Guidance Note for Annotating Commercial Agriculture and Forestry Contracts. Using the WBI-RWI-VCC Template

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1 Guidance Note for Annotating Commercial Agriculture and Forestry Contracts Using the WBI-RWI-VCC Template Template Background: The World Bank Institute (WBI), Revenue Watch Institute (RWI) and the Vale Columbia Center on Sustainable International Investment (VCC) have developed an excel template to assist in annotating contracts for large-scale oil, gas, mining, agriculture, and forestry deals. The template helps standardize the annotation process, with the goal of making the annotated contracts more accessible to a wider audience and easier to understand. The template includes specific rows to note the main fiscal, social, human rights, environmental, and operational terms of the contracts and to summarize key provisions. The purpose of the contract annotations is not to analyze whether the contracts or particular contract terms are good or bad, though this template could be adapted to assist with such an analysis. The template has been modified several times to accommodate different types of contracts and to incorporate feedback from a range of experts, practitioners and potential end-users. The template will be revised periodically based on user feedback and other input. Project Background: In many places, contracts and other written agreements define the respective obligations and commitments of host governments and investors for large-scale investments in natural resources. Contracts often contain critically important aspects of the deal, such as environmental obligations, tax rates, profit sharing arrangements, risk apportionment among the parties, local content commitments, dispute resolution mechanisms, and the rights of nearby communities. The terms of contracts thus determine the risks and benefits of major investments for both host governments and communities. Yet despite their significance, contracts are often shrouded in secrecy, and even publicly available contracts are hard to access and difficult to understand. To encourage transparency and promote comprehension, RWI, WBI and the VCC developed a template to create a rigorous methodology for annotating contracts. Annotations of publicly available oil, gas and mining contracts are uploaded to ResourceContracts.org. In 2014, annotations of commercial agriculture and forestry contracts will be uploaded either to ResourceContracts.org or to a separate sister website dedicated to land contracts. The online repository, and particularly the annotations, provides useful information to a number of stakeholders. The repository assists communities pushing for greater accountability, host governments seeking to negotiate with investors, investors concerned about overlapping concession allocations, and development practitioners seeking more transparency in large-scale investments. The repository, including its annotations and related tools, brings greater transparency to investments that can have substantial and longterm implications for sustainable development. Using this Guidance Note: The WBI-RWI-VCC template was designed to facilitate annotations of written agreements governing oil, gas, mining, agriculture, and forestry deals. Given its intended comprehensiveness, some rows in the template are only relevant to contracts for certain industries. There are thus two 1

2 accompanying guidance notes: one for oil, gas and mining contracts and one for commercial agriculture and forestry contracts. This Guidance Note provides detailed instructions for annotating commercial agriculture and forestry contracts ( land contracts ). Please use it in conjunction with the template labeled RWI_WBI_VCC_Contracts_Template _v4.3_ The Annex to this Guidance Note provides examples of annotations. Steps to Filling Out the Template: To complete the summary of a contract, you should take the following steps: I. Background/preparation: 1. Depending on the intended purpose of your contract review using this template, there may be specific steps that you need to take to prepare for the contract annotation. If you are annotating contracts for the land contracts repository, please check in with the project leader regarding which preparatory steps are necessary. II. Filling out the Template 1. If you are annotating contracts for the land contracts repository, then each contract should be annotated in a separate excel document. Please save the document as [Name of company]_[country]. For example, ABC Company_Country Z. 2. Once you open the contract that you will annotate, page through the document and make note of any pages or annexes that are missing from the copy. You can note this at the bottom of the excel sheet in the appropriate box. a. Some contracts are difficult to read. As you go through the contract, you may notice that there are important pieces of information that are completely or partially illegible. You do not need to note every page that is illegible. However, it is important that, when you go through the contract, you do not make educated guesses about what the contract says. If a clause contains important information that is obscured or illegible, you can note this in the relevant cell by saying Included but illegible or Included but partly illegible. 