LEGAL STATUS OF ‘CONSORTIUM’ (JOINT VENTURE AGREEMENT) IN ACCORDANCE WITH LEGISLATION OF TURKMENISTAN
Legislation of Turkmenistan does not provide with the concept “consortium”. If we refer to Law Dictionary, we can see that the word “consortium” is translated from Latin as “participation”, and in economy the word “consortium” means “temporary consolidation of companies or banks, without formation of a new legal person”. The aims of consortium are various. It may be, for example, the implementation of joint capital-intensive project.
In Legislation of Turkmenistan this term is close by meaning to the term of partnership, specified in the Civil Code of Turkmenistan. So, the article 27 (Joint Cooperation (Partnership)) of the Civil Code of Turkmenistan is dedicated to Joint Venture Agreement and in the article 970 (The Concept) of the Civil Code of Turkmenistan it is mentioned that “In accordance with Joint Venture Agreement its participants shall mutually facilitate the achievement of the common purpose by means, specified in the agreement”. In the article 971 (Joint Venture Agreement) of the Civil Code of Turkmenistan the structure of joint cooperation is fixed and it is defined that “Joint Venture Agreement” may be made in writing or verbally. Provided that the agreement made in writing shall include:
a) Name of the participants and their addresses;
b) Information on type of joint cooperation and aims;
c) Rights and obligations of the participants;
d) Structure and functions of managing bodies;
e) Rules and conditions of distribution of profits and losses between the participants;
f) Order of withdrawal from the agreement;
g) Duration of the activity;
h) Order of termination of the agreement and distribution of the remaining property.
The provision of Civil Code of Turkmenistan specifies that the participants of joint cooperation should make contributions, defined in the agreement. If the contribution rate is not defined, then the participants shall make contributions in equal shares. The contribution may be done as by money, so by property, and also by rendering of services.
The term “joint property of the participants” is important in accordance with the article 973 of the Civil Code of Turkmenistan, where it is specified, that “contributions of the participants of joint cooperation and articles purchased for partnership within the transactions shall comprise the joint property of the participants.” The property of the partnership also includes all articles, purchased on the basis of right and in the capacity of the reimbursement for destruction, damage or seizure of the article (item), which is included into the property of the partnership.
Interesting is the fact, that provisions of the Civil Code of Turkmenistan specify that “The share in the form of property or right may not be assigned by the participant to any third party without the consent of other participants.” The rejection is admitted only at presence of reasonable excuse. The rest participants of the agreement shall have the right of priority to purchase the share, assigned to the third party”.
As a rule, business management in a partnership and representation in relation to third parties is carried out jointly by all its participants and for implementation of each transaction the consent of all participants of the partnership is required. If according to the agreement of the partnership, the decisions are accepted by majority of voices, then the majority is defined on the basis of total number of participants of the partnership, and not by the contribution rate. If in accordance with the agreement the business management is given to all or some of its participants in such way, that every participant has right to work individually, then each participant may object to make a bargain with the other. In case of objection, the bargain may not be made. If in accordance with the agreement the business management is given to one or several of its participants, the rest participants of the partnership will be removed from business management. If there is a serious reason, the participant of the partnership may be discredited from the authorities given to him under the partnership agreement by decision of majority of other participants, such serious reason, in particular, may be gross violation of responsibilities or inability to conduct business in a proper way. Rights and obligations of the participant, who is conducting the business of the partnership, are defined in accordance with the rules of the contract of agency, unless otherwise specified in the partnership agreement.
The important thing is a participation in profits and losses of the partnership, where if the share of the participant in profits and losses are not defined, then each participant shall have shares in profits and losses in accordance with his contribution.
It is also necessary to mention that the requirements of the participants of partnership in relation to each other, arising from their relation under agreement are not subject to be transferred to third parties. At that, the recession from Joint Venture Agreement may take place:
1. If the agreement does not specify the terms of joint activity, each participant at any time may refuse from the participation in the joint activity. If the term is defined, then the renunciation of partnership before the expiry date is admitted only at presence of serious reason, in particular, if one of the participants intentionally or by gross carelessness violates the main obligations imposed on him in accordance with the Agreement or if the execution of the obligations shall become impossible.
2. If one of the participants discontinues its membership in the partnership, then his shares in common property shall pass to the rest of the participants. The latter shall return to the participant the items, that he gave to partnership and pay the amount, which he might receive at severance of the property in cases, if the joint activity is terminated to the date of his withdrawal. If to the date of withdrawal of one of the participants the value of common property of the partnership is not enough for payment of common debts and for return of contributions, then the partner, who discontinues its membership, shall give to the rest of the participants the deficient amount in accordance with his share in losses.
