EXHIBIT 16
PROJECT AGREEMENT
AMONG
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
(THE STATE)
AND
INTEROIL PTY LIMITED
(INTEROIL)
AND
EP INTEROIL, LTD.
(EPIL)
TABLE OF CONTENTS
CLAUSE PAGE
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1. INTERPRETATION 1
1.1 Definitions 1
1.2 General 8
1.3 Headings and Parts of Speech 8
2. AGREEMENT - COMMENCEMENT AND TERM 9
3. CONDITIONS PRECEDENT 9
3.1 Conditions Precedent to Refiner's and Developer's Obligations 9
3.2 Conditions Precedent to State's Obligations 9
3.3 Conditions Precedent to Obligations of the Parties 10
4. PRELIMINARY OBLIGATIONS AND MILESTONES 10
4.1 Commercial and Financing Agreements 10
4.2 Grant of Authorisations 11
4.3 Milestone Schedule and Security Bond 11
4.4 Arrangements Prior to Financial Close 12
5. REFURBISHMENT OF REFINERY 12
6. OBLIGATIONS OF REFINER 13
7. OBLIGATIONS OF THE STATE 14
8. INVESTMENT INCENTIVES 14
8.1 Business Incentives 14
8.2 Pioneer Certificates 14
8.3 Import and Value Added Taxes 14
8.4 Right to Export 15
8.5 Bonded Store Area 15
8.6 Provincial and Local Taxes 16
21 May 97
8.7 STATE TAX INDEMNITY 16
9. AUTHORISATIONS AND ALLOWANCES 16
9.1 TAXATION AND OTHER INCENTIVES 16
9.2 HARBOURS BOARD 17
9.3 COASTAL SHIPPING 17
9.4 WATER RESOURCES 17
9.5 ROAD AND UTILITY ACCESS 18
9.6 PIPELINE EASEMENTS 18
9.7 IP ACT 18
9.8 PROVINCIAL GOVERNMENTS 18
9.9 FINANCING REQUIREMENTS 19
9.10 ASSURANCES AS TO CONTINUED EFFECTIVENESS 19
10. FOREIGN EXCHANGE 19
10.1 FINANCING PLAN 19
10.2 EQUITY INVESTMENT IN REFINER 20
10.3 OVERSEAS BORROWINGS BY REFINER 20
10.4 PAYMENTS OF GOODS AND SERVICES 21
10.5 PAYMENT OF DIVIDENDS 22
10.6 FOREIGN CURRENCY ACCOUNTS 23
10.7 RETURN OF FOREIGN SURPLUS CURRENCY 24
10.8 STATE'S ACTION TO ENSURE COMPLIANCE 24
10.9 RIGHTS UNDER FOREIGN EXCHANGE REGULATIONS 24
11. FINANCING OF THE PROJECT 24
11.1 PROJECT FINANCING COOPERATIONS 24
11.2 CREATION OF SECURITY 25
12. LOCAL SUPPLIES, BUSINESS DEVELOPMENT AND IMPORTS 25
12.1 LOCAL SUPPLIES AND BUSINESS DEVELOPMENT 25
12.2 IMPORTATION OF EQUIPMENT, GOODS AND CRUDE OIL 26
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21 MAY 97
12.3 CUSTOMS CLEARANCE 26
12.4 EXPORT OF PREVIOUSLY IMPORTED GOODS AND MATERIALS 26
13. NON-DISCRIMINATION AND RELATED MATTERS 27
13.1 NON-DISCRIMINATION 27
13.2 OTHER OIL REFINERIES IN PNG 27
14. ENVIRONMENTAL MATTERS 27
15. LABOUR AND EMPLOYMENT 28
15.1 TRAINING AND LOCALISATION 28
15.2 VISAS AND PERMITS 29
15.3 HEALTH AND SAFETY 29
16. INSURANCE 29
16.1 OBTAINING INSURANCE 29
16.2 INSURANCE CLAIMS 30
17. ELECTRIC POWER GENERATION 30
18. ACCESS TO CRUDE OIL 30
18.1 TIMELY ACCESS TO PNG CRUDE OIL 30
18.2 DOMESTIC MARKET OBLIGATIONS 31
18.3 ACCESS TO NON-PNG CRUDE OIL 31
18.4 FURTHER ASSURANCES 31
18.5 EXISTING PETROLEUM CONTRACTS 31
19. SALES OF PRODUCTS 31
19.1 OBLIGATION TO PURCHASE FROM DOMESTIC PRODUCERS 31
19.2 OBLIGATIONS TO PREVENT DUMPING OF PRODUCTS BY IMPORTERS 31
19.3 FURTHER ASSURANCES 32
20. REPRESENTATIONS AND WARRANTIES 32
20.1 REPRESENTATIONS AND WARRANTIES OF THE PARTIES 32
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<Table>
20.2 Representations and Warranties of Refiner 32
21. INSPECTION 33
22. RIGHT OF REFINER TO EXPAND FACILITY 33
23. FORCE MAJEURE 33
23.1 Excuse of Obligations 33
23.2 Removal of Force Majeure 33
23.3 Suspension of Obligations 34
24. TERMINATION 34
24.1 Termination by the State 34
24.2 Termination by Refiner 34
24.3 Termination Notices 36
24.4 Termination by either Party 36
25. CONSULTATION 36
26. REMEDIES 37
26.1 Liquidated Damages for the State's Failure to provide
Crude Access 37
26.2 Liquidated Damages for the State's Failure to Ensure Sales
to Domestic Producers 37
26.3 No Set-offs, No Penalty 37
27. DISPUTES AND ARBITRATION 37
27.1 Disputes 38
27.2 Submission to ICSID 38
27.3 ICSID Arbitration 38
27.4 Award 39
27.5 Costs of Arbitration 39
27.6 Stay of Other Proceedings 39
27.7 Sole Expert 39
28. SOVEREIGN IMMUNITY 40
</Table>
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29. LAW AND JURISDICTION 40
29.1 Governing Law 40
29.2 Submission to Jurisdiction 40
30. ASSIGNMENT 40
31. OWNERSHIP OF MATERIALS AND CONFIDENTIALITY 41
31.1 Confidentiality and Publicity 41
31.2 Disclosure of Confidential Information 41
32. MISCELLANEOUS 41
32.1 Head Office 41
32.2 Waiver 41
32.3 Severability 42
32.4 Further Assurance 42
32.5 Application for Authorisations 42
32.6 Protection of Project Site 42
32.7 Entire Agreement 42
32.8 Costs Generally 42
32.9 Agreement Prevails 43
32.10 Rights Cumulative 43
32.11 Counterparts 43
32.12 Relationship of Parties 43
32.13 Listing on PNG Stock Exchange 43
32.14 Amendment of Agreement 43
32.15 Notices 43
SCHEDULE 1 CONDITIONS PRECEDENT TO REFINER'S AND
DEVELOPER'S OBLIGATIONS 46
APPENDIX A: CALCULATION OF IMPORT PARITY PRICE 48
APPENDIX B: REFINERY PROPOSAL 51
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21 May 97
PAPUA NEW GUINEA SEAL
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Oil and Gas Act, No. 49 of 1998
S.100
MEMORANDUM OF APPROVAL
(OF AN INSTRUMENT CREATING AN INTEREST)
PETROLEUM PROCESSING FACILITY LICENCE NO. 1
I, Dr. FABIAN POK, M.P., Minister for Petroleum and Energy, by virtue of the
powers conferred upon me by the Oil and Gas Act No. 49 of 1998 and all other
powers me enabling, do hereby approve the within application pursuant to
Section 100 of the said Act.
DATED this 16th day of August, 2000
/s/ Dr. FABIAN POK, M.P.
- ------------------------
HON. Dr. FABIAN POK, M.P.
Minister for Petroleum and Energy
The Minister for Petroleum and Energy on the 16th day of August, 2000
approved the within application
DATED this 17th day of August, 2000
/s/ C. Warrillow
- ----------------
C. Warrillow
A Delegate of the Director
ENTERED IN THE REGISTER this 17th day of August, 2000
/s/ C. Warrillow
- ----------------
C. Warrillow
A Delegate of the Director
AGREEMENT made on 29th May 1997 AMONG:
(1) THE INDEPENDENT STATE OF PAPUA NEW GUINEA, care of the Office of National
Planning, Vulupindi Haus, 3rd Floor, P.O. Box 710, Waigani, National
Capital District, Papua New Guinea (the "STATE");
(2) INTEROIL PTY LIMITED, a company duly incorporated in Papua New Guinea, of
P.O. Box 30, Waigani, National Capital District, Papua New Guinea
("INTEROIL" or "REFINER"); and
(3) EP INTEROIL LTD., a company formed under the laws of the Cayman Islands,
Ugland House, South Church Street, Georgetown, Grand Cayman, Cayman
Islands, British West Indies ("EPIL" or "DEVELOPER").
RECITALS:
A. Papua New Guinea produces significant quantities of crude oil.
B. At present there is no domestic oil refining facility, consequently, Papua
New Guinea imports most of its requirements for refined petroleum products.