3. Fill in Part I of the template. Part I focuses on General Information. Some of this information will be found in the contract (for example, country, company name, type of document, etc.), but it is probable that some of this information will not be contained within the four corners of the contracts. If annotating contracts for the land contracts repository, do not conduct outside research on the underlying projects to fill in such cells. Rather, for any cell for which you cannot find the requested information within the contract itself, please just leave it blank. 4. Fill in Part II of the template. Some notes on how to fill it in: a. In general, these annotations are meant to summarize the key terms and clauses to make the contracts easier to comprehend for non-lawyers. Our intended users include a range of stakeholders who are not familiar with resource contracts, and the annotations should make it easier for people to find and understand important information. However, accuracy is essential, and this is not a place to interpret contract language. (Insofar as this is possible, since any type of summary is, to some extent, an interpretation.) i. If a clause is short, as well as clear and understandable, you can include the exact language from the contract. 2

3 ii. Otherwise, please summarize the clause, but stick as closely as possible to the language in the contract. Accuracy is paramount. iii. In addition, err on the side of including more rather than less text as you summarize. It is easier for later reviewers and quality controllers to cut/shorten information than to go back and add more at a later date. iv. You can substitute the name of the contracting party for the more generic term ( the Investor, the Operator, etc.) when it will make the clause annotation easier to understand. For example, if the contract with ABC Company says The Investor has the right, you can use ABC Company has the right if it would make the annotation more clear. b. The template provides a separate row for each key term, obligation or commitment. Note that a row might ask about information that is found in more than one clause in the contract so even if you find something relevant in one clause, please check to make sure that there is not other key information elsewhere in the contract. c. The template is comprehensive, and was designed to be used for contracts in the extractives sector as well as for land, agriculture and forestry contracts. Not every row will be relevant for every contract. i. If a subject is not mentioned in the contract at all, leave the cell blank. ii. A few rows are not relevant when annotating land contracts. These are noted in the document. In addition, they are shaded in light green in the template. Do not worry about filling in any of these rows. iii. A few rows are relevant for land contracts, but not as relevant for oil, gas or mining contracts. They are shaded in light purple in the template. You should annotate these rows. iv. The template was designed to be used for comprehensive annotations as well as for concise annotations, which is why some rows are orange and some are white (white rows are those that are not included in concise annotations but are included in comprehensive ones). v. If you are doing a comprehensive annotation, fill in all relevant information that can be found for each row (remembering that the light green rows will never be relevant for these types of contracts, as noted above). d. Place corresponding information in Column C (marked Details ). e. In Column D (marked Reference ), you should note the Article Number that contains the information you included in Column C. For consistency, use the abbreviation Art. If the information that you provide spans more than one consecutive article, use the convention: Arts If the information that you provide spans more than one non-consecutive article, use the convention: Arts. 15, 22. If the information was found in the Preamble, Appendix, or on the Signature page, note accordingly. f. In Column E (marked Page (permalink) ), you should note the page number of the PDF where the reference is included as follows: [page number] ([top/middle/bottom]). For example, if something was found on the top of page 2, you would write 2 (top). In the future, this will enable a user to click on a link that takes them directly to that page of the document. If the page numbers printed in the header or footer of the contract itself differ from the page numbers of the PDF file, use the page numbers of the PDF file. (For example, a contract document might start with four pages numbered i, ii, iii, iv before using 3

