LAW OF UKRAINE

of September 14, 1999 No. 1039-XIV

About production sharing agreements

This Law is directed to creating favorable conditions for investment of search, exploration and production of minerals within the territory of Ukraine, its continental shelf and exclusive (sea) economic zone on the principles determined by production sharing agreements.

Section I General provisions

Article 1. Determination of terms

The terms used in this Law have the following value:

the investor (investors) - the citizen of Ukraine, the foreigner, the stateless person, the legal entity of Ukraine or other state, the consolidation of legal entities created in Ukraine or beyond its limits, persons acting separately or jointly which has (have) the corresponding financial and economic and technical capabilities or the corresponding qualification for use of natural resources and determined by the winner (winners) of tender; person determined by the paragraph the fifteenth parts one of article 7 of this Law in case of agreement signature with the assistance of such person; person who acquired the rights and obligations determined by the agreement on distribution of products as a result of assignment of rights and obligations according to article 26 of this Law;

products - the minerals of nation-wide and local value (mineral raw materials) extracted (made) in case of development of mineral deposits;

the made products - the total amount of the products got according to the production sharing agreement and delivered in measurement Item;

compensation products - part of the made products which is transferred to the possession of the investor on account of compensation of its expenses and in the cases provided by this Law taking into account their indexation;

profitable products - part of the made products which is divided between the investor and the state and is determined as difference between the made and compensation products;

measurement Item - Item in which according to the production sharing agreement measurement of the made products and its separation on compensatory and profitable is performed;

insignificant inventories of minerals - inventories of minerals which are determined by the criteria established by the Cabinet of Ministers of Ukraine;

considerable inventories of minerals - inventories of minerals which size exceeds insignificant inventories of minerals;

nonconventional hydrocarbons - gas of slate thicknesses, gas (methane) of coal fields, gas of central basin type, oil, condensate or other hydrocarbonic raw materials which lies in nonconventional collectors.

Article 2. The relations regulated by this Law

1. This Law governs the relations arising in the course of the conclusion, execution and cancellation of production sharing agreements, determines the main legal requirements to such agreements, and also features of legal relationship by use of natural resources on the terms of the Section of products.

2. The relations arising in the course of accomplishment of search works, exploration and production of minerals, the Section of the made products, its transportation, processing, storage, conversion, use, realization or the order it otherwise and also construction and operation of the industrial facilities connected with it, pipelines and other objects are regulated by the production sharing agreement signed according to this Law.

3. The rights and obligations of the Parties of the production sharing agreement are determined according to the civil legislation of Ukraine, taking into account the features provided by this Law.

4. The legislation of Ukraine concerning production sharing agreements, according to the Constitution of Ukraine, is effective taking into account the features provided by this Law. The relations which are not settled by this Law are regulated by the Constitution of Ukraine and the corresponding legal acts of Ukraine. If legal acts of Ukraine establish other rules, than provided by this Law rules of this Law are applied.

Article 3. Relations of executive bodies and local government bodies in case of execution of this Law

1. Executive bodies and local government bodies in case of execution of this Law according to the powers carry out the activities on the principles of interaction and cooperation for the purpose of protection of interests of the people of Ukraine, the state, regions and the territories, ensuring protection of environmental protection and rational use of natural resources and other natural resources of Ukraine.

2. Coordination of activities of executive bodies and local government bodies in case of the conclusion, execution, cancellation of production sharing agreements is performed by the Cabinet of Ministers of Ukraine within its powers and taking into account provisions of this Law.

Article 4. Determination of the production sharing agreement

1. According to the production sharing agreement one party - Ukraine (further - the state) charges to other party - the investor for certain term carrying out search, exploration and production of minerals on certain site (sites) of subsoil and conducting the works connected with the agreement, and the investor shall perform the charged works at own expense and on the risk with the subsequent compensation for expenses and receipt of payment (remuneration) in the form of part of profitable products.

2. The production sharing agreement can be bilateral or multilateral, i.e. several investors provided that they bear joint liability according to the obligations provided by it the agreement can be his participants.

3. The state provides provision to investors (including to operators of agreements), and also to representations of foreign investors, and promotes provision to their contract, subcontract and other organizations (persons), and also representative offices of foreign contract, subcontract and other organizations (persons) in accordance with the established procedure of coordination, quotas, special permissions to use of natural resources and licenses for activities on search (investigation) and operation of mineral deposits, acts of provision of mountain branch, the documents certifying right to use by the earth and other permissions, documents of allowing nature, licenses connected with use of natural resources, performance of works, construction of the constructions provided by the agreement on distribution of products.

The specified documents are issued according to requirements of the legislation of Ukraine of the duration of the agreement if other is not provided by the laws of Ukraine, and lose the force or change on the conditions stated in the agreement.

Article 5. Agreement parties about the Section of products

1. The investor (investors) and the state on behalf of the Cabinet of Ministers of Ukraine act as agreement parties about the Section of products.

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