C. The State has determined in a decision of the National Executive Council
dated 17 December 1993, that it wishes to encourage the development of
domestic oil refining capacity in Papua New Guinea and to that end
Developer proposes to relocate the former Chevron Nikiski Refinery to the
Port Moresby Harbour area to provide an initial domestic oil refining
capacity of approximately 35,000 barrels per day to fulfil the refined
petroleum product needs of Papua New Guinea and export markets (the
"REFINERY").
D. Developer has expressed interest in establishing the Refinery on a basis
that will derive an appropriate return on its investment while securing
appropriate benefits for the nation and, in particular, the people of Papua
New Guinea.
E. The State acknowledges that Refiner has received IPA approval and
certification for the Project and that the establishment of the Refinery is
consistent with the State's development objectives.
F. Developer and Refiner shall establish and operate the Refinery on the terms
and conditions set out herein.
THE PARTIES AGREE AND DECLARE AS FOLLOWS:
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement, unless the context otherwise requires:
"ABANDONMENT" means a determination by Refiner not to pursue the
Project, as evidenced by a cessation of Implementation or Operations
and no resumption by Refiner within 120 days; provided that, an
Abandonment shall
21 May 1997
not result from delays caused by the contractor under the Construction Contract
or delays in equipment delivery;
"ACCOUNTING PROFITS" means Refiner's book profits, calculated in accordance with
generally accepted accounting principles and arrived at after deduction of:
(a) in relation to each year of income, the Income Tax which has been paid or
will be payable by Refiner on its taxable income for that year; or
(b) in relation to an interim period prior to the finalisation of annual
accounts, the Income Tax which will be payable by Refiner in respect of the
taxable income derived by Refiner during that period on the basis that
Refiner continued to derive income during the whole of the year of income
of which the period forms a part at the same daily average rate as in that
period;
"AFFILIATE" of any person means any other person which controls, is controlled
by or is under common control with such first person (for the purpose of this
definition, "control" of a person means the power to direct the management or
policies of the person, whether through the ownership of voting securities, by
contract, or otherwise);
"AFRA" means Average Freight Rate Assessment as published by the London Tanker
Brokers Panel Limited on a monthly basis;
"AGREEMENT" means this Project Agreement and all schedules, appendices,
attachments and annexes to this Project Agreement;
"APPROVED FINANCING PLAN" has the meaning given to it in Clause 10.1;
"AUTHORISATION" means any grant of rights, consent, permit, authorisation,
registration, filing, agreement, notarisation, certificate, permission, licence,
approval, authority or exemption from, by or with the State, any Government
Agency, or Provincial Government;
"BASE LEASE" means the State Leases registered as Volume 18 Folio 44 and Volume
18 Folio 45 over Portions 1499 and 1500 respectively at Napa Napa, Port Moresby,
Papua New Guinea entered into between Refiner and the State and dated 27 May
1996;
"BASE LEASE PERIOD" means the 99 year period from 1 February 1996 to 31 January
2095;
"BONDED STORE AREA" means a zone or area of land and sea where the State does
not impose any Taxes on goods or services for import or export;
"BUSINESS DAY" means a day on which the banks in each of New York City, Sydney
and Port Moresby are open for business;
"BUSINESS DEVELOPMENT PLAN" has the meaning given to it in Clause 6;
"CENTRAL BANK" means the bank of Papua New Guinea, being the Central Bank of PNG
under the Central Banking Act;
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21 May 97
"CENTRAL BANKING ACT" means the Central Banking Act (Chapter 138 of the PNG
Revised Laws);
"COMMENCEMENT OF COMMERCIAL PRODUCTION" means the first day on which the
Refiner is able to deliver Products from the Refinery, after the occurrence of
successful commissioning and start-up pursuant to the Construction Contract;
"COMPANIES ACT" means the Companies Act (Chapter 146 of the PNG Revised Laws);
"CONSTRUCTION CONTRACT" means the contract or contracts to be entered into by
Refiner with a construction contractor for the construction of the Project,
which may include the provision of engineering and procurement services.
"CONSTRUCTION PERIOD" means the period beginning on the Effective Date and
ending on Commencement of Commercial Production;
"CONSTRUCTION SCHEDULE" means the schedule of construction and performance
milestones for the construction, testing and commissioning of the Refinery
submitted by Refiner to the State;
"CRUDE" or "CRUDE OIL" means crude oil, whether produced domestically in PNG
(or from the PNG offshore area) or imported into PNG, and other feedstocks
required to operate the Refinery;
"CRUDE ACCESS" has the meaning given to it in Clause 18.1;
"CRUDE PURCHASE AGREEMENT" means an agreement between a producer of Crude Oil
and Refiner for the purchase of Crude Oil by Refiner;
"DEVELOPER" means EP InterOil Ltd;
"DISTRIBUTABLE PROFITS" means, in relation to any date of determination, the
greater of Refiner's current year's undistributed Accounting Profits or its
accumulated retained earnings as of that date;
"DOMESTIC DISTRIBUTORS" means all distributors in PNG that distribute Products
to retailers of such Products;
"DOMESTIC MARKET OBLIGATION" means a provision in a petroleum agreement between
the State and a producer of domestic Crude Oil that obligates such producer to
sell to oil refineries in PNG domestically produced Crude Oil at
non-discriminatory market prices in order to meet the requirements of the Papua
New Guinea market;
"EFFECTIVE DATE" means the date which is two (2) Business Days after the
fulfillment or satisfaction of the last to be satisfied of the conditions
precedent set out in Clause 3 or such other date as the Parties may agree in
writing;
"ELCOM" means the Papua New Guinea Electricity Commission established under the
Electricity Commission Act (Chapter 78 of the PNG Revised Laws);
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21 May 97
"ENVIRONMENTAL PLAN" means the environmental plan to be submitted by Refiner to
the State in accordance with the Environmental Planning Act;
"ENVIRONMENTAL PLANNING ACT" means the Environmental Planning Act (Chapter 370
of the PNG Revised Laws);
"EXECUTION DATE" means the date of execution of this Agreement;
"FINANCING AGREEMENTS" means the loan agreements, notes, indentures, security
agreements, guarantees and other documents relating to the construction
financing and permanent financing (including refinancing) of the Project or any
part thereof;
"FORCE MAJEURE" means any cause beyond the reasonable control of the Party
failing to perform, including:
(a) fires, floods, earthquakes, storms, volcanic eruptions, typhoons, cyclones,
tidal waves, snow and ice, epidemic, explosion, pestilence, holocaust, acts
of supervening force, failure or breakdown of facilities and/or equipment
of the Refinery from any other cause not specifically listed in this
paragraph (a) or in paragraph (b) (provided that failure or breakdown of
the facilities and/or equipment of the Refinery is not caused by the
failure by the Party claiming Force Majeure to operate and maintain those
facilities and/or equipment in accordance with good engineering and
operation practices), restraint by court order or order of any Government
Agency, export or import restrictions (including Customs clearance delays),
closing of ports, airports, terminals, roadways, waterways or rail lines,
rationing or allocation schemes (whether imposed by any Government Agency
or by industry in cooperation with any Government Agency), or any labor or
material shortage; or
(b) war (regardless of whether declared), act of civil or military authority,
civil disturbance or disobedience, riot, sabotage, terrorism, threats of
sabotage or terrorism, action or non-action by or inability to obtain the
necessary Authorisation from any Government Agency, expropriation (or such
action or actions which, when taken in the aggregate, have the effect of
expropriation), requisition, confiscation, or landowner activity or actions
by persons asserting rights as traditional owners of the land on and around
which the Refinery is to be built;
"FOREIGN EXCHANGE REGULATIONS" means the Central Banking (Foreign Exchange and
Gold) Regulation made pursuant to the Central Banking Act;
"GOVERNMENT AGENCY" means any government or any governmental, semi-governmental
or judicial entity, court or authority of the State, including, without
limitation, any provincial government established under the Organic Law on
Provincial Governments and Local-level Governments;
"HARBOURS BOARD" means the Papua New Guinea Harbours Board established under the
Harbours Board Act (Chapter 240 of the PNG Revised Laws);
"ICSID" has the meaning given to in Clause 27.2;
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21 May 97
"IMPLEMENTATION" means the development, financing, construction, commissioning
and other work to be carried out in connection with the Refinery prior to
Commencement of Commercial Production;
"IMPORT PARITY PRICE" means, with respect to a Product, its Import Parity Price
as determined in accordance with the provisions of Appendix "A";
"INCOME TAX" or "INCOME TAXES" means a levy, impost, deduction, charge, duty or
tax based on or calculated from Refiner's revenues or net income or similar
measure of performance;
"INDEPENDENT ACCOUNTANT" means a major certified accounting firm or such other
registered accountant ordinarily resident in Papua New Guinea as the Parties
may agree, or, in the absence of agreement, as determined by the President of
the body regulating the standards and conduct of registered accountants in
Papua New Guinea from one of the following firms of registered accountants or
its successor in interest:
(a) KPMG;
(b) Coopers & Lybrand;
(c) Ernst & Young;
(d) Deloitte Touche Tohmatsu;
(e) Price Waterhouse;
"INVESTORS" means the owners of the equity interests in Developer and Refiner,
together with their respective successors and permitted assigns;
"IPA" means the Authority established under the IP Act;
"IP ACT" means the Investment Promotion Act 1992;
"K" or "KINA" means the lawful currency of Papua New Guinea;
"LENDER" means any party to the Financing Agreements that is lending money or
otherwise providing credit and any agent or trustee acting for such party,
together with their respective successors and permitted assigns;
"LOSS" means any loss, damage, liability, payment, obligation and expense
(including without limitation reasonable lawyers' fees), but, in any event,
excluding any indirect or consequential loss, damage, liability, payment,
obligation or expense;
"MATERIAL CHANGE" means any event or condition that might materially adversely
affect the business and operations of Developer and Refiner;
"MILESTONE SCHEDULE" has the meaning given to it in Clause 4.3;
"NOTICE OF INTENT TO TERMINATE" has the meaning given to it in Clause 24.3(1);
"OPERATIONAL PERIOD" means the period beginning Commencement of Commercial
Production and expiring on the last day of the Term;
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21 May 97
"OPERATIONS" means the operation of the Project in accordance with this
Agreement;
"PARTIES" means the parties to this Agreement;
"PIONEER CERTIFICATE" has the meaning attributed to that expression in the
Industrial Development (Incentives to Pioneer Industries) Act (Chapter 119 of
the PNG Revised Laws);
"PLATT'S" means the Singapore Product Postings located in the PLATT'S Oilgram
Price Report published by Standard & Poor's Corporation;
"PNG" or "PAPUA NEW GUINEA" means Papua New Guinea or, as the context requires,
Papua New Guinean;
"PNG CONTROLLED COMPANY" means a company in respect of which:
(a) the right to exercise one hundred percent (100%) of the voting power;
(b) the right to receive one hundred percent (100%) of the dividends that may
be paid by the company; and
(c) the right to receive one hundred percent (100%) of any distribution of
the capital of the company in the event of a winding up or of a reduction in
the capital of the company,
are held, either directly, or through one or more interposed companies, each of
which is itself a PNG Controlled Company under this definition, by Papua New
Guinea citizens but does not include a company where the company is, or its
directors are, accustomed or under an obligation, whether formal or informal, to
act in accordance with the wishes of any person who is not a citizen of Papua
New Guinea.