4 page numbers, so that page 1 of the contract might start on page 5 of the PDF file. In this situation, if you wanted to note that something was found on page 1 of the contract/page 5 of the PDF file, you would mark it as page 5.) g. If you do not understand language in the contract or are uncertain about the information that you are entering into a cell, highlight the cell in yellow so we can ensure that we pay special attention to it during our review. Again, accuracy is essential, so feel free to mark rows in yellow as necessary. h. If there is an issue in the contract that seems important but is not adequately covered by the rows in the template, you can enter it into the Other row for the relevant section (for example, under the section on Community, environment and social obligations or under the section on Developer s financial obligations ). 1 If there is more than one issue that you think should be included in this way within a section, you can create more than one Other row for the section, one corresponding to each issue. For any piece of information that you include as Other, please add a note in Column F ( Notes ) proposing the corresponding annotation title that could be used on the website. i. Be sure to include relevant information contained in the available annexes. j. Some notes on specific rows: i. Row 25 asks for the Type of document/right (Concession, Lease, Production Sharing Agreement, Service Agreement, etc.). For commercial agriculture and forestry contracts, the type of document/right will likely be one of the following: Land Concession Agreement, Land Lease Agreement, Land Sale Agreement, Investment Incentive Agreement, Timber Sale Contract, Forest Management Contract, or Memorandum of Understanding. ii. Row 27 asks for Name and/or number of field, block or deposit. Only fill this in if the land concession/area itself has a different name than the Project title that you list in Row 11. (This row is more applicable to the extractives sector.) iii. Row 28 asks for the location, longitude and latitude / Onshore vs. Offshore (shallow vs. deep). First, ignore the second half regarding onshore vs. offshore this is for oil contracts. Second, how much information you provide here depends on how much information is found in the contracts. For example, some contracts give general locales but say that specific information (or maps) will be inserted at a later date, some provide the latitude and longitude coordinates for the central point, and some provide nearly two pages of specific coordinates and details. If you can summarize the location information in less than 4 lines, please do so in Column C. If the location explanation or detail is much more involved, then do not include the specific details just flag where exactly in the contract the location is noted. iv. Rows 30 and 31 ask for date and year of issue of title/permit this is for underlying permits, and NOT the contract signature or ratification date, which is requested below. You most likely will leave this blank. v. Row 32 asks for date of ratification of the contract. Use DD/MM/YYYY (ex: April 30, 2009 would be 30/04/2009). You may or may not be able to figure out this information from the document. 1 Developer and investor are used interchangeably here to refer to the business entity that has entered into the contract with the government. 4

5 vi. Rows 33 and 34 ask about estimated investment and expected production. This information probably will not be included in the contract; it is fine to leave these rows blank. vii. Row 42 asks for Name and/or composition of the company created or anticipated. This is generally not applicable for your purposes. viii. Row 43 asks for Name of third party to contract (where applicable). This is generally not applicable for your purposes. ix. Row 44 asks for Date of contract signature. Use DD/MM/YYYY. x. Row 31 asks for Term. This may also be described as the period of the investment, generally provided in years. xi. Row 47 asks for Conditions for renewal. This also includes conditions for extension of term. xii. Row 52 asks for Local development agreement. This also includes requirements for community development agreements, social agreements, or impact and benefit agreements. It does not mean plans for developing concession areas generally, or developing land within concessions. When filling in this cell, also include any relevant monitoring and evaluation requirements in respect of such agreements. xiii. Row 54 asks for Requirements for community consultation. When filling in this cell, also include any information about other requirements for community engagement, as well as monitoring and evaluation requirements regarding community consultation/engagement. xiv. Row 55 asks for Management training requirement for nationals. This includes training for nationals to qualify them for management and other skilled positions, as well as other types of vocational training for nationals that is meant to help them progress into higher positions. xv. Row 56 asks for Local employment requirements. This includes requirements to fill certain types of jobs or positions with host country nationals. It also includes legal working conditions (for example, prohibitions on hiring minors, compensation aligned with the laws of the host country, etc.). xvi. Row 59 asks for Resettlement. This should include any information on the right to compensation for former land users/owners. xvii. Row 60 asks for Outgrowers Program (details, additional land provided, etc). This should include any information about how such program will be funded. xviii. Row 61 asks for Requirements regarding workers or farm/concession dwellers within concession areas or in nearby communities in respect of occupational health and safety, access to clean water, housing, medical care, or education. This covers workers hired to work on the underlying project, as well as persons who live on land within the concession area. It includes requirements for how the workers/concession dwellers are treated, as well as any information on other goods and services that the government may require the investor to provide healthcare services, the building of schools, etc. (excepting infrastructure/roads, which are addressed in a different row). xix. Row 63 asks for Grievance mechanisms for non-contractual harms to noncontracting parties. These are generally project-level mechanisms that allow third 5