3. The Agreement, which limits or abolishes the right of termination of the agreement in order to change the above mentioned rules, specified in the Article 978 of Civil Code of Turkmenistan, is null and void.
The basis for termination of joint activity may be:
a. expiration of terms of joint activity defined by the agreement;
b. decision of the participants;
c. opening of procedure on bankruptcy for common property of the partnership;
d. achievement of the aim of joint activity specified in the agreement or if the achievement of its aim became impossible.
Without excluding the above mentioned reasons for termination of the joint activity, the Joint Venture Agreement may provide some other reasons for its terminations, for example:
death of one of the participants of the agreement;
bankruptcy of one of the participants of the agreement.
Article 980 of Civil Code of Turkmenistan provides the order of termination of the joint activity, where it is specified that:
1. Upon termination of the joint activity the severance of the property shall be conducted between the participants. At termination of the joint activity all unexecuted transactions shall be completed.
2. From the common property of the partnership, the community debts of the partnership shall be paid in the first place. In case if the common property is not enough for payment of community debts and return of contributions, then all its participants shall contribute the deficient amount in accordance with their shares in losses. If one of the participants can not pay the due amount, in such case the amount shall be contributed by the rest of the participants in same ratio.
Relating to taxation of the joint venture:
Taxation of the activity of consortiums and/or Joint Venture Agreements is provided within the specified agreements and includes the generally established system of taxation in Turkmenistan.
In this issue we have to mention the article 12 of Tax Code of Turkmenistan, which says:
1. The taxpayers are physical and/or legal persons to whom, at presence of circumstances specified in the present Code, the obligation to pay the definite tax is imposed.
The obligation for payment of taxes by taxpayers – participants of the partnership may be imposed to one of the participants of the partnership, who is conducting its activity in Turkmenistan. Taxpayers – participants of the partnership shall bear the shared responsibility for execution of the obligation on tax payment. The term “partnership” is used in accordance with the meaning given in the Civil Code of Turkmenistan.
2. The person may be accepted as the payer of one or several taxes.
3. Taxpayer may participate in tax legal relationship through tax agent, legal or authorized representative.”
In this context it is necessary to mention the peculiarities of calculation and payment of VAT at conducting the joint activity (article 112 of Tax Code of Turkmenistan), which says:
1. Taxpayers, conducting joint activity (partnership), the obligation on VAT computation shall be imposed to one of the participants of the partnership, who is conducting its activity in Turkmenistan. On acceptance of such decision, the taxpayers – participants of the partnership, within the terms specified in part 2 of the Article 23 of Tax Code of Turkmenistan shall inform in writing the tax services, where they are registered,
2. At computation of VAT that should be paid to the State budget of Turkmenistan for the activity of the partnership, the payment of VAT for raw materials, materials, works, services and other works paid by any of the participant of the agreement for execution of the joint activity shall be accepted. The basis for such acceptance shall be the information (copies or originals of documents on primary accounting) on expenses borne by all of the participants of the partnership.
The amount accepted as VAT in such case shall not be repeatedly taken into account at defining of VAT that should be paid to the State budget of Turkmenistan in relation to the activity of taxpayers, not related to their activity in the partnership.
3. Execution of the obligation on payment of VAT to the State budget of Turkmenistan may be done by one of the participants of the partnership for the whole tax amount or by each of them – in accordance with their shares.
In both cases, the participant of the partnership, who is entrusted to make VAT computation, shall in the established order submit to the tax service in accordance with the place of registration the declaration on VAT for joint venture.
Regarding Joint Venture Agreement for the use of mineral resources it is necessary to mention that Law on mineral resources № 779-XII dated 14.12.1992, regulating the relationships on use of minerals specifies that minerals and their resources are the exclusive property of the government that delegates to its local authorities the rights on regulation the relationships on use of minerals. Buying and selling of mineral resources is not allowed. At that the use of minerals is regulated by issuance of the license. So, legal and physical persons executing the right on mineral use on the basis of the license, the holder of which may be legal persons of Turkmenistan (not depending on form of ownership) or physical persons, and also foreign legal persons on the stipulation that they registered their branch in Turkmenistan or participate in joint venture.