"PRODUCT" means motor gasoline (both leaded and unleaded), aviation gasoline,
dual purpose kerosene, kerosene/Jet-A1, automotive diesel oil, gasoil,
industrial diesel, industrial fuel oil, liquid propane gas, liquid butane gas,
naphtha, residual fuel oil and such other commercially viable products of the
kind that Refiner may from time to time determine to produce;
"PROJECT" means the relocation to, and the development, construction and
operation of the former Chevron Nikiski Refinery and other new, used, modified
and/or refurbished equipment and ancillary facilities at Napa Napa, Port
Moresby, Papua New Guinea;
"PROJECT SITE" means the land, spaces, waterways, roads, wells and any rights
acquired by Refiner under the Base Lease or to be acquired by Refiner for the
purposes of the Project on, through, above or below the ground on which the
Project or any part thereof is to be built (including any working and
accommodation areas required by the Refiner and its contractors), all rights of
way and access from public roads and highways, and, where applicable, railway
and seaward access;
"PROVINCIAL GOVERNMENT" means the Central Province Provincial Government and
the National Capital District Commission;
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21 May 97
"REFINER" means InterOil Pty Limited;
"REFINER'S INDUSTRY" means the petroleum refining industry in Papua New Guinea
involving the conversion of Crude Oil into Products;
"REFINERY" has the meaning given to it in the Recitals to this Agreement;
"REFINERY PROPOSAL" means the proposal of Developer and Refiner for development
of the Refinery as set out in Appendix "B", together with any amendment or
variation to the proposal in accordance with Clause 32.13.
"RELEVANT EXCHANGE RATE" for a given day, means the average of the previous
twenty Business Days' average of the buy and sell rates for Kina published by
Westpac Bank-PNG-Limited; or if such bank no longer quotes buy and sell rates
for Kina, ANZ Banking Group (P.N.G.) Limited, Bank of South Pacific Limited or
such other bank with offices in Port Moresby as is mutually determined by the
Parties (for the purposes of this definition only Business Day means a day on
which banks are open for business in Port Moresby);
"SERVICES" means any services, rights, benefits or privileges that are, or are
to be, provided, granted or conferred under any agreement for or in relation to
the performance of work (including but limited to work of a professional
nature), the conferring of rights or benefits or privileges for which
consideration is payable by way of fee, royalty, tribute, levy or similar
exaction or the carriage, packaging or storage of any property or the doing of
any act in relation to any property and agreements for the provision of
services, whether of a professional or technical or banking or other nature;
"SITE ASSESSMENT" has the meaning given to it in Clause 14;
"SOLE EXPERT" means a person appointed by agreement between the Parties in
dispute to resolve any difference of view or disagreement between such Parties
and who shall not be or have been an employee of the State or any Government
Agency or Refiner or any Affiliate of Refiner, or in the event that the Parties
in dispute fail to agree on the appointment of the Sole Expert a person
appointed by the Chairman of the Administrative Council of ICSID or his
designee;
"SOURCING PLAN" has the meaning given to it in Clause 6;
"STATE FORCE MAJEURE" means any Force Majeure described in paragraph (b) of the
definition of Force Majeure or any other Force Majeure caused by any act or
omission of the State of any Government Agency;
"TARGET DATE" has the meaning given to it in Clause 12.3;
"TAX" means any levy, impost, deduction, charge on goods and Services, duty or
withholding tax or charge (together with any related interest, penalty, fine
and expense in connection with any of them) levied or imposed by any Government
Agency, other than Income Tax, and including (without limitation) any tax in
the nature of import duty, export duty, excise or other tax or duty.
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21 May 97
franchise free, sales tax, turnover tax, value added tax, consumption tax
or other tax whether imposed upon goods or Services;
"TAX ACT" means the Income Tax Act 1959 and includes where appropriate any
associated Act prescribing rates of tax;
"TERM" has the meaning given to it in Clause 2;
"TRAINING AND LOCALISATION PROGRAMME" means the Refiner's programme for the
training of PNG employees and the replacement of expatriate employees with
PNG employees, as submitted to the Department of Labour and Employment from
time to time;
"VAT" means Value Added Tax, which may be included in the PNG tax system;
and
"WORLD SCALE" means the New Worldwide Tanker Nominal Freight Scale
published annually and amended from time to time by the World Scale
Association.
1.2 GENERAL
In this Agreement, including the Recitals, unless the context otherwise
requires:
(a) the singular includes the plural and vice versa;
(b) a word denoting an individual or person includes a corporation, firm,
partnership, joint venture, association, authority, trust, state or
government and vice versa;
(c) a word denoting any gender includes all genders;
(d) a reference to Recital, Clause, Schedule, Appendix or Annexure is to a
recital, clause (including sub-clauses, paragraphs and
sub-paragraphs), schedule, appendix or annexure of or to this
Agreement;
(e) a reference to any agreement or document is to that agreement or
document (and, where applicable, any of its provisions) as amended,
novated, supplemented or replaced from time to time;
(f) a reference to any Party includes that Party's executors,
administrators, substitutes, successors and permitted assigns; and
(g) a reference to any legislation or legislative provision includes any
statutory modification or re-enactment of, or legislative provision
substituted for, and any subordinate legislation under, that
legislation or legislative provision.
1.3 HEADINGS AND PARTS OF SPEECH
In this Agreement, including the Recitals:
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21 May 97
(a) headings are not part of this Agreement. They are for
convenience of reference only and do not affect
interpretation; and
(b) where an expression is defined, another part of speech
or grammatical form of that expression has a corresponding
meaning.
2. AGREEMENT - COMMENCEMENT AND TERM
This Agreement shall have a term (the "TERM") beginning on the Execution
Date and ending on the first to occur of (i) the thirtieth anniversary
of Commencement of Commercial Production, (ii) the date on which the
Base Lease terminates, and (iii) the date that this Agreement is
terminated pursuant to Clause 24, subject in each case to extension by
agreement of the Parties.
3. CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT TO REFINER'S AND DEVELOPER'S OBLIGATIONS
All of the obligations of the Refiner and Developer under this
Agreement (other than the obligations under Clauses 4.1, 4.3 and
6(f) are subject to the fulfilment of the conditions set out in
Schedule 1.