6 parties (for example, workers or community members) to bring complaints related to the underlying project. xx. Row 64 asks for Rights of non-contracting parties to access/use concession area (including permitted independent farming in concession area). This focuses on the rights of access of non-contracting parties (for example, can farmers whose farms are located in the concession area continue to access their farms, or can nearby communities access forest resources that are located within a concession area). xxi. Row 65 asks for Other - [Name of Category] regarding the community and social obligations. This should include any reference to local food security or any food security clause that addresses when food can be exported and what happens in times of local food crises. Such a clause is not common. xxii. Row 68 asks for Mining tax/royalty tax. Obviously there will not be a mining tax for agriculture or forestry contracts; however, there are several taxes that may appear in the contracts that would be considered royalty taxes and should be included here, including timber royalties/stumpage fees or turnover taxes. xxiii. Row 71 asks for Other income tax features. Aside form the examples provided in the template, this also would include relevant capital allowances and incentives, as well as turnover taxes. xxiv. Rows ask for production shares and service agreement fees. These are not applicable for land contracts. xxv. Row 87 asks for Customs duties during operation phase. This can include import duties and fees that are most relevant to the operation phase, even if they also span other phases. This may include general import duties, duties on fuel or other specific goods, and customs service fees. xxvi. Row 94 asks for Surface fees. This includes rental fees for land use. xxvii. Row 95 asks for Community and regional obligations. This includes income contributions/requirements such as community development funds or specific commodity development funds (for example, oil palm development funds). xxviii. Row 102 asks for Other [Name of Category] regarding the developer s financial obligations. Though many of the financial obligations found in contracts should have their own specific rows in the template, please include any other financial obligations that may be important and that do not have their own row. For example, specific trade levies could be noted here. xxix. Row 105 asks for Social, environmental and/or human rights impact assessments, as well as related management plans. This includes plans for mitigating risks of adverse impacts, as well any information on the financing of such plans. In addition, this includes any relevant external standards that will be used. xxx. Row 107 asks for Right to take and/or use water within/near contract concession area (including fees, licenses, and permits required). This focuses on the right of the investor to use or access water, including any relevant water fees, licenses, or permits that the investor must pay/obtain. xxxi. Row 116 asks for Marketing of output and state access to output. This should include any information about local sales requirements or requirements related to domestic use. 6

7 xxxii. Row 128 asks for Stabilization clause. Stabilization clauses limit how future changes in domestic law will affect investors and contractual obligations. They are not always labeled stabilization or freezing clauses; look also for restrictions on the governing law. For example, a stabilization clause may say something along the following lines: in the event of a conflict between this contract and any law of XXX country enacted after the contract came into force, the rights, duties and obligations of the Investor and the government are the ones listed in the contract. xxxiii. Row 129 asks for Assignment/transfer. This includes assignment/transfer of the contract, as well as assignment/transfer of the land in question or properties developed on the land) xxxiv. Row 130 asks for Cancellation/termination. This should include the government s right to terminate based on the investor s failure to develop. 5. Some stylistic notes: i. Capitalize the first word in each cell. ii. No periods at the end, unless there are multiple sentences in the cell (in which case, use a period at the end of each sentence, including the last one). iii. Use semi-colons to separate distinct items or issues within a cell. III. Process 1. We estimate that completing the full template spreadsheet will take approximately 7-8 hours per contract. Completing the concise version (only orange rows) should take approximately 4 hours. The hours required will vary depending on the contract s complexity and length. 7