In accordance with Law on mineral resources the Contractor is guaranteed the protection of his rights in accordance with principles of the international law, legislation of Turkmenistan, license and agreement. The Government of Turkmenistan guarantees the compensation for produced hydrocarbon resources in natural expression or by payment of their price in hard currency in accordance with world market price.
It should be mentioned, that Law of Turkmenistan on mineral resources does not specify the order of establishment of consortiums and/or signing Joint Venture Agreements for joint use of mineral resources, since the Law provides with issuance of licenses to legal and/or physical persons. From the other hand, the owner of the license more likely has right to enter the consortium for development of mineral resources.
As we have earlier mentioned, Law on hydrocarbon resources of Turkmenistan dated 20.08.2008 regulates the relationships arising within the process of execution of oil production works on the territories that are under jurisdiction of Turkmenistan, including territories in the sea and internal water basins; issuance of licenses, conclusions and execution of agreements on conducting such works, regulates authorities, rights and obligations of state bodies, and companies, enterprises and organizations executing oil production works.
Such Law provides that Concern (corporation) is a production structure of oil and gas sector of Turkmenistan that executes oil production works independently or within the joint venture, or any other forms.
Also within this Law it is said that Joint Venture is a joint activity executed by consolidation of persons without formation of a new legal person, jointly participating in submission of technical, financial and other resources for execution of the Agreement signed between the Agency and such consolidation of Persons. Thereby, norms of the Law of Turkmenistan on hydrocarbon resources provide with the possibility of formation of the consortium for implementation of large-scale projects.
So, in paragraph 2 of the Article 8 (Competency of the Concern (corporation)) it is said that Concern (corporation) shall have right to sign Joint Venture Agreement and be a participant of the joint venture.
It should be mentioned that this norm gives right to Concern to enter the Joint Venture Agreement for execution of oil production works with the participation of Concern.
In the article 21 (types of agreements) of Law on hydrocarbon resources it is specified that for execution of oil production works the following types of Agreements are used:
1. Production Share Agreement;
2. Concession Agreement on royalty and tax conditions;
3. Joint Venture Agreement;
4. Agreement on servicing with risk.
It is necessary to mention, that Production Share Agreement, Concession Agreement on royalty and tax conditions and Agreement on servicing with risk are signed between the Agency and the Contractor (Operator). At that the Concern (corporation) may be represented in the capacity of the Contractor. In our opinion, in relation to the mentioned Agreements, the Consortium also may become a Contractor.
It is interesting that if in the paragraph 2 of the article 8 it is mentioned that the Consortium shall have right to be a participant of Joint Venture Agreement, then in article 21 it is said that Concern (corporation) may participate in Joint Venture Agreement in the capacity of the Contractor. Depending on character of specific oil production works and other circumstances, the combination of the mentioned types of Agreements and other types of Agreements is allowable.
At the same time it should be mentioned that joint development of the field (article 26 of Law on hydrocarbon resources) may not lead to establishment of the consortium, since:
1. Joint development of the field means the coordination of works between two or more Contractors, implementing their activities on development of one and the same field, located on Contractual areas adjacent to each other. Such Contractors shall sign between each other the Agreement on joint development of such field as a single object and such field shall be developed in accordance with the schedule. The agreement and schedule of joint development shall be approved by the Agency.
2. If any of the Contractors refuse to sign the Agreement on joint development of the field with the other Contractor, then the Agency shall have right to make him to sign such Agreement. If any of the Contractors refuse to develop the uniform schedule of joint development of the field, then the Agency shall have right at the expense of the Contractors to entrust the development of such schedule to the independent expert. The execution of such schedule shall be binding for Contractors. In case if any of the Contractors refuse to execute these obligations, he shall return the corresponding territory of such field.
On the basis of this Article, we consider impossible in this case to establish a consortium, which will provide with one subject (object) of the agreement and implementation of one economic process, but not a separate development of the field.
Also, within the Law on mineral resources, the Law on hydrocarbon resources provides that Licenses are issued to legal persons and citizens and mineral resources are given for use on the basis of licenses. License is a document, which confirms the right of its owner on implementation of one or several types of use of mineral resources on assumption of observance of obligations by him.
Law on hydrocarbon resources specifies the following types of licenses:
1) License for exploration;
2) License for production;
3) License for exploration and production.
For execution of separate types of Oil Production Works under his contract with Contractor or any other subcontractor within the Agreement, the Subcontractor does not need to receive any licenses.