3.2 CONDITIONS PRECEDENT TO STATE'S OBLIGATIONS
All of the obligations of the State under this Agreement (other
than the State's obligations under Clauses 4.2, 11 and 14(b))
are subject to the fulfilment of the following conditions:
(a) the submission to the Central Bank by Developer and Refiner
of a final financing plan for the Project that is
consistent with the Foreign Exchange Regulations and Clause
10;
(b) receipt by the State of written confirmation from Australia
and New Zealand Banking Group (PNG) Limited that it holds
credit account balances in the name of Refiner in Kina and
foreign currency which in aggregate, taking the Kina and
Kina equivalent of the foreign currency, exceed
K10,000,000;
(c) receipt by the State of written confirmation from The R-M
Trust Company in Canada that it is holding funds on behalf
of S.P. InterOil, LDC exceeding US$35,000,000;
(d) receipt by the State of confirmation which may be in the
form of a legal opinion or otherwise that Developer owns
the principal components of the former Chevron Nikiski
Refinery free from any encumbrances;
(e) the submission to the State of a letter from Enron Corp.
expressing its intent to provide funds to its subsidiary to
invest in the Project in accordance with Developer's
shareholders' agreement dated January 1997 between the
Investors; and
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21 May 97
(f) the submission to the Department of Environment and Conservation
of the State of the Environmental Plan for the Project in
accordance with Clause 14(a).
3.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
The obligations of all the Parties under this Agreement (other than
the obligations of Refiner under Clauses 4.1, 4.3 and 6(f) and the
obligations of the State under Clauses 4.2, 11, 14(b), 18 and 19) are
subject to the fulfillment of the following conditions:
(a) the finalisation and execution of the Financing Agreements on
terms and conditions satisfactory to Refiner and the satisfaction
of all conditions precedent to first funding thereunder, except
where the failure to satisfy such conditions precedent is solely
the fault of Developer or Refiner;
(b) the finalisation and execution of Crude Purchase Agreements with
domestic producers of Crude Oil on terms and conditions
satisfactory to Refiner for such amounts of Crude Oil as in the
reasonable opinion of Refiner are necessary to commence
Operations; and
(c) the finalisation and execution of sales agreements for the sale
of Products by Refiner to Domestic Distributors for all of their
requirements for Products which the Refinery has available
capacity to provide, for such period and on such terms and
conditions as in the reasonable opinion of Refiner are necessary
to commence Operations.
4. PRELIMINARY OBLIGATIONS AND MILESTONES
4.1 COMMERCIAL AND FINANCING AGREEMENTS
Notwithstanding Clauses 3.1 and 3.3, Refiner shall:
(a) use its reasonable efforts to negotiate, finalise and obtain the
execution of the Financing Agreements (including the satisfaction
of all the conditions precedent thereunder), the Crude Purchase
Agreements and the sales agreements for the sale of Products, all
as referred to in Clause 3.3;
(b) apply in the normal course and in a timely manner (as required
under relevant PNG legislation) for all Authorisations necessary
to satisfy the conditions precedent set out in Schedule 1; and
(c) prepare and submit to the State a quarterly report, commencing
with a report for the first three full calendar months after the
Execution Date and thereafter until Commencement of Commercial
Operations, summarising in reasonable detail the status of
negotiations and results of Refiner's obligations under Clause
4.1(a).
10
21 May 97
4.2 GRANT OF AUTHORISATIONS
Notwithstanding Clauses 3.2 and 3.3, the State shall ensure that all
Departments and Ministers of the State and other Government Agencies, and
use its reasonable efforts to ensure that the National Capital District
Commission and any relevant provincial government of PNG, process Refiner's
applications for Authorisations as soon as possible and grant the
Authorisations necessary to satisfy the conditions precedent set out in
Schedule 1 no later than the second milestone date under Clause 4.3.
4.3 MILESTONE SCHEDULE AND SECURITY BOND
The Parties acknowledge and agree that the Milestone Schedule set forth
below (the "MILESTONE SCHEDULE") is an estimate with which Developer and
Refiner will attempt to comply. Refiner shall lodge a security bond in an
amount of K50,000, supposed by a cash deposit or bank guarantee, in the
form and manner provided by Section 102 of the Petroleum Act (Chapter 198
of the PNG Revised Laws) for the holders of petroleum licences under that
Act, as security for the achievement by Developer and Refiner of the
milestones in the Milestone Schedule. If any milestone is not achieved for
reasons other than:
(a) Force Majeure through no fault of Developer or Refiner; or
(b) any action or inaction by the State, regardless of whether such action
or inaction would constitute a breach of the State's obligations
hereunder,
the State may enforce the security bond and either the cash deposit will be
forfeited by Refiner or the State will have the right to recover the amount
of the security bond under the bank guarantee. Thereafter, Developer and
Refiner must lodge a new security bond supported by a cash deposit or bank
guarantee as a security for the achievement by Developer and Refiner of the
subsequent milestones in the Milestone Schedule. Except for the State's
right to the security bond upon a failure to achieve the milestones below
and without prejudice to any right the State might otherwise have under
Clause 24 to terminate this Agreement, Refiner shall incur no liability nor
shall the State recover any remedies or damages hereunder as a result of
the failure of Refiner to achieve any milestone in the Milestone Schedule.
Milestone Date (unless otherwise agreed by the Parties)
--------- ----
Commencement of preliminary One (1) month after the Execution Date
site work on the Project
Site and repair of roads
accessing the Project Site
Closing under the Financing Eleven (11) months after the Execution
Agreements and effectiveness Date
of the Construction Contract
11
21 May 97
Tow-out of refurbished equipment Ten (10) months after actual closing
on barges for transport to PNG under Financing Agreements and effectiveness
of the Construction Contract
Commencement of Commercial Four (4) months after actual tow-out of
Production refurbished equipment on barges for
transport to PNG
If Refiner fails to achieve a milestone because of a Force
Majeure or State action described in (a) or (b) above, such
milestone shall be extended by the period of time such Force
Majeure or State action prevents Refiner from achieving the
milestone.
4.4 ARRANGEMENTS PRIOR TO FINANCIAL CLOSE
The State acknowledges that Refiner's export sales from
Products will not always generate enough foreign currency for
the purposes set out in Clause 10.6(c), (d) and (e) because
Refiner will be first selling its Products to the PNG
domestic market. The Parties agree that, before the second
milestone in Clause 4.3 is reached, it will be necessary for
Refiner and the Central Bank to meet mutually acceptable
arrangements for Refiner to convert Kina funds into foreign
currency and hold them in foreign currency accounts for such
purposes. Failure to reach such arrangements is likely to
delay closing under the Financing Agreements. Therefore, if
agreement is not reached on these arrangements, the second
milestone and all subsequent milestones in Clause 4.3 will be
suspended.
5. REFURBISHMENT OF REFINERY
Developer and Refiner shall ensure that:
(a) the Refinery and its emission levels meet the standards for
air emissions and liquid effluents as laid down in the
Pollution Prevention and Abatement Handbook for
Environmentally Sustainable Development - Part III Petroleum
Refining, September, 1996, issued by the World Bank
Environmental Department;
(b) any previously used equipment in the Refinery is renovated to
"as new" condition, and all columns, heat exchangers and
pressure vessels conform to the ASME Boiler & Pressure Vessel
Code, Section VIII;
(c) notwithstanding the requirements of the ASME Boiler &
Pressure Vessel Code Section VIII, all pressurised equipment
handling hydrocarbons (whether this equipment is new or used)
is subject to hydraulic pressure testing prior to the
commissioning of the Refinery;
(d) all pipework of two inches nominal bore or under in the
Refinery is renewed during development of the Refinery;
12
(e) all tankage, instrumentation and utilities that comprise part
of the Refinery are of new or "like new" quality and conform
to internationally recognised standards; and
(f) the State receives independent verification from an
internationally recognised inspection agency approved by the
State of the certification of the Project pursuant to the
Construction Contract, the Refinery's compliance with
paragraphs (a) and (c) above and its substantial compliance
with paragraph (b), (d) and (e) above.
Refiner shall not commence Operations, other than for testing prior to
commissioning and Commencement of Commercial Operations, until the
Refinery complies with paragraphs (a), (c) and (f) above and
substantially complies with paragraphs (b), (d) and (e) above. For the
purposes of paragraph (f) above, Refiner shall give written notice to
the State of the international inspection agency it intends to use and
the State shall within 14 days after such notice either approve that
agency (such approval not to be unreasonably withheld) or disapprove
it giving reasons in writing for doing so. Refiner shall bear the cost
of the international inspection agency which carries out the
verification.
