The PSA is a revenue sharing contract modeled on Azerbaijan’s oil contract system, which was established to ensure the country benefited from its oil wealth in the presence of international oil company investment and resource exploitation. It is an established agreement adhered to by the likes of Exxon Mobil and BP and facilitates the extraction of resource wealth for the benefit of all parties.
The PSA grants the Company a number of periods to exploit defined license areas, known as Contract Areas, agreed on the initial signing with the Azerbaijan Ministry of Ecology and Natural Resources (‘MENR’). The exploration period, provided for in the PSA, for the early exploration of the Contract Areas to assess prospective results, can be extended.
A ‘development and production period’ commences on the date that the Company issues a notice of discovery and runs for 15 years with two extensions of five years each at the option of the Company. Full management control of mining in the Contract Areas rests with AIMC.
RVIG, the party to the PSA and the direct owner of AIMC finances the operations and the MENR receives cash payments after certain payments and expenses have been made by the Company. The Company is entitled to a maximum of 75 per cent of the sales proceeds of minerals to set against all operating, deemed interest and capital costs. Thereafter, the remaining proceeds are allocated 51 per cent to MENR and 49 per cent to RVIG.
Under the PSA, AIMC is not subject to currency exchange restrictions and all imports and exports are free of tax or other restriction. In addition, MENR is to use its best endeavors to make available all necessary land, its own facilities and equipment and to assist with infrastructure.
A tax on profits, and no other profit or sales tax, is payable at the rate of 32 per cent, however, losses can be carried forward indefinitely. The costs of fixed and movable assets other than buildings are depreciated at a rate of 25 per cent of declining balance. Double taxation relief provisions are included.