8 Annotation Examples Examples of Contract Annotations This document provides sample annotations, along with original contract clauses, that serve as examples of how contract clauses can be annotated using the excel template developed by the World Bank Institute, Revenue Watch Institute and the Vale Columbia Center on Sustainable International Investment. The examples are pulled from existing contracts and annotations, but the investors and countries actual names have been removed and replaced as necessary. EXAMPLE ONE: INFRASTRUCTURE ROW ROW: Infrastructure (just first sentence): Annotation Example One: ABC Company can construct (at own expense and with government consent) infrastructure within Concession Area and other acquired land. Annotation Example Two: If necessary in the opinion of ABC Company for the exercise of its rights, ABC Company has the right to construct, install, maintain and/or repair, at its own expense, infrastructure within the Concession Area and other acquired land, provided that it first obtains approval of the government concerning the design, location, size and environmental impact. Original Clause: Subject to the terms and conditions of this Agreement, and only as is necessary and desirable, in the reasonable opinion of Investor, for the proper and efficient exercise of the rights granted under the Agreement, Investor shall have the right: (a) to construct, install, maintain and/or repair, at its own expense, Infrastructure within the Concession Area and any Additional Areas, provided; however, that Investor shall first obtain approval of Government concerning the design, location, size and environmental impact of any roadway, highway, railway, waterway or other ways of transportation, which approval shall not be unreasonably withheld. Original definition of Additional Areas : Investor may lease or otherwise acquire Private Land in [Country] for purposes of Production or process Agricultural Products (the Additional Areas ). Under no circumstances may Investor acquire Additional Areas for the sole purpose of acquiring any right, title or interest in Carbon Rights. Investor shall provide Notice to Government of the lease or acquisition of any Private Land within three (3) months of the commencement of the lease or such acquisition, which Notice shall set forth the size and location of the land. Upon such notification, such Additional Areas shall be subject to the same rights, benefits and obligations set forth under this Agreement; provided, however, that Investor shall not be required to pay surface rental fees as set forth in Section 21 to the Government with respect to such Additional Areas. Comment [CLS1]: Replaces Investor with the name of contracting party ( ABC Company ), which makes an annotation slightly easier to read out of context. Comment [CLS2]: This example is one of the most concise ways of summarizing the original language. This is similar to how a corporate lawyer might summarize, but for our purposes, it is slightly too concise. Comment [CLS3]: Replaces any Additional Areas with other acquired land. Additional Areas is a defined term in the contract related to the lease or acquisition of private land. For our purposes, we need to know that Additional Areas is private land that the Investor has leased or otherwise acquired. Replacing Additional Areas with other acquired land allows us to understand the essence without requiring a reader of the annotation to search the contract for the exact definition. Comment [CLS4]: It s possible that a final reviewer may decide to make this annotation more succinct, along the lines of Example 1. But providing the extra language found in Example 2 is a way of erring on the side of including more, which can help the final reviewer, as it is easier to cut than to add. EXAMPLE TWO: WATER ROW ROW: Right to take and/or use water within/near contract concession area (including fees, licenses, and permits required) Annotation Example: ABC Company has the right to take and use (free of charge), within the Concession and any other acquired land, water that it considers necessary or useful for its activities, provided that this does not interfere with the rights of third parties or use by the government. It has the right to sell or distribute such water only with the written approval of the government, which shall be deemed given if no decision has been indicated within 60 days of application. ABC Company Annex p. 1

