The PSA is a revenue sharing contract modelled 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 exploitation.
It is an established agreement adhered to by international companies which operate in the region – for example 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 licence areas, known as Contract Areas, agreed on the initial signing with the Azerbaijan Ministry of Ecology and Natural Resources (‘MENR’). The exploration period allowed for the early exploration of the Contract Areas to assess prospectivity can be extended.
A ‘development and production period’ commences on the date that the Company issues a notice of discovery, which 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 Anglo Asian.
Under the PSA, Anglo Asian 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 endeavours to make available all necessary land, its own facilities and equipment and to assist with infrastructure.
Anglo Asian 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% of the sales proceeds of minerals to set against all operating, deemed interest and capital costs. Thereafter, the remaining proceeds are allocated 51% to MENR and 49% to Anglo Asian.
A tax on profits, and no other profit or sales tax, is payable at the rate of 32%. However losses can be carried forward indefinitely. The costs of fixed and movable assets other than buildings are depreciated at a rate of 25% of declining balance. Double taxation relief provisions are included.