Since the licenses are issued for definite types of works – for exploration (with the term up to 6 years and possibility to extend twice for 2 years), for production (for 20 years with possible extension for 5 years), and also for exploration and production (combined license), that provides maximum terms of each of separate licenses. The licensor of exploration, who discovered the field, shall have the exclusive right to submit an application for receipt of license for production and receive it. The licensor may assign all or part of his rights to a third interested party only at presence of preliminary written consent of the Agency. At assignment of rights to related companies or shareholders the written consent is not required. The term of validity of the contract shall not exceed the terms, specified in the license. If we proceed from this rule relating to the terms of license, then it should be mentioned that the consortium shall be established for the same term.
Taking into account the issue considered – the consortiums dealing with natural resources, it is necessary to specify Law of Turkmenistan “On foreign concessions” dated October 1, 1993 №№ 859-ХП. The mentioned Law defines the organizational, economic and legal conditions for establishment and activity of foreign concessions in Turkmenistan. The Law defines, that concession is a permission of the government issued to foreign legal or physical persons for implementation of definite types of the economic activity on the territory of Turkmenistan. The Concession provides with urgent, onerous passing into operation by country to a foreign legal or physical person-concessionaire on the basis of land agreement, natural resources, enterprises and other property.
The objects of concession activity may be:
1. The right on exploration, development, production or operation of natural resources, on any other economic activity is given to a concessionaire in all spheres and types of the activity, not prohibited by the legislation of Turkmenistan.
The objects of concession activity are:
- land plots and territories with natural resources in them;
- water areas and natural resources in them;
- separate fields of natural resources;
- industrial facilities destined for exploration, development, production or operation of natural resources;
- other facilities.
The Parties of concession activity may be:
1. State of Turkmenistan represented by the authorized government bodies and foreign legal and physical persons, and also directly foreign countries (concessionaires).
2. Concessionaire – general contractor for execution of works under concession agreement shall have right to involve subcontractors. The agreement with subcontractors shall not contradict the conditions of the concession agreement.
At the same time in the article 17 (The right of concessionaire) of this Law, it is mentioned that the Concessionaire shall have right to establish Consortiums. But, the agreement (contract) of the concessionaire with subcontractors may not be considered as Joint Venture Agreement, since in such case the general concept of partnership does not occur, but here occur the relationships between the Concessionaire (the Client) and subcontractor. At establishment of the consortium the equal rights of all participants, their relative independence and absence of structural subordination between the parties is provided.
It should be mentioned that Joint Venture Agreement with participation of the State Agency (the authorized body) differs from the idea of establishment of consortium by participants with equal rights, first of all by subject of the Agreement.
So, in the standard Joint Venture Agreement approved by the Decree of the President of Turkmenistan numbered 3189 and dated June 6, 1997, the subject of the Agreement is the execution of Exploration, Development and Production of Oil and Gas on Contractual Territory. Provided that the Contractor shall be responsible in front of the Competent Body for execution of Oil Production Works in accordance with Law and this Agreement. The Competent Body shall be responsible for regular provision and execution by the Contractor of Oil Production Works, specified in this Agreement. The Contractor shall provide with whole capital, “know-how”, technology and labor necessary for execution of Oil Production Works, unless otherwise is specified in provisions of the present Agreement, in relation to proportional share and financial obligations and order of the Concern. The Contractor shall conduct Oil Production Works at his own account and risk, except cases, specified in the present Agreement in relation to Costs for Exploration and corresponding risk, which shall be fully borne by the Contractor, except Concern. The costs borne by the Contractor at execution of Oil Production Works shall be reimbursed to him in accordance with the provisions of the present Agreement. If the fields of commercial significance will not be discovered, the losses shall be borne by the Contractor, except Concern.
Without prejudice to the property right of the Government on all Oil and Gas on and under the Contractual Territory, each Contracting Company, including Concern, shall have right to receive and dispose its portion of Oil and Gas produced and kept within such territory and proportionally to his Share, in accordance with the provisions of the present Agreement.
Thereby, unequal relations between the State Agency and Contractors occur within the agreement related to Contract for execution of works.
We should specify the article 13.2 of standard Joint Venture Agreement, where it is defined that “with the purpose of regulation of relationship of Contracting Companies, including Concerns, the Joint Operation Agreement should be signed between each such Contracting Company”; such Joint Operation Agreement shall be discussed within negotiations and come into force to the effective date of the present Agreement. The Joint Operation Agreement shall regulate such issues as appointment and removal of Operator, his responsibilities, establishment of Joint Operating Committee, exclusive risk and illegal oil works, voting procedure, competent majority and unanimity, acting at voting on decision made by Joint Operating Committee, decision making on possible omissions done by the Contractor, dispute resolution in arbitrary courts and other acceptable issues”.