9 Annotation Examples may not dam any streams or use water that could materially interfere with the activities of farmers or residents. Before damming, ABC Company shall seek approval from the government. ; ABC Company has the right to provide water and other utility services to supply facilities within the Concession and other acquired areas, or for other activities. Investor shall coordinate with relevant government agencies, but shall not be charged a fee except on any net income generated for ABC Company that is directly attributable to its provision of water or utility services. ABC Company may agree, but has no obligation, to provide water to the government or other persons outside the Concession and acquired areas. If so, the rate must not exceed the cost of production, unless a specified rate has been agreed to with the government, which also has first priority to purchase. ABC Company may use public utilities on the same terms and at the same tariff rate charged to other similarly situated persons. Articles/references: Art. 4.4(e), 7.2 Original Clause Art. 4.4(e): Construction of Infrastructure and Use of Support Systems. Subject to the terms and conditions of this Agreement, and only as is necessary or desirable, in the reasonable opinion of Investor, for the proper and efficient exercise of the rights granted under the Agreement, Investor shall have the right: (e) to take and use, within the Concession Area and any Additional Areas, free of charge, but not to sell or otherwise distribute to any other Person without the written approval of Government (not to be unreasonably withheld), such water, stones, rocks, sand, clay, and gravel having no significant commercial mineral value other than as aggregate, filler or other construction material, as Investor may consider necessary or useful for Investor Activities, provided, such use does not interfere with rights of third parties or with use by Government. Such Government approval shall be conclusively deemed if within sixty (60) days of application for approval, Government has not indicated a decision to withhold approval by Notice in the manner provided in this Agreement. This activity shall not be considered to be mining for purposes of any Law. Notwithstanding anything to the contrary in this subsection (e), Investor may not dam any streams or use amounts of water that could materially interfere with the activities of farmers or residents being conducted on the Effective Date. Prior to damming any streams or other bodies of water, the Investor shall seek approval from the relevant governmental authority, which approval shall not be unreasonably withheld unless there is evidence that the construction of such dam or dams would breach this Section 4.4(e). Such Government approval shall be conclusively deemed if within sixty (60) days of application for approval, Government has not indicated a decision to withhold approval by Notice in the manner provided in this Agreement. Original Clause Art. 7.2: Investor shall have the right to generate, distribute and allocate electricity and provide water and other utility services for the purpose of supplying buildings and other facilities within the Concession Area and any Additional Areas, or otherwise conducting Investor Activities. Investor shall coordinate and consult with the relevant agencies of Government regarding such activities to the extent reasonably appropriate. Government shall not charge Investor any license fee or other Taxes and Duties for, or in connection with, the exercise of this right unless such activity generates net income to Investor directly attributable to such activity, in which case all such net income will be subject to Taxes and Duties in accordance with Laws. Investor may also agree, but shall have no obligation, to provide electricity or water to Government or other Persons outside the Concession Area and any Additional Areas if it has quantities greater than its needs. If Investor so elects, it shall provide such surplus electricity or water at a rate not to exceed the cost of production of such surplus electricity or water unless a specified rate has been agreed to by Investor and Government. Government shall have first priority to purchase all or any portion of such surplus at the lowest price Investor sells such power to any other Person or at the generally applicable tariff rate charged by the public utilities; provided, however, that such rates shall not be higher than the cost of production of such surplus electricity or water or as agreed upon between Investor and Government. Government agrees that Investor may use public utilities on the same terms and Comment [CLS5]: This semi-colon is included to separate the information that was taken from the first article cited (Art. 4.4.(e)) from the second article cited (Art. 7.2). Comment [CLS6]: Rather than buildings and other facilities, it is okay to use just facilities. Comment [CLS7]: Replaces Additional Areas with other acquired areas for the reasons described in the above comments. Comment [CLS8]: Art. 7.2 discuss Utilities, including electricity and water. Because the row in the template asks about water, it is fine to focus mostly on the water aspects of this clause in the annotation on water, and to leave out the parts about electricity. Comment [CLS9]: Doesn t explain Additional Areas, which are defined elsewhere in the contract. Annex p. 2