6. OBLIGATIONS OF REFINER
In addition to the other obligations of Refiner set out in this
Agreement, Developer and Refiner shall have the following specific
obligations:
(a) To develop the Project and cause the Refinery to be
constructed substantially in accordance with the
specifications and capacity provided in the Refinery
Proposal;
{b) To submit to the State the Construction Schedule no later
than 120 days after the conditions set forth in Clauses 3.1
have been satisfied, and to use all commercially reasonable
efforts to ensure that construction and start up of
operations of the Project are conducted in accordance with
the Construction Schedule, subject to delays beyond the
control of Refiner and its contractors;
(c) To prepare and submit to the State, within 180 days after the
conditions set forth in Clauses 3.1 and 3.3 have been
satisfied or as soon thereafter as is practicable, a plan for
the use of products and Services sourced in PNG by the
Refinery in its operations (the "SOURCING PLAN");
(d) To prepare and submit to the State, within 180 days after the
conditions set forth in Clauses 3.1 and 3.3 have been
satisfied or as soon thereafter as is practicable, a plan for
the potential business that may be generated as a result of
the Refinery's operations for PNG Controlled Companies (the
"BUSINESS DEVELOPMENT PLAN");
(e) To prepare and submit to the State an annual report
summarising the progress that the Project has made under the
Sourcing Plan and the Business Development Plan;
(f) Prior to Commencement of Commercial Production, to prepare
and deliver to the State quarterly progress reports relating
to the progress of the construction of the Project and
Commencement of Commercial Production;
13
(g) To test, commission and start up operations of the Project in
accordance with the performance tests set forth in the
Construction Contract;
(h) To operate and maintain the Project during the Term in
accordance with applicable law from time to time; and
(i) To request and apply to the State and any applicable
Government Agencies for all necessary Authorisations
contemplated under this Agreement.
7. OBLIGATIONS OF THE STATE
In addition to the other obligations of the State set out in this
Agreement, the State shall have the following specific obligations:
(a) To assist Refiner in obtaining and maintaining the
effectiveness of all Authorisations in accordance with, and
as required by, Clauses 8, 9, 10, 11, 12, 13, 14, 15, 16 and
17; and
(b) To promptly implement its obligations under Clauses 18 and
19.
8. INVESTMENT INCENTIVES
8.1 BUSINESS INCENTIVES
Refiner shall be granted and enjoy the business incentives
currently available to all foreign investors under relevant
Papua New Guinea laws, subject to compliance with those laws.
Refiner acknowledges that it must in many cases apply as a
formality for the business incentives to the relevant
Government Agency, but the State agrees that, where Refiner
has applied in accordance with the applicable law, Refiner
shall be granted such incentives.
8.2 PIONEER CERTIFICATE
The State covenants and agrees that the tax exemption made
available to Refiner under Section 18 of the Industrial
Development (Incentives to Pioneer Industries) Act (Chapter
119 of the PNG Revised Laws) by virtue of the Pioneer
Certificate will continue to be available to the Refiner and
remain in force beginning upon the date of Commencement of
Commercial Production and ending on the fifth anniversary of
the last day of the year of income in which the date of
Commencement of Commercial Production occurred.
8.3 IMPORT AND VALUE ADDED TAXES
Developer and Refiner and their respective agents and
contractors shall have the right to acquire, construct and
import into PNG a complete and self contained, fully
operational, barge-mounted refinery and new, used, modified,
and/or refurbished equipment, including but not limited to, a
crude unit, naphtha hydro-desulphuriser reformer,
isomerisation unit and ancillary equipment, light and liquids
fractionation, stripping, storage, water treatment, boilers,
related processing, support utilities, loading, unloading,
utilities, power generation equipment and such other
ancillary capital equipment as is
14
necessary for the implementation of the Refinery and
associated consummables and spare parts necessary for the
Commencement of Commercial Operations (the assets and all
related expenses above being collectively referred to as the
"EXEMPT GOODS") in each case free and clear of and without
any deduction or withholding for or on account of any import
duties or VAT, and an exemption to such effect shall be
granted by the State. Goods and equipment that (i) are not an
integral part of the Refinery, and (ii) are available to
Refiner in PNG as required by and in accordance with Clause
12.1 are not Exempt Goods.
The State acknowledges that the Exempt Goods are "Capital
Machinery" falling within Divisions 84 and 85 of the Customs
Tariff Act 1990 and as such will qualify for exemption from
import duties under the Notice of Exemption published in
National Gazette No. G24 of 10 March 1995.
The Parties acknowledge that PNG does not currently impose
VAT; however, a VAT system may be in effect in PNG at the
time the Exempt Goods are acquired and imported. When the VAT
system is enacted in PNG, the State shall grant any necessary
exemption to give effect to this Clause 8.3.
8.4 RIGHT TO EXPORT
Subject to:
(a) any requirement of defence and the safety of the
public and quarantine;
(b) the obligations of the State under multilateral
international agreements to which the State is a
party; and
(c) any determination by the National Executive Council
of the State (notice of which has been given to
Refiner) that the export of any Products to a
particular place is not permitted,
the State shall ensure that:
(d) Refiner has the right to export from Papua New
Guinea the Products resulting from the Operations;
and
(e) customers of Refiner who purchase the Products
resulting from the Operations on an f.o.b. basis in
Papua New Guinea for export are allowed to export
such Products; and
(f) no Products resulting from the Operations and
exported by Refiner or customers of Refiner who
purchased the Products on an f.o.b. basis for export
will be subject to any Tax, licence, permit or
impost of any nature whatsoever.
8.5 BONDED STORE AREA
The State shall ensure that Refiner is issued a licence as
prescribed in Section 54 of the Customs Act (Chapter 101 of
the PNG Revised Laws) that covers
15
the Base Lease, and such other storage terminal areas deemed
necessary by Refiner to operate the Refinery.
8.6 PROVINCIAL AND LOCAL TAXES
The State will use its best endeavours to ensure that Refiner
is exempt from any Taxes imposed by any provincial or
local-level government (including the National Capital
District Commission) that discriminate, or have the effect of
discriminating, against Refiner, the Products and Refiner's
Industry.
8.7 STATE TAX INDEMNITY
The State agrees to indemnify and hold harmless the Refiner
against any amounts which the Refiner may be called upon to
pay in respect of any Tax or Income Tax or otherwise
(including any assessment, reassessment, amended assessment,
default assessment, penalty, fine or other obligation in
relation thereto) as a result and to the extent of the
State's undertakings in this Clause 8 not being fulfilled or
the benefit of those provisions not being received by
Refiner. The State will ensure that any indemnity payment
made pursuant to this clause will not be subject to any
Income Tax or Tax and, in the event any payment under this
Clause 8.7 is subject to Income Tax or Tax, such payment due
to Refiner shall be increased or grossed-up so that the net
amount actually receivable by Refiner after the deduction,
levy or withholding of such aforesaid taxes or amounts is the
amount that would have been due had no such taxes or amounts
been deducted, levied or withheld.
9. AUTHORISATIONS AND ALLOWANCES
9.1 TAXATION AND OTHER INCENTIVES
(A) GENERAL. To the extent that any Authorisations or
other documentation is required by the Refiner to
avail itself of the incentives and tax treatment set
forth in Clause 8 above, the State shall grant or
procure the grant of such Authorisations or other
documentation to Refiner as soon as practicable
after the Execution Date.
(B) COMMISSIONER GENERAL OF INTERNAL REVENUE. Where any
right or assurance is given to or conferred upon
Refiner under this Agreement and such right or
assurance requires the Commissioner General of
Internal Revenue to:
(i) approve any permit, exemption, act, or
other matter; or
(ii) grant or issue any authority or approval
under the Tax Act including tax clearance
certificates under Part IX Division 2 of
the Tax Act;
and Refiner has supplied any necessary information
to the Commissioner General of Internal Revenue, the
State shall, upon request from Refiner, ensure by
policy directions or otherwise to the Commissioner
General of Internal Revenue, that such approval is
given and any authority, including the issue of a
tax clearance certificate, is granted.
16
9.2 HARBOURS BOARD
The State will use its best efforts to ensure that the
Harbours Board grants any necessary approvals for the
construction and operation of those parts of Refiner's
facilities for the Project which are in or encroach upon the
declared port of Port Moresby, and does not discriminate
against Refiner and any Affiliate providing services to the
Project (including, without limitation, any Affiliate
providing barging, storage and transportation of Products by
sea) in relation to any charges or dues that the Harbours
Board or any other government, semi-government authority or
person having jurisdiction may levy including, but not
limited to discriminatory port dues, navaid charges,
pilotage, wharfage charges, berthage charges and charges for
Customs officers that may be levied.
9.3 COASTAL SHIPPING
(a) Subject to Clause 12.1, Refiner shall have the
right to use international flagged vessels with
displacement of 5,000 tonnes or more for shipping,
floating storage, transportation and freight of any
product or goods needed for operation of the
Refinery, including Crude Oil, blended products,
chemicals, reagents, catalyst, additives, naphtha
feedstocks, blending agents, octanes, LPG, benzene
and refined products and equipment. Subject to
Clause 12.1 and paragraph (b) below, the State shall
grant, or procure the grant by any relevant
Government Agency, of any Authorisation of the State
or any Government Agency under the Merchant Shipping
Act (Chapter 242 of the PNG Revised Laws), the
Harbours Board Act (Chapter 240 of the PNG Revised
Laws) or legislation dealing with like or similar
subject matter to permit Refiner to do the foregoing
things, and shall not require Refiner to use PNG
flagged vessels for such things.
