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Cynthia Herman |
New round of bids for onshore blocks announced
The Myanmar government announced a new round of bids on January 17 2013, giving oil and gas companies two months in which to submit their expression of interest.
There are18 onshore blocks included in this bidding round, including five improved oil recovery blocks and some relinquished blocks, with the bidding for offshore blocks expected to be announced in the near future.
The official announcement asks potential bidders to submit a letter of expression of interest (EoI) along with various company documents endorsed by the Myanmar embassy. It states that potential bidders must cooperate with at least one Myanmar-owned company, confirming the anticipated requirement for a local partner for the onshore blocks bid, however no documents are needed in relation to the local partner at the EoI stage.
From these EoIs, pre-qualified bidders will be selected and given a general overview of each block and access to data by the Myanma Oil and Gas Enterprise (MOGE), and standard terms and conditions by the Ministry of Energy's Energy Planning Department (EPD). Then bidders can propose terms for up to three blocks, using a separate proposal for each block. The proposed terms will be evaluated by the Ministry of Energy, and the bidder with the best terms will be awarded the contract.
Oil and Gas PSCs and Myanmar's new Foreign Investment Law
The production sharing contracts (PSCs) which Myanmar uses for oil and gas exploration are based on a modern and detailed template. Contractors enter the PSC with MOGE and commit to a work program and in case of a discovery which leads to production, recover their costs (with certain time delays built in), pay royalties, share the produced oil or gas with the government, and pay income taxes. The royalty is payable to the government on all available petroleum, with 12.5% a typical rate.
Contractors can obtain tax and customs duty exemptions under the Foreign Investment Law (FIL). The replacement to the 1998 investment law was issued in 2012 with the implementing rules and regulations due to be issued in February 2013. The FIL affects the tax regime applied to the contractor as the PSC or side-letter usually states that certain tax incentives under the FIL are available to the contractor; the FIL therefore plays a large role in providing income tax exemptions and deferrals. Furthermore, customs duties exemptions for equipment and consumables used in petroleum operations are regulated under the FIL.
The 1988 investment law provided an automatic three year tax holiday for approved projects. In the new FIL, that three year tax holiday has been extended to five years. To date there has not been any official decision on whether the new FIL's five year tax holiday will also apply to oil and gas exploration and production however under the old rules, the three year exemption specified in the 1988 FIL was indeed applicable to oil companies as well.
Cynthia Herman (cynthia.herman@vdb-loi.com)
VDB Loi
Tel: +95 942 112 9769
Website: www.vdb-loi.com