10 Annotation Examples conditions as, and at the generally applicable tariff rate charged to, other similarly situated Persons in [Country] using such public utilities. EXAMPLE THREE: COST OIL ROW (in a Production Sharing Contract) ROW: Production Share Cost Oil features (basis of calculation, limits on cost recovery - e.g. as % of revenue or production, capex uplift, etc.) Annotation Example: Ministry entitled to 5% of all petroleum exported. Petroleum remaining after the Ministry s initial 5% and the recovery of allowable costs is to be split 40% to the Ministry and 60% to the Contractor. Unless Ministry elects to receive its share of petroleum in kind, the Contractor is to receive and dispose of both the Ministry s and the contractor s shares of petroleum, and obligated to pay the Ministry the value of [Government s] share within 36 hours of receipt. Articles/references: Arts. 6.2, 7.1, 7.2, 7.5, 10 Comment [CLS10]: This is an example of how much can be summarized. However, this summary also required a lot of deliberation by a supervising attorney and supervising economist to ensure that the summary accurately reflected the terms. So while this highlights how much theoretically could be cut, as an annotator there is no need to try to summarize this much. Original Clauses in Contract: 6.2 Recoverable Costs In any Calendar Year, Recoverable Costs are, subject as further provided in Annex C, the sum of those of the following that are not Ineligible Costs: (a) the sum of: (i) recoverable Exploration Costs; (ii) recoverable Appraisal Costs; (iii) recoverable Capital Costs; and (iv) recoverable Operating Costs; (b) Decommissioning Costs Reserve allowable in that year; (c) Recoverable Costs in the previous Calendar Year, to the extent in excess of the value of the Contractor s share of Petroleum under sub-paragraph 7.1(b)(i) in that previous Calendar Year; and (d) a Quarterly amount equal to the product of the rate of Uplift and the Quarterly balance of outstanding Recoverable Costs, less Miscellaneous Receipts and less any deductions pursuant to paragraph 7.4(a). 7.1 Determination of Shares In each Calendar Year, the Parties shall take and receive the following shares of every grade and quality of Petroleum as and when it is delivered at the Field Export Point: (a) the Ministry: (i) five (5) percent; plus Annex p. 3

11 Annotation Examples (ii) its share of any balance as mentioned in paragraph 7.1(c); (b) the Contractor: (i) ninety five (95) percent but not more than is equal in value to Recoverable Costs for the Calendar Year concerned; plus (ii) its share of any balance as mentioned in paragraph 7.1(c); (c) any Petroleum not taken by the Contractor under sub-paragraph 7.1(b)(i) shall be shared as to forty (40) percent by the Ministry and as to sixty (60) percent by the Contractor. 7.2 Option of Ministry (a) Unless the Ministry elects otherwise pursuant to paragraph 7.2(b), the Contractors shall take and receive, and dispose of, in common stream with their own share and on terms no less favourable to the Ministry than the Contractors receives for their own share, all of [Government s] share of Petroleum. (b) The Ministry may make an election to take and separately dispose of [Government s] share of Petroleum. Unless the Contractors otherwise agree, which agreement will not be unreasonably withheld, the Ministry may not so elect other than: (i) in respect of all, or the same percentage of all, of [Government s] shares of Crude Oil for and throughout each Calendar Year, on not less than ninety (90) days prior written notice to the Contractors before the start of the Calendar Year concerned, and (ii) in respect of [Government s] share of Natural Gas, in connection with its approval of the Development Plan. 7.5 Payments (a) Unless the Ministry has made an election under paragraph 7.2(b), the Contractor shall pay to the Ministry an amount equal to the Ministry s share of all amounts received by the Contractor for the Petroleum within thirty six (36) hours of receipt. (b) In the event that the Contractor has not received payment for Petroleum within sixty (60) days of production, it nonetheless will make a provisional payment to the Ministry of the estimated value of the Ministry s share of such Petroleum. Article 10 Valuation of Petroleum 10.1 Point of Valuation Petroleum is valued f.o.b. (free on board), or equivalent, at the Field Export Point Value of Crude Oil The value of Crude Oil, (a) sold f.o.b. (or equivalent) at the Field Export Point in an arm s length transaction is the price payable for it; Annex p. 4

12 Annotation Examples (b) sold other than f.o.b., or equivalent, at the Field Export Point in an arm s length transaction is the price payable for it, less such fair and reasonable proportion of such price that relates to the transportation and delivery of the Petroleum downstream of the Field Export Point; or (c) sold other than as mentioned in paragraphs 10.2(a) and 10.2(b) is the fair and reasonable market price thereof having regard to all relevant circumstances Value of Natural Gas The value of Natural Gas is the price payable under Approved Contracts or as otherwise may be provided in the Development Plan or in this Agreement, with such fair and reasonable adjustments as required to reflect the point of valuation in Section Price Payable In this Article 10, the price payable is the price that is (or would be) payable by the buyer if the Petroleum were delivered by the Contractors and taken by the buyer, without set off, counterclaim or other withholding of any nature. Annex p. 5