(b) If Refiner requires any Authorisation under the
Merchant Shipping Act or the Harbours Board Act (or
the Regulations or By-Laws thereunder), or under any
other legislation dealing with like or similar
subject matter, Refiner shall make application for
such Authorisations to the responsible Government
Agency in the normal course and in a timely manner
(as required under the relevant legislation) for
such Authorisations and comply with any necessary
formal procedures associated with the grant or issue
of such Authorisations.
9.4 WATER RESOURCES
If Refiner shall require any Authorisation in relation to:
(a) the investigation of water sources on or close to
the Project Site;
(b) sourcing of water for drinking or industrial
purposes;
(c) treatment of water for drinking or industrial
purposes;
(d) storage of water by tanks or other means; and
(e) disposal of waste water,
17
then the State shall grant or procure the grant by any
relevant Government Agency (including, within the National
Capital District, NCD Water and Sewerage Pty Ltd) of any
Authorisation that may be necessary or desirable to Refiner,
including, without limitation, any Authorisation that may be
necessary or desirable under the Public Health Act (Chapter
226 of the PNG Revised Laws), the Water Resources Act
(Chapter 205 of the PNG Revised Laws), the National Water
Supply and Sewerage Act (Chapter 393 of the PNG Revised Laws)
or the National Capital District Water Supply and Sewerage
Act 1996.
9.5 ROAD AND UTILITY ACCESS
(a) If utilities are available on the southern side of
Port Moresby Harbour, the State shall ensure that
Refiner has access to those utilities in common with
other users. Utilities include but are not limited
to roads, water, electricity, sewerage and other
infrastructure provided by the State or any
Government Agency.
(b) Refiner shall have the right at its own expense to
upgrade, repair and maintain the access roads to the
Project Site to meet the needs of the Project. If
any access road must be re-routed for this purpose,
Refiner shall negotiate with the traditional
landowners to purchase the additional land required
or acquire any necessary easements or rights of way.
If Refiner is unable to reach agreement with the
traditional landowners within a reasonable time, the
State shall use its powers of compulsory acquisition
under the Land Act to acquire the additional land
required and Refiner shall pay to the State the cost
of doing so.
9.6 PIPELINE EASEMENTS
The State shall grant or procure the grant by any relevant
Government Agencies of all easements or rights of way that
the Project may require for the construction and operation of
pipelines and flare stacks within the Project Site and from
the Project Site to the tank farms or other load out points
of the Project, at no cost to Developer and Refiner, other
than generally applicable application fees and similar
charges.
9.7 IP ACT
The State shall ensure that the certificate of Refiner issued
under the IP Act in respect of the activities contemplated or
required to be carried out under the Refinery Proposal is not
canceled or varied (otherwise than for breach of a material
term or condition of such certificate) during the Term and is
unconditional or subject only to such conditions as are
acceptable to Refiner in respect of the Refinery and
Refiner's Operations or as required under the IP Act.
9.8 PROVINCIAL GOVERNMENTS
If the Refiner shall require any lease or Authorisation of
any Provincial Government or any other political subdivision
of or within the State or any Provincial Government, for the
construction or operation of the Project, the State shall
assist Refiner in obtaining any such lease or Authorisation.
18
9.9 FINANCING REQUIREMENTS
The State shall grant or procure the grant of all
Authorisations required to be obtained from the State or any
Government Agency for Refiner or for the construction,
financing, ownership, operation or maintenance of the Project
as identified in or contemplated by the Financing Agreements.
9.10 ASSURANCES AS TO CONTINUED EFFECTIVENESS
The State shall further ensure that such Authorisations and
other documentation contemplated in this Clause 9 and
throughout this Agreement are not terminated, revoked,
limited or restricted and continue to be effective during the
Term.
10. FOREIGN EXCHANGE
10.1 FINANCING PLAN
Developer and Refiner shall submit the final financing plan
for the Project to the Central Bank prior to the execution of
the Financing Agreements to satisfy the condition precedent
in Clause 3.2(a). The final financing plan will:
(a) set out in reasonable detail the manner in which
Developer and Refiner intend to finance the total
cost of the Project through to Commencement of
Commercial Production, including a reasonable
provision for working capital to maintain
Operations;
(b) provide for a maximum debt:equity ratio for Refiner
(including indebtedness to shareholders and other
associated parties) of 5:1;
(c) identify sources of the proposed debt finance and
the terms and conditions of such debt finance,
including in particular the cost of funds
(identifying all fees, charges and commissions as
well as interest rates or interest margins);
(d) the security to be provided for the financing;
(e) identify, and justify to the satisfaction of the
Central Bank, Refiner's need for foreign currency
accounts for the purposes of Clauses 10.6 and 10.7;
and
(f) identify capital to be used by Refiner in carrying
out the project as equity or debt, as the case may
be. For the purposes of this clause 10, "equity"
shall mean ordinary shares, preference shares which
have been designated at the time of their issue as
"equity" by a notice to the Central Bank and
undistributed accounting profits.
The State shall ensure that the Central Bank gives
expeditious consideration to the final financing plan and
requests any further information required from Developer and
Refiner. Within fifteen Business Days of the date of receipt
of the submission of the final financing plan, the Central
Bank shall notify Developer and Refiner in writing whether or
not the final financing plan has
19
been approved. If and when it is approved, it will thereupon
become the "APPROVED FINANCING PLAN". If at any time Developer
and Refiner wish to change the Approved Financing Plan, they
shall submit the proposed changes to the Central Bank and if
required meet to discuss the changes with the Central Bank.
Within fifteen Business Days of the date of receipt of the
submission of the changes, the Central Bank shall notify
Developer and Refiner in writing whether or not the changes
have been approved.
If either the final financing plan or any changes to it are
not approved but Refiner is of the view that it provides for
the financing of the Project in a manner which is commercially
and economically reasonable, Refiner shall refer the issue to
the State by written notice and the State through its Minister
for Finance or his representative shall, within a further ten
Business Days after such notice, meet with the Governor of the
Central Bank and they shall jointly decide whether the
financing is commercially and economically reasonable. If they
decide that it is, the final financing plan or such changes
shall be approved.
10.2 EQUITY INVESTMENT IN REFINER
In accordance with the Approved Financing Plan, Developer may
make equity investments in Refiner which may be in the form of
a subscription for ordinary shares (fully paid or partly paid)
of Refiner; a subscription for redeemable preference shares of
Refiner issued at par or with a fully paid premium; or other
instruments classified as equity. The Central Bank shall give
authority under the Foreign Exchange Regulations for Refiner:
(a) to allot or issue the ordinary shares, redeemable
preference shares and other instruments subscribed
for by Developer classified as equity under
internationally generally accepted accounting
principles or under clause 10.1(f);
(b) to make an entry in its register that recognises and
gives the effect to the allotment and issue of the
ordinary shares, redeemable preference shares and
other instruments classified as equity to Developer;
and
(c) to export scrip representing such ordinary shares,
redeemable preference shares and other instruments
classified as equity to Developer,
subject to the conditions that:
(d) Developer provides information about the nature and
amount of funds invested or brought into the country
for or in respect of its acquisition of the shares or
the making of the shareholder loans; and
(e) completes and submits to the Central Bank the
required forms under the Foreign Exchange
Regulations.
10.3 OVERSEAS BORROWINGS BY REFINER
In accordance with the Approved Financing Plan, the Central
Bank shall give authority under the Foreign Exchange
Regulations for Refiner to borrow in foreign currency from
sources {including shareholders) outside Papua New
20
Guinea for the purpose of financing or refinancing the
Project, provided that the following basic requirements are
met:
(a) the currency of borrowing is readily convertible into
Kina;
(b) the interest rate, fees and charges applicable to the
borrowing when combined do not exceed the level which
is commercially and economically reasonable for a
project such as the Project;
(c) there is no condition attached to the financing which
may result in Refiner becoming liable for the debts
of third parties who are not residents of Papua New
Guinea;
(d) the term of the borrowing is for a period of one year
or more;
(e) after the borrowing Refiner will have a maximum debt
to equity ratio of 5:1 (including indebtedness to
shareholders and other associated parties) and of 3:1
(excluding indebtedness to shareholders and other
associated parties);
(f) a copy of the supporting documentation (principally
the loan agreement and security documents) is
forwarded to the Central Bank;
(g) the form required under the Foreign Exchange
Regulations is completed and signed by Refiner and
submitted to the Central Bank providing full details
of foreign currency loans; and
(h) the form required by the Foreign Exchange Regulations
is completed and signed by Refiner and submitted to
the Central Bank for every drawdown under foreign
currency loans.
10.4 PAYMENTS FOR GOODS AND SERVICES
Where the Implementation or Operations of the Project
requires, as permitted elsewhere by this Agreement, the import
of goods (including Crude Oil) by Refiner from outside Papua
New Guinea, or the acquisition by Refiner of Services from
outside Papua New Guinea, Refiner may contract to pay for such
goods or such Services in foreign currency.
