Circular No. 07/1998/TT-BKH guiding joint ventures in oil and gas activities

CIRCULAR

Guidelines for Joint Ventures in Oil and Gas Activities

Pursuant to the Law on Foreign Investment in Vietnam adopted by the National Assembly of the Socialist Republic of Vietnam at its 10th Session of the Ninth Term on November 12, 1996;

Pursuant to the Petroleum Law adopted by the National Assembly of the Socialist Republic of Vietnam at its Third Session of the Ninth Term on July 6, 1993;

Pursuant to Decree 12/CP dated February 18, 1997 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam and Decree 10/1998/NĐ-CP dated January 23, 1998 of the Government regarding certain measures to encourage and ensure foreign direct investment activities in Vietnam;

Pursuant to Decree 75/CP dated November 1, 1995 of the Government on the functions, tasks, authorities, and organizational structure of the Ministry of Planning and Investment;

To enhance the effectiveness of management in oil and gas exploration, development, and production activities, meeting the diverse practical requirements of petroleum contracts.

The Circular guiding joint ventures in oil and gas activities is hereby issued as follows:

Part I:

GENERAL PROVISIONS

1. Joint venture in oil and gas activities refers to the establishment of a joint operating company under the form of a joint stock company or other joint venture forms by PetroVietnam and the contractor parties to carry out oil and gas exploration, development, and production activities within the area specified in the petroleum contract.

2. PetroVietnam and the contractor parties may choose the aforementioned joint venture forms to conduct oil and gas activities according to the agreement of the parties in the petroleum contract.

The agreement on the establishment of a joint operating company, joint stock company, or other joint venture forms must be stipulated in the petroleum contract.

The petroleum contract referred to in this circular is the contract established in accordance with the Petroleum Law and approved by the Prime Minister.

3. During the course of operation, the joint operating company, joint stock company, and other joint venture forms must comply with the provisions of the Investment License, petroleum contract, Company Charter, and this Circular and relevant laws.

PART II:

JOINT OPERATING COMPANY

4. The contractor parties may establish a joint operating company to implement the petroleum contract. The joint operating company operates on behalf of and represents the contractor parties within the scope of authorization, without the aim of earning profit for itself.

The joint operating company is established based on the petroleum contract, Company Charter, Operating Agreement, and Investment License. The company has legal personality, its own seal, and bank accounts opened in domestic and/or foreign banks as agreed upon in the petroleum contract.

The objectives, scope, and content of operations of the joint operating company are defined in the Operating Agreement between the contractor parties and the joint operating company and must be stipulated in the petroleum contract.

5. Registered capital and ownership rights of the contractor parties in the joint operating company;

5.1- The registered capital of the joint operating company is agreed upon by the contractor parties and recorded in the Company Charter of the joint operating company. The portion of registered capital contributed by each contractor party corresponds to their participation rights as stipulated in the petroleum contract.

Ownership rights of the contractor parties in the joint operating company correspond to their participation rights in the petroleum contract.

5.2- When a contractor party is permitted to transfer its participation rights in the petroleum contract, the ownership rights of that contractor party in the joint operating company will also change accordingly with the transferred participation rights in the petroleum contract.

5.3- During the course of operation, the joint operating company shall not transfer its rights and responsibilities to any third party.

6. The joint operating company is established after receiving the Investment License from the Ministry of Planning and Investment; the Investment License serves as the Certificate of Registration for the joint operating company.

To establish a joint operating company, the petroleum contract must include the following documents:

1- Operating Agreement.

2- Charter of the joint operating company.

7. Management Committee and Operating Body of the joint operating company;

7.1 The Management Committee is established comprising representatives of PetroVietnam and the contractors; the committee discusses and decides all matters related to organization and oil and gas activities within the area of the petroleum contract.

The organizational structure, authority, and responsibility of the Management Committee are stipulated in the petroleum contract.

7.2- The daily operating body of the joint operating company includes the General Director, Deputy General Director, and Directors appointed by the Management Committee and subject to supervision and direction by the Management Committee.

The functions, tasks, and principles of appointment and dismissal of these positions are defined in the Charter of the joint operating company.

8. As a company not aimed at earning profit for itself, the joint operating company is not subject to taxes related to its operational activities.

The contractor parties must fulfill tax obligations and other financial obligations to the State of Vietnam as prescribed by the Petroleum Law, the Law on Foreign Investment in Vietnam, and the petroleum contract.

9. Employees of the joint operating company must pay individual income tax as prescribed by Vietnamese law.

10. In cases where the joint operating company leases land for building its headquarters or for operational purposes, it must pay land lease fees according to regulations applicable to foreign-invested enterprises.

Part III:

JOINT STOCK COMPANY

11. PetroVietnam and the contractor parties may establish a joint stock company based on the petroleum contract to carry out oil and gas exploration, development, and production activities within the area specified in the petroleum contract in Vietnam.

The joint stock company is established in accordance with the Petroleum Law and the Law on Foreign Investment in Vietnam.

12. In cases where necessary, the parties to the Petroleum Contract may agree to establish a Joint Venture Company to carry out oil and gas exploitation activities following the completion of the exploration phase.

13. The principles for determining the minimum capital requirement, investment capital of the Joint Venture Company; methods; progress of raising capital; rights and obligations of the joint venture parties; rights and obligations of the Joint Venture Company; management mechanisms and organizational operations of the Joint Venture Company shall be stipulated in the Petroleum Contract.

The procedures for establishing and operating the Joint Venture Company are governed by the Petroleum Law and the Law on Foreign Investment in Vietnam.

Part IV:

MANAGEMENT OF THE OPERATING JOINT VENTURE COMPANY AND JOINT VENTURE COMPANIES

14. The Operating Joint Venture Company, the Joint Venture Company, and other forms of joint ventures must comply with and be subject to supervision and inspection by competent state management agencies of Vietnam.

The inspection and supervision of the activities of these companies must be carried out within their authority, according to procedures, and without affecting the operation of the company.

15. The Operating Joint Venture Companies and the Oil and Gas Joint Venture Companies have the responsibility to periodically report their petroleum activities as specified in the Petroleum Contract to the competent state management agencies.

PART V:

IMPLEMENTING PROVISIONS

16. This Circular takes effect from the date of signature.

During the implementation of this Circular, if there are any difficulties, the Vietnam National Oil and Gas Group and contractors need to promptly reflect them to the Ministry of Planning and Investment for necessary consideration and adjustment.