Thereby, Joint Venture Agreement and Joint Operation Agreement are inseparably connected with each other.
The scope of Rights of the Contractor in accordance with Joint Venture Agreement should be also mentioned. So, the Contractor shall have:
(a) The exclusive right to conduct oil production works on a Contractual Territory, develop the reserves of oil and gas, located on such territory, act as an Operator in relation to Oil Production Works, provide with technical expertise and assistance, including hiring of foreign staff necessary for execution of Oil Production Works;
(b) The right of free access to enter and exit the Contractual Territory, and other territories of Turkmenistan in cases, when necessary for execution of Oil Production Works;
(c) In connection with execution of Oil Production Works and in accordance with acting Legislation of Turkmenistan, the right to establish, construct, operate and use on Contractual Territory and other territories adjacent to it and located in Turkmenistan, means of communication and other equipment, including pipelines and other transport means, roads, dams, bridges, airfields, terminals, houses, warehouses, groups of field reservoirs, separation and treating plants;
(d) The right to hire subcontractors for execution of any part of oil production works, provided that (i) the Contractor shall maintain the general responsibility for Subcontractor’s obligations and execution of oil production works, (ii) the Contractor shall provide the observance of terms of Joint Venture Agreement by each of his subcontractors;
(e) The right to use free of charge oil and gas produced on Contractual Territory in a degree necessary for execution of oil production works;
(f) The right, at his own discretion, to transport in and export out of Turkmenistan, sell, merchandise, separate, assign the unmortgaged right of property on, mortgage oil and gas portion of the Contractor, defined in accordance with this Agreement;
(g) The right to use without purchasing the lands adjacent to Contractual Territory and within the bounds of Turkmenistan, if it is necessary for effective execution of Oil Production Works;
(h) The right to construct, lay, use and operate the pipelines (as existing, so new ones) for transportation of oil and gas, produced from the Contractual Territory (i) within the Contractual Territory and (ii) in accordance with acting Legislation of Turkmenistan and rights of third parties, from the Contractual Territory up to the places of sale, export or shipping for further transportation or treatment within Turkmenistan;
(i) with the assumption of payment to Agency the corresponding cash value relating to previous Oil Production Works that are under possession or control of the Agency;
(j) The right to import, stock and use foreign materials, equipment and services, if it will be necessary to import them for execution of obligations under Joint Venture Agreement, without payment of customs duties, including the reasonable quantities of household and personal properties of employees hired abroad for Oil Production Works;
(k) in accordance with rights of property of the Agency, the right to (i) export from Turkmenistan the materials and equipment imported for execution of obligations without payment of any customs duties; (ii) resell such materials and equipment, which exceed the quantities required for Oil Production Works in Turkmenistan with payment of corresponding taxes;
(l) The right to receive permissions for entry and work of the staff hired abroad, whose services are necessary for execution of Contractor’s obligations in accordance with Joint Venture Agreement;
(m) In a degree necessary for the most effective execution of Oil Production Works and in accordance with acting Legislation of Turkmenistan, the right to freely remove process plants, equipment and materials through Turkmenistan (if such plants, equipment and materials were imported or purchased in Turkmenistan;
The Contractor’s Obligations within the Joint Venture Agreement are also remarkable. So, the Contractor shall have:
(a) The obligation to commence the oil production works not later than three (3) months from the effective date of the Joint Venture Agreement, be responsible for all oil production works, executed by him or by his subcontractor, execute the works carefully, safely and effectively in accordance the International Oil Development Practice and international standards on conservation of resources and nature protection, which is necessary for ecological protection on the territory of oil production works;
(b) The obligation to observe all Laws of Turkmenistan, terms and conditions of Joint Venture Agreement;
(c) The obligation in case of extraordinary circumstances to execute such measures and incur such immediate expenses necessary for protection of people’s lives, protection of nature and property;
(d) The obligation to submit all programs and reports in relation to Oil Production Works, as it is accepted in the international oil development practice;
(e) The obligation to conduct all corresponding records, journals of technical documentation and reports on oil production works, including book-keeping;
(f) The obligation to organize the competitive bidding at purchasing of materials and services, the price of which exceeds the amount of ____________________________________ (_____________) US Dollars;
(g) The obligation to give preference to Turkmen suppliers of services and materials;
(h) The obligation to hire citizens of Turkmenistan and provide with training of local personnel, hand over up-to-date technologies to Turkmen side;
