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Myanmar’s New Foreign Investment Law, Rules
and Notification with Respect to Energy Matters
James Finch, Partner
US Chamber Conference Yangon February 25, 2013
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Foreign Investment Law--Perspective
Perspective
 Myanmar’s New Foreign Investment Law (FIL) was passed on
November 2, 2012. It replaces the MFIL of 1988. The rules
and notification to this Law were issued on January 31, 2013
 Oil & gas is one of the industries listed in the State Owned
Enterprise Law of 1989 (SOE Law). This means oil & gas is a
monopoly of the state. With FIL approval comes a notification
issued under the SOE Law to grant an exemption.
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FIL
FIL
 Deals are done by a PSC signed between MOGE as owner and
generally a branch of a foreign company. The branch now will
be required to enter into a JOA with a local company
approved by MOGE. According to MOGE recently, the
percentage of the local party is fixed by negotiation.
 Article 10 i provides that an investment shall be in the form of
a company. In fact, a review of the Rules suggests that a
branch will be allowed as before.
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The new rules—Application procedure
Rule 34. If SOE law applies as in oil & gas, the FIL application is filed through
the relevant ministry, not directly to the MIC. In this case MOGE submits the
application to the MIC.
Procedure based on above.
 Once a bidder is selected via the competitive bidding process:
Process under SOE Law and MFIL:
 Foreign company submits a “SOE proposal” to EPD.
 EPD submits the documentation (PSC, JOA) to the MOE, with its
comments
 Negotiation process, between the EPD and the foreign energy
company if MOE agrees
 Draft PSC agreed by both parties to be submitted to the Attorney
General's Office (AGO).
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The new rules—Application procedure
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MOGE submits an MIC proposal to the MIC as a promoter,
accompanied by the final draft
MIC will evaluate the MIC proposal and approves the final draft
in principal
MIC proposal and the final draft contract then be submitted to
the Cabinet for final approval.
The approval of the parliament would be required under the FIL.
After Cabinet and [the parliament] approves the contract, sign
PSC and JOA.
MIC permit and Notification for exploration and production
issued under the SOE will then be granted to the foreign energy
company,
Apply for a “permit to trade” (the Directorate of Investment and
Companies Administration)
Registration of branch office by foreign company at DICA
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Additional provisions in Rules
• Rule 60—PSC will contain “construction period,” the period
for drilling of well or wells.
• Rule 61—If construction period not met, permit can be
revoked with no compensation.
• Schedule 1 to Rules: prohibitions for foreign investors—hand
dug wells up to 1,000 feet, power plants less than 10
megawatts. 49-51 as decided by Parliamane on Friday.
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Notification
Requires EIA for all petroleum and natural gas exploration,
drilling and production, likewise pipelines. The Environmental
Conservation Rules, issued pursuant to the Environmental
Conservation Law will include the requirements.
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Excellence · Creativity · Trust
Since 1994
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www.dfdl.com
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Local Partner, Bidding Process
II Steps to Deal
Bidding and Foreign Participation
 Onshore deals require a local energy company, which has been registered at EPD of MOE.
According to an official of EPD, that an open tender for offshore blocks would be launched at
the end of this month and, under such bidding process, offshore deals would also require a
local partner.
 When and if it is lunched, tender procedures for offshore blocks will be published in stateowned newspapers, which is not available yet. Assuming tender procedures for offshore
blocks is similar to that for onshore blocks, we have inserted procedural steps in next fews
slides.
 There is no stipulation for the minimum or maximum percentage requirement. Thus the
percentage of the deal is negotiable. EPD is not interested in what will be the ratio as long as
a local company has the participating interest in the deal whereby the local company could
obtain exploration technologies and experience from the international oil and gas deals.
 A PSC will be signed only between MOGE and a foreign energy company. The foreign energy
company will be a contractor and operator. The foreign energy company and the local
company will sign a MOU and then a Joint Operating Agreement (the "JOA"). The MOU and
JOA will set forth, inter alia, the participating interest of the local company. The question as
to whether local partners have to put capital or just get a carried interest will depend on
negotiation.
 Both onshore and offshore deals under a PSC does not require to form a Joint Venture.
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Bidding Process
 EPD will insert an invitation for bids to conduct petroleum
operations in offshore blocks in state-owned newspapers.
