Better oil and gas deals needed in the future, say experts

Efforts must be taken to lessen Myanma Oil and Gas Enterprise’s (MOGE) tax burden from contracts signed with joint-venture firms to work offshore oil and gas fields, a report states.

According to the “State-Owned Economic Enterprise Reform in Myanmar: The Case of Natural Resource Enterprises” report by the Natural Resource Governance Institute (NRGI) and Renaissance Institute, under the conditions of contracts signed decades ago MOGE has to pay over US$100 million (over K200 billion) in taxes annually on behalf of joint-venture firms.

Among the stipulations under contracts signed by MOGE with foreign oil companies around 1990, is that if new taxes are imposed, the state-owned enterprise will be liable to pay the taxes and not the joint-venture partner.

Four offshore oil contracts state that MOGE is entitled to between 15 percent and 20.45 pc of the profits from JV oil and gas projects, but MOGE has to pay other taxes including commercial taxes, special commodity taxes and stamp duties for joint-venture firms, the report states.

For example, the contract with France’s Total Co in 1992 clearly states that MOGE will have to pay for all taxes of the joint-venture partner, the report says.

“The first contracts stated that MOGE shall pay taxes and duties. At that time, taxes and duties were not high so it posed no problems for the country. But commercial taxes were introduced later, and stamp duties were officially introduced as well. So MOGE and the country has to pay more,” retired MOGE director and Extractive Industries Transparency Initiative official, U Than Htay Aung told The Myanmar Times.

Today, the production-sharing contracts generate less revenue for the government, the report states.

Similarly, the agreement for the Shwe Natural Gas Project states that MOGE owns 7.6 pc of production but has to pay internal taxes and duties for 100pc of the project.

At the time the contracts were signed Myanmar was under sanctions from the international community and had difficulty attracting foreign investment. Since the country did not have the financial strength to undertake projects on its own, MOGE had to offer to absorb taxes levied at the time as an enticement for production-sharing contracts to develop the Yadana and Yetagun offshore oil and gas projects, said a senior official from the Ministry of Electricity and Energy, who prefers to be unnamed.

The senior official said the contract were drawn up based on the government’s policies and laws at the time, and when projects were submitted to the Cabinet, their agreements were vetted by the Central Bank, Office of the Auditor General, Ministry of Commerce, Ministry of Planning, and Finance and Investment Commission.

“Under the military government, the country had to make concessions in some matters because of political situation during that time,” he said.

However, things changed under U Thein Sein’s government, and under new policies, new points were added to contracts signed after 2013, he said.

“So, the contracts signed in the 1990s and the newer contracts are different,” he said.

Now, companies pay less tax for any project under the build-operate-transfer system because projects have to be given back to government after the end of the contract, he said.

If the company wants to extend the contract after it expires, the government will have to act accordingly and more amendments could be made to the contract, said the senior officer.

“These taxes are paid by us as the foreign oil companies won’t enter otherwise. MOGE also said that these companies don’t get that much profit. Every step needs to be changed. MOGE always sides with the businesspeople and it is like saying we need to be thankful just for them investing here,” said EITI’s representative Daw Moh Moh Tun.

“MOGE owns 7.05pc of the Shwe pipeline but has to pay tariffs and commercial taxes in place of the 100pc ownership. In fact, it should only pay for its ownership of 7.05pc. But as the agreement has been signed like that, it can’t be changed no matter what amendments are made to the Union Tax Law as the contract is essential in Governmental businesses,” said NRGI Myanmar officer Khin Saw Htay.

NRGI technical consultant Mr Andrew Bauer suggested not to include statements like tax reliefs and paying for the new taxes in the other contracts that the government will sign in the future.


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