(i) The obligation to provide with and bear responsibility for payment of all expenses related to or provided by all services, equipment and deliveries, necessary for execution of activities, which the Contractor shall execute in accordance with Joint Venture Agreement;
(j) The obligation to conduct all necessary measurements in accordance with the International Oil Development practice to (i) control debit and prevent the loss of oil or depletion of oil reservoir and (ii) prevent the negative influence of water intrusions and damage of oil-bearing beds;
(k) The obligation to timely inform the Agency on all essential changes, which appeared or the appearance of which may be foreseen, that may influence on oil production works;
(l) The obligation to inform immediately the Agency and Ministry of nature management and environment protection of Turkmenistan, if the Contractor will know on any extraordinary event or phenomena on Contractual Territory or elsewhere, which influences on environment or any article related to it;
(m) The obligation that Contractor (or each Contracting Company, entering it) shall register for conducting its business in Turkmenistan in accordance with acting legislation of Turkmenistan. Provided, that each of them shall inform the Agency the name and address of the person, representing them, residing in Turkmenistan;
(n) The obligation to use the reasonable efforts for production of oil and gas at Maximum Effective Norm of Selection and starting from the date of commencement of commercial production submit to the Agency the quarterly plan on estimated production for each License on production up to the first day of each Calendar Quarter;
(o) The obligation to submit to Agency the Reports on actual production of oil and gas for each calendar quarter within 30 (thirty) days of its ending.
II. Consortium – advantages and disadvantages
If we proceed from the assumption that the consortium is necessary for development of the hydrocarbon field on the basis of Production Share Agreement, where the Parties are the State Agency and Consortium, then it is the most optimal consolidation.
Consortium without the establishment of the new legal person shall have the opportunity to conduct independently the various oil production works. Provided that, any participant of the Consortium shall become a member of the Managing Committee (group) on implementation of the project (hereinafter referred to as – the Managing Group), acing as a governing body with corresponding authorities (risk insurances, reward presentation), in order to provide with timely and professional execution of oil production works.
The terms of Consortium shall depend on terms of the license on execution of oil production works (license for exploration, production), whereas the terms of the legal person may be limited, based on the term of the license, and unlimited. The work of the Consortium shall be conducted in accordance with the Program of execution of oil production works.
Within the Consortium the necessity in appointing the Consortium Operator may appear, where the responsibility for payment of taxes in the name of and at the expense of participants of the Consortium may be or shall be imposed on such Operator.
This Consortium does not establish any new legal person and thereby the companies-participants of the Consortium shall keep their freedom of action for other projects, and the most important, in our opinion, is that the company – participant of the Consortium shall be responsible only for capital invested into Consortium. The general share responsibility for various risks is possible.
The Consortium shall execute the works on a mutual beneficial base with the following long-term service and maintaining the relationships.
The conditions of the relationships inside the Consortium require that each member (company) implemented the set tasks. This is under the competence of the Managing Board, who by creation of the system of calculation of the activity of each member, shall define the measures for further execution of oil production works or offer various stimuli. The result shall be based on equality between all participants of the Consortium and Operator too.
One more advantage of the Consortium is that each participant in a simplified form may have right to sell its share in participation to any third party and for this, it is not necessary to go through a complicated procedure of re-registration, which is typical for legal persons (for example, joint-stock company and/or economic society).
Also at establishment of the Consortium, the risk of each participant is reduced, but at the same time, the possible profit is also reduced. It should be mentioned that the consortium is lesser exposed to political risk than one company and, therefore, the consortium possess the great immunity for protection of interests.
In our opinion, the Consortium may be established in accordance with legislation of the other country, but its activity shall be governed by legislation of Turkmenistan, in particular the relationships of the Consortium with state authorized bodies. We do not deny the possibility that the Production Share Agreement signed between the Consortium and State Agency may include other law enforcement norms.
So, the Consortium Operator should fully study the Legislation of Turkmenistan and normative acts relating to hydrocarbon resources for further approval of the activity within and in accordance with local Laws (that means rendering of services and activities that do not contradict Legislation of Turkmenistan).
Therefore, for implementation of huge investment projects the establishment of Consortium is a necessity, if financial, material and other resources do not allow one company to execute the project fully.