 The bidder will have the following documents endorsed for
authenticity by the Myanmar Embassy of country of incorporation:
(i) a copy of Certificate of Incorporation, (ii) a copy of By-Laws or
memorandum and article of association, (iii) a copy of Annual
report, (iv) a copy of Financial Statement or Financial Report.
 Prepare a Letter of Expression of Interest.
 Put the Letter of Expression of Interest and the documents
mentioned in above (b) in a sealed envelope superscripted
“Confidential” “Myanmar Offshore Blocks Bidding Round-2012”
 Send the envelope to Director General, EPD, MOE, Building No.6,
Nay Pyi Taw, The Republic of the Union of Myanmar.
 A short-list of bidders will be selected by the MOE.
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Bidding Process continued
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MOGE will give the short-listed bidders a “General Data Overview” presentation
for Bidding Blocks.
EPD will explain the preferable “Standard Terms and Conditions” to the shortlisted bidders.
EPD will give the short-listed bidders a list of local companies, which have been
registered at the EPD.
Negotiate the terms of a MOU and the Joint Operating Agreement ("JOA") with
the local partner.
Sign a MOU with the local partner.
Prepare proposed terms and conditions for PSC. These are the negotiable terms.
The bidder submit a proposal with proposed Terms and Conditions for PSC
together with the signed MOU with the local partner. The bidder can only bid for a
maximum of 3 blocks.
The proposed Terms and Conditions will be assessed by EPD.
The best offered Terms and Conditions will be selected for awarding blocks.
The Model PSC will be provided to Awarded Potential Bidders.
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PSCCLICK
WITHTO
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EXAMPLE
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III. Tax on a deal
Royalties
Example Whiteacre PSC
–
 Foreign energy company pays
royalty in whole or in part, in cash
or in kind, at the option of the
government.
 Royalty paid equal to 12.5% of
the value of available petroleum
 Available petroleum means all
production minus petroleum
used by the operator free of
charge for production
operations.
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Whiteacre PSC (Normally done quarterly –
but for tax we will do this annually)
• Offshore PSC
• Year 4 (after tax holiday ends)
• Producing Natural Gas for water
depths of more than 600 feet:
600 MMCFD x 365 = 219000 MMCF
Gas used for production operation 500
MMCF per year
Available petroleum in year 4 is 219,000 –
500 = 218,500 MMCF
Royalty 12.5% of 218,500 MMCFD =
27,312 MMCFD
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II. Cost Recovery
Example Whiteacre PSC
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Foreign energy companies recover all
costs and expenses of the petroleum
operation.
Cost petroleum: 1) costs and expenses of
exploration operations, (2) costs and
expenses of development and production
operations in development and
production areas.
Not included in cost petroleum: outside of
the production area, costs attributable to
logistics, administration and design.
Maximum percentage of fixed available
petroleum to be applied to cost
petroleum from the contract area: 40% to
50% of production.
In practice, 40% and 50% is fixed on
onshore blocks and offshore blocks
respectively.
Percent may go to of 60% when the water
depth is more than 600 feet.
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219000 MMCF = rough value of available
petroleum (US$ 2570 MMCF) = $562.83
million
Let’s say total cost petroleum is US$500
million and this is the first year of
recovery because of small production in
earlier years
50% for offshore of 562.83 million is
281.41 million
So, only 281.41 million available in year 4
as recovery of cost petroleum
So US $ 281.41 can be recovered in this
year.
The rest (US $ 218.59 million ) can be
recovered in future years.
Costs outside of the production area,
logistics, administration and design. Not
recoverable (see below) Total: US $ 100
million
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III. Signature Bonus
Example Whiteacre PSC
 Foreign energy company: to pay
signature bonus /production
bonus, not recoverable as cost
petroleum.
 Signature bonus: a flat amount
determined on a case-by-case
base, based on MOGE's data on
the particular block.
 In practice, the signature bonus is
between US$ one and fifteen
million, depending on the block.
– Whiteacre PSC: Year 1 : Signature
bonus : 3 million dollars
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Not recoverable as cost
petroleum, but deductible as
discussed later.
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IV. Data Fee
Example
 To obtain MOGE's data
MOGE requires a data fee.
– Whiteacre PSC : Year 1 :
– Data fee : 250,000 dollars
– Not includable as cost
petroleum.
– Deductable as explained
later.