Refiner may pay in a foreign currency for the purchase of
domestically produced Crude Oil from a company which is:
(a) a foreign company; and
(b) managed and controlled by Refiner in Papua New Guinea
and which engages in no other activity than the
purchase of Crude Oil from domestic producers,
provided that:
(c) the price paid to the foreign company is the same as
that paid by the foreign company to the domestic
producer, and is paid into a special purpose foreign
currency account held by that company with a bank in
Papua New Guinea;
21
(d) in addition to funds required to make the payments
referred to in paragraph (c), the company is funded
by Refiner only to the extent necessary to pay bank
charges, principal and interest, corporate fees and
other necessary statutory fees: and
(e) the Crude Oil purchased does not originate from a
domestic producer under an obligation to supply Crude
Oil to the domestic market and accept payment
therefor in kina, which obligation is unsatisfied at
the time of purchase.
The Central Bank shall grant authority to Refiner to convert
kina to a foreign currency for the purpose of making the
payments referred to in this clause 10.4.
10.5 PAYMENT OF DIVIDENDS
(a) Before paying any dividends to shareholders outside
Papua New Guinea, Refiner shall present to the
Central Bank a set of financial statements, including
a profit and loss statement and a balance sheet,
which:
(i) have been certified by a duly authorised
officer of Refiner as having been prepared
in accordance with generally accepted
accounting principles; and
(ii) show that there are Distributable Profits in
respect of which, or in respect of part of
which, the dividends are to be declared, and
a copy of the resolution of the board of
directors of Refiner authorising that
dividend,
and a tax clearance certificate under Part IX
Division 2 of the Tax Act covering the amount of the
dividends.
(b) Within a period of ten Business Days after the date
of receipt of the financial statements submitted in
support of a proposed dividend, the Central Bank may,
if on reasonable grounds it is not satisfied that
there are Distributable Profits out of which the
dividend can be paid, require Refiner to submit
financial statements audited by an Independent
Accountant and showing that there are sufficient
Distributable Profits.
(c) Dividends of Refiner which are:
(i) declared not more frequently than quarterly;
and
(ii) payable out of Distributable Profits,
will be approved by the Central Bank.
(d) The State shall ensure that Central Bank will respond
to any application by Refiner for authority for
payment of a dividend within 30 days from the date on
which the financial statements referred to in
paragraph (a) were received or, in the case where the
Central Bank has required audited financial
statements, within 30 days from the date on which the
22
Central Bank has received financial statements
showing that there are sufficient Distributable
Profits.
10.6 FOREIGN CURRENCY ACCOUNTS
Following approval of the final financing plan under Clause
10.1 and in accordance with the Approved Financing Plan, the
Central Bank shall grant Refiner authority to maintain one or
more foreign currency accounts in US Dollars or any other
fully convertible currency. The Central Bank shall give
authority under the Foreign Exchange Regulations for the
opening of such accounts not later than the time when the
second milestone in Clause 4.3 is reached. Refiner may retain
in its foreign currency accounts:
(a) funds received or transferred to it in foreign
currency as part of the equity investment of
Developer or Refiner's foreign currency borrowings,
in accordance with the Approved Financing Plan; and
(b) proceeds of its sale of Products to purchasers
outside Papua New Guinea,
to the extent necessary to enable Refiner to draw on the
accounts during such period as may be approved by the Central
Bank at the time the Approved Financing Plan is approved, in
respect of:
(c) repayments of, or payments of interest, service
charges, fees and expenses on or related to, its
foreign currency borrowings;
(d) commitments in foreign currency for the supply of
goods (including without limitation consumables and
imported Crude Oil) and the Services of foreign
employees and consultants (including without
limitation under operations and maintenance contracts
and administrative and commercial services
contracts); and
(e) dividends approved by the Central Bank in accordance
with Clause 10.5; and
(f) any other payment approved by the Central Bank.
Furthermore, if and to the extent that the amounts otherwise
retained in its foreign currency accounts under this Clause
10.6 are not sufficient at any time to meet its commitments
referred to in paragraph (d) above plus the next two periodic
payments of principal plus interest on Refiner's foreign
currency borrowings referred to in paragraph (c) above,
Refiner may request authority to convert the proceeds of its
sale of Products to purchasers in Papua New Guinea into
foreign currency and pay those proceeds into its foreign
currency accounts and the Central Bank shall deal with such
requests expeditiously.
Refiner shall provide to the Central Bank the following
reports in respect of each foreign currency account authorised
by the Central Bank in relation to this Agreement:
(g) a monthly report detailing the flow of funds into and
out of the account;
(h) a quarterly forecast report on foreign currency
transactions;
23
(i) a six monthly report including certified copies of
bank statements on the flow of funds into and out of
the account; and
(j) any other report relating to foreign currency
accounts as may be generally required by the Central
Bank from time to time.
10.7 RETURN OF SURPLUS FOREIGN CURRENCY
Except as provided for in Clause 10.6 or otherwise permitted
under this Agreement or the Foreign Exchange Regulations,
Refiner shall convert its foreign currency earnings from the
Operations into Kina and remit the proceeds to Papua New
Guinea to a bank account in the name of Refiner for its use.
10.8 STATE'S ACTION TO ENSURE COMPLIANCE
Where any right or assurance given to Refiner under this
Clause 10 requires the Central Bank:
(a) to approve any act, matter or thing; or
{b) to grant authority under the Foreign Exchange
Regulations for its exercise or performance,
and Refiner has supplied any necessary information to the
Central Bank and otherwise met the conditions of this Clause
10, the State shall, upon request from Refiner, ensure by
policy directions to the Central Bank or otherwise that such
approval is given or such authority is granted.
10.9 RIGHTS UNDER FOREIGN EXCHANGE REGULATIONS
Notwithstanding this Clause 10, Refiner shall have the rights
otherwise available under the Foreign Exchange Regulations and
shall have access to foreign exchange as permitted by the
Central Bank (or any other authority having the power to
regulate foreign exchange in Papua New Guinea) from time to
time.
11. FINANCING OF THE PROJECT
11.1 PROJECT FINANCING COOPERATION
The State acknowledges that Refiner intends to finance
development of the Project on a limited or non-recourse,
project finance basis with the ratio of external indebtedness
of Refiner (being indebtedness to non-associated parties) to
shareholder funds in Refiner being a maximum of 3:1. The State
further acknowledges that such financing is fundamental to the
successful Implementation of the Project. The State agrees to
cooperate with Refiner in its pursuit of such limited or
non-recourse, project finance based debt financing for the
Project. In furtherance of the foregoing covenant and
agreement, the State covenants and agrees to:
24
(a) Provide potential Lenders with such
non-proprietary/non-secret data as is available with
no additional work on the part of the State, and as
such Lenders reasonably require;
(b) At financial closing, provide legal opinions, which
may include customary qualifications, to the Lenders,
Developer and Refiner regarding (but not limited to)
the due authorisation and approval of this Agreement,
the valid and binding effect of this Agreement and
the Base Lease on the State, the absence of any known
default or breach under material agreements to which
the State is a party caused by or which could be
caused by the execution and delivery of this
Agreement and the Base Lease, and the absence of any
litigation pending, and to the best of the State's
knowledge, threatened litigation against the State
and/or any Government Agency that, if the
determination was adverse to the State and/or the
Government Agency, could reasonably be expected to
have a material adverse effect on the validity of
this Agreement and the Base Lease; and
(c) Execute such consents as are customarily and
reasonably required by Lenders with respect to this
Agreement and the Base Lease.
11.2 CREATION OF SECURITY
Developer and Refiner will be permitted to mortgage, charge or
pledge in accordance with the laws of Papua New Guinea:
(a) the Project Site and other real property (including buildings)
acquired for the Project;
(b) all equipment, including the Refinery, the reformer and the
barges mounting all such equipment, and other property,
including intellectual property, of Refiner and Developer;
(c) any contractual rights of Refiner, including under this
Agreement and any agreement contemplated by this Agreement,
that have economic value;
(d) all cash, accounts receivable and other assets owned by
Refiner; and
(e) all proceeds of the foregoing.
Refiner shall ensure that such mortgaged, charged or pledged
rights and assets shall continue to be used in the
Implementation of the Project as stipulated in this Agreement.
12. LOCAL SUPPLIES, BUSINESS DEVELOPMENT AND IMPORTS
12.1 LOCAL SUPPLIES AND BUSINESS DEVELOPMENT
Refiner shall:
(a) in accordance with the Sourcing Plan, use and
purchase goods and services supplied, produced or
manufactured in Papua New Guinea
25
whenever the same can be obtained on competitive
terms, including landed prices, conditions and
delivery dates and are in all substantive respects of
a quality comparable with those available from
outside Papua New Guinea;
(b) in accordance with the Business Development Plan,
encourage PNG citizens desirous of establishing
businesses providing goods and services to the
Project during Operations provided that Refiner shall
not be obliged or called upon to grant or lend money
to any PNG citizens or any local enterprises;
(c) make use of PNG subcontractors where services of a
standard and quality comparable with those that
Refiner could obtain but for the operation of this
clause are available from such PNG subcontractors at
competitive prices, and on competitive terms,
conditions and delivery or performance dates; and
(d) where it is necessary to import vehicles, machinery,
plant or equipment, and such items are not purchased
direct from the manufacturer by Refiner, effect the
purchase of such items through traders operating in
Papua New Guinea, provided that:
(i) such items are available through such
traders at competitive landed prices, and on
competitive terms, conditions and delivery
dates; and
(ii) Refiner shall not be bound to comply with
this paragraph in any case where Refiner can
show to the satisfaction of the Central Bank
that compliance would adversely affect the
financing of the Project.
