Production sharing commission

The White House has already divided the products
A significant event occurred in Russia’s involvement in production sharing (providing the investor with the opportunity to pay taxes on the share of production due to the state, which makes this mechanism very attractive). The government has created a commission to coordinate the activities of federal and regional executive authorities in the implementation of production sharing agreements. It was headed by Boris Nemtsov.

There is no shortage of new commissions designed to oversee major investment projects in Russia. A super commission has been established to protect the rights of shareholders. Contrary to the principle of separation of powers, everyone was included in it: the interested ministries, and the heads of the Supreme Arbitration and Supreme Courts. Representatives of the Duma and the Federation Council are also expected to join it. This total mobilization can be explained by one thing - the desire to quickly solve all the problems associated with the implementation of investment projects estimated at over $100 million.
One of the reserves where such projects can be found is the sphere of production sharing. It has its own government commission, not as extensive as the commission for the protection of shareholders' rights, but no less interesting. It should become an incubator. It will have to sit through smaller commissions agreed upon with the regions, this time specifically involved in preparing the terms of a particular tender and, accordingly, a draft production sharing agreement. At the same time, there was a certain transfer of powers already within government departments. Until recently, the key figure responsible for production sharing in the White House was Viktor Orlov, head of the Ministry of Natural Resources. His department inherited these powers from the State Committee for Subsoil Resources, which merged with it. Now production sharing has a new government commissioner - Boris Nemtsov. The Ministry of Fuel and Energy is entrusted with “implementing the rights and obligations of the Russian Federation under production sharing agreements in relation to hydrocarbon raw materials.” The Ministry of Natural Resources has not been forgotten either. It will handle production sharing agreements for all other minerals. There is a certain logic in such a division of labor.
However, the text of the law on production sharing agreements does not limit the scope of its application only to the extraction of raw materials. Strictly speaking, it is not forbidden to use it in agriculture, where, in fact, the production sharing mechanism originated. In practice, however, this will not be possible: all by-laws are aimed exclusively at the extractive industries.
More interesting is the removal of the Ministry of Natural Resources from the division of products in the oil and gas sector. There is a version that this fact is connected with the announcement that the tender for the right to develop deposits in the Khoreyver depression, which was previously won by Exxon on November 28, 1996, was declared invalid. The final document that buried the tender was signed by Viktor Orlov. The precedent turned out to be frightening for large foreign investors, and from several points of view. Firstly, from the very beginning the tender was carried out on the condition that the produced oil and associated gas would be subject to division. Meanwhile, the deposit was not included in the list of objects open for production sharing. Secondly, after the preliminary conditions were summed up (and, for example, Orlov’s deputy Vladimir Mazur took part in the work of the commission), under pressure from Rosneft, Exxon received a persistent offer to cede half to Russian firms. Exxon turned out to be intransigent, meaning it agreed to satisfy the demands, but only after its victory in the competition was confirmed at the federal level. At the federal level they decided differently. The fact of changing the conditions of the competition was considered a violation, but it was not the additional requirements that followed that were canceled, but the fact of the tender itself. And the commission will have to start by improving the image of Russia as a partner in production sharing.
VADIM Kommersant-BARDIN

Newspaper "Kommersant" No. 150 dated 09.09.1997, p. 8