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V. Production Bonus
Example Whiteacre PSC
 Example for natural gas:
 Upon approval of
development plan
= US$1M
 300 MMCFD = US$1 M to
US$3 M
 600 MMCFD = US$1.5 M
to US$4 M
 900 MMCFD = US$2M to
US$5 M
-Producing
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600 MMCF –
Production Bonus is US$ 3
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V. Production Bonus
Example Whiteacre PSC
 Example for crude oil:
 Upon approval of
development plan = US$1
M
 25,000 BPD = US$2 M
 50,000 BPD = US$3 M
 100,000 BPD = US$4 M
 150,000 BPD = US$5 M
 200,000 BPD = US$10 M
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No oil production
Production bonus: 0
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VII. Allocation of Share
Example
– Available Petroleum
218,500 MMCFD x 2570 =
562.83 million
 562.83 minus royalty
(12.5%)= 70.35million
minus Cost Petroleum
281.41 million = 211.07
million
 Available Petroleum not taken for
the purpose of payment of
Royalty or as Cost Petroleum is
allocated between MOGE and the
foreign energy company.
 Examples of allocation of share
are in the next two slides.
70%
(MOGE)
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30%
(Contractor)
30% of USD 211.07 million is US $ 63.32
million
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PSC WITH TAX EXAMPLE continued
Example : Allocation of Share
Available Petroleum not taken for the purpose of payment of Royalty or as
Cost Petroleum is allocated between MOGE and the foreign energy company.
For example:
 Crude Oil
 (a) Available Crude Oil for water depths of 600 feet or less:
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MOGE’s Share
0 – 25,000 bbls/day
60%
25,001 – 50,000 bbls/day
65%
50,001 – 100,000 bbls/day
80%
100,001 – 150,000 bbls/day
85%
> 150,000 bbls/day
90%
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Contractor’s Share
40%
35%
20%
15%
10%
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PSC WITH TAX EXAMPLE continued
Example: Allocation of Share
 Natural Gas
 (a) Available Natural Gas for water depths of 600 feet or less:
 MOGE’s Share: 65%
 Contractor’s Share: 35%
 (b) Available Natural Gas for water depths of more than 600 feet:
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 0 – 300 MMcf/day
 300-600 MMcf/day
 600- 900 MMcf/day
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MOGE’s Share
60%
70%
80%
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Contractor’s Share
40%
30%
20%
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Net taxable income
Rate
–
–
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For the purposes of determining net
taxable income, the Contractor may
deduct legitimate and reasonable
expenses incurred for the purpose
earning income under existing
Myanmar Income Tax Laws. These
include interest incurred by the
Contractor to finance Petroleum
Operations (to the extent not cost
recoverable), and the data fee and
bonuses paid by the Contractor .
Corporate tax will be 25% on net
taxable income.
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US $ 63.32 million minus normal
business expenses yearly : US $
22,000,000
Minus Items not cost recoverable:
logistics administrative and
design outside production area:$ 10
million
Data fee: $250,000
Signature bonus: $3 million
Production bonus $ 3 million
US $ 63.32 million minus all items
above= US $ 25.07 million x 25%
(corporate tax rate)= US$ 6.2675
million in tax
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INCOME TAX IN OIL AND GAS SECTOR
 Subject to Myanmar Income Tax Laws of 1974 in respect to
the filing of returns, tax assessments, and the keeping and
showing of books and records.
 Subject to income tax at the rate of 25% after enjoying tax
exemption period, whether sales are on or off shore
 Normally, MOGE discharges all other taxes imposed on the
Contractor including import and export duties, customs
duties, commercial tax and other duties levied on the
materials, equipment and supplies imported into Myanmar.
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Capital Gain Tax
Ministry of Finance and Revenue Notification № 121/2006
 Income tax on capital gains in oil and gas sector
 Emphasize the words “by any means” foreign tier issue.
 Transfer of shares to be approved by MOGE

Up to 100 million
:
40%
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Between 100 and 150 million :
45%

150 million above
50%
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SERVICE OIL AND GAS: MATERIAL FOR OFF-SHORE
PLATFORMS AND INSTALLATIONS
 EPC with MOGE and foreign oil and gas companies
 Foreign Contractor, without having a legal presence in
Myanmar.
 Withholding tax 2% for all subsidiaries and MFIL branches.
3.5% for non MFIL branch and offshore company.
 Resident foreigners are subject to a 2% withholding and this is
credited toward overall tax payment
 Nonresident foreigners are subject to a 3.5% withholding and
this is treated as a final tax payment
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