividends Support services for entire chain Corporate tax Personal income tax from employment

28 FUTURE TT GOVERNMENT TAKE Liquefaction Shipping Regasification Market Increased State Participation New Participation New Participation New Participation increased take from corporate tax and dividends increased corporate tax and dividends dividends on profit from terminal fees, etc dividends on profit from gas sales to customers

29 CONCLUSION Both parties must work together to achieve a mutually satisfactory conclusion If you don t stand together, you will surely fall apart THANK YOU