12.2 IMPORTATION OF EQUIPMENT, GOODS AND CRUDE OIL
Notwithstanding Clause 12.1, Refiner shall be entitled to
import without restriction all the Exempt Goods referred to in
Clause 8.3 which are required for Implementation of the
Project and all specialised equipment and consummables
required to operate the Refinery at its full capacity.
12.3 CUSTOMS CLEARANCE
The State shall ensure that all machinery, supplies equipment
and Crude Oil imported into, or used in connection with the
construction, operation or maintenance of the Project shall be
promptly cleared for release from Customs and removal by
Refiner or its agents following delivery of such machinery,
supplies, equipment and Crude Oil and shall ensure that any
disputes in that regard are resolved on a priority basis.
12.4 EXPORT OF PREVIOUSLY IMPORTED GOODS AND MATERIALS
All imported items not consumed or incorporated into the
Project may be freely re-exported by Refiner without incurring
liability for any Tax.
Refiner shall be entitled to export without restriction all
items of plant, machinery and the reformer catalyst imported
for permanent installation in the
26
Project for the purpose of repair or refurbishment outside PNG
and to re-import the same and such spare and replacement parts
as may be required without restriction or imposition, except
for import duties or VAT, as applicable, and the State shall,
at the request of Refiner, use reasonable measures to expedite
the issuance of any consent or approval required for the
export and re-import of such plant and machinery.
13. NON-DISCRIMINATION AND RELATED MATTERS
13.1 NON-DISCRIMINATION
(a) The State acknowledges and agrees that it shall treat
Refiner's investment in the Refinery on a basis no
less favourable than that accorded to investments and
activities associated with investments of other
foreign owned or controlled companies in Papua New
Guinea under any bilateral investment protection
treaty between the State and any other country, and
accordingly, if under any such treaty other companies
receive the benefit of any undertakings by the State
relating to expropriation, nationalisation and
compensation therefor, Refiner will be treated as
though those undertakings extend to Refiner.
(b) If the State grants or permits to be granted by the
State or any Government Agency incentives,
inducements or undertakings to any other developers
in respect of similar or comparable scale projects
which are more advantageous than those conferred on
Refiner under this Agreement, the State shall grant
the same incentives, inducements and undertakings to
Refiner or ensure that they are granted to it.
(c) The State shall not impose or permit to exist during
the Term any Taxes that discriminate against Refiner
or any Income Taxes that discriminate against Refiner
or Refiner's Industry (so long as Refiner's
throughput capacity for refining Crude Oil is more
than 60% of the Crude Oil refining throughput
capacity in PNG).
13.2 OTHER OIL REFINERIES IN PNG
The State shall not grant or permit any Government Agency to
grant to any person any exclusive rights to build a refinery
in PNG that would be in the same or similar business as that
conducted by Refiner or other domestic refineries. This
covenant shall continue in force during the Term.
14. ENVIRONMENTAL MATTERS
(a) The Refiner shall lodge the Environmental Plan with the State
within 190 days of the Execution Date. The Environmental Plan
shall be consistent with the environmental standards referred
to in Clause 14(c). The Refiner shall lodge with the State
monthly progress reports on the development of the
Environmental Plan (including, where appropriate, drafts of
the Plan) during the period from the Execution Date until the
date of lodgement.
(b) The State shall use its best endeavours to ensure that,
subject to compliance with Clause 14(a), the Environmental
Plan is approved as soon as
27
practicable. The State shall ensure that Refiner receives a
response to the Environmental Plan from the relevant Minister
or Department of the State no later than 30 days after
submission of the Environmental Plan under Clause 14(a). Such
response shall either be an approval of the Environmental Plan
or a detailed response setting forth all requirements
necessary to obtain approval from the State.
(c) The State shall not promulgate or apply environmental
standards to the Refiner that are, when viewed objectively,
more onerous than those that govern and regulate environmental
conduct and standards of the refining industry under the
standards for air emissions and liquid effluents as laid down
in the Pollution Prevention and Abatement Handbook for
Environmentally Sustainable Development - Part III Petroleum
Refining, September 1996, issued by the World Bank
Environmental Department.
(d) Refiner shall construct and operate the Refinery in accordance
with prevailing international standards, the approved
Environmental Plan and the Environmental Planning Act. The
State acknowledges that relevant standards referred to in
paragraph (c) are prevailing international standards.
(e) If Refiner's Investigations of the Project Site prior to
Refiner's commencement of construction of the Refinery
disclose any physical condition on the Project Site which
could give rise to any remedial obligation under any
environmental laws of PNG or which could result in any
liability to any third party claiming damage to person or
properly as a result of such physical condition and the
physical condition is such that it cannot be remedied to the
satisfaction of Refiner, the State shall assist Refiner to
find a suitable alternative site for the Project. If a
suitable alternative site cannot be found within a reasonable
time, Clause 24.2(7) will apply.
(f) The State and Refiner will agree to a base line environmental
assessment of the historical damage to the Project Site
immediately after Refiner has concluded the Preliminary Soil
and Water Site Tests and prior to Refiner's commencement of
construction activities on the Project Site (the "SITE
ASSESSMENT"). Refiner shall not be responsible for any
historical contamination and environmental risk, and assumes
no liabilities arising from or caused by existing
environmental conditions and defects on the Project Site,
which are set forth in the Site Assessment. Refiner shall
assume the cost of incremental damage to the Project Site, if
any, arising from the Implementation and Operations of the
Project above the conditions set forth in the Site Assessment.
15. LABOUR AND EMPLOYMENT
15.1 TRAINING AND LOCALISATION
(a) In accordance with work permit guidelines stipulated
under the Employment of Non Citizens Act (Chapter 374
of the PNG Revised Laws) and the Training and
Localisation Programme, Refiner shall select and
train personnel in the Operations in accordance with
the law and practice in force from time to time
relating to training and localisation so as to confer
appropriate training and other employment benefits on
28
Papua New Guineans, and in particular to the people
from the immediate vicinity of the Project Site.
(b) Refiner shall progressively replace foreign personnel
with PNG citizens, in accordance with the Training
and Localisation Programme; provided that if the
Training and Localisation Programme is disrupted by
circumstances or events (whether or not they
constitute Force Majeure) making it difficult or
impossible for Refiner to comply with its obligations
under the Training and Localisation Programme,
Refiner may give notice thereof to the State,
together with alternative or revised plans to achieve
the objects of the part of the Training and
Localisation Programme which is affected, and the
State within one month of such notice shall either:
(i) approve such alternative or revised plans;
or
(ii) meet with Refiner to discuss the alternative
or revised plans.
(c) To the extent practicable, Refiner shall give first
preference in training and employment to PNG citizens
whose place of origin is near the Project Site.
15.2 VISAS AND PERMITS
(a) The State shall, by the issue of appropriate policy
directions, procure that the Refiner is within a
reasonable time granted all visas, permits and
licences (together called the "WORK PERMITS") for its
employees, agents, contractors and consultants that
are necessary to enable Refiner to construct the
Refinery and to conduct the Operations. The State
shall ensure that any delays or difficulties in that
regard are resolved on a priority basis.
(b) Nothing in this Clause 15.2 shall be construed or
interpreted as requiring the State to secure any
permits for any person who does not comply with the
statutory criteria and relevant policy in relation to
the issue of Work Permits.
15.3 HEALTH AND SAFETY
During the local construction of the Refinery and its
Operations, Refiner shall comply with the Industrial Safety,
Health and Welfare Act (Chapter 175 of the PNG Revised Laws)
and all other applicable laws of PNG relating to health and
safety.
16. INSURANCE
16.1 OBTAINING INSURANCE
Refiner shall obtain and maintain insurance for the Project in
accordance with industry practices to the extent available on
commercially reasonable terms. For all matters which involve
PNG risks, Refiner shall obtain and maintain its insurance
from PNG insurers or through PNG insurance brokers, as
required by the Insurance Act 1995, except to the extent that:
29
(a) Schedule 1 paragraph (h) provides for an exemption;
(b) adequate insurance from companies having the
financial capacity to meet any claims is not
obtainable from or through such insurers or insurance
brokers; or
(c) the Financing Agreements require otherwise.
If paragraph (a), (b) or (c) applies, the State shall grant or
procure the grant by the relevant Government Agency of an
exemption from any requirements under the laws of PNG that
would require Refiner to obtain and maintain insurance
covering the Project from insurance companies or through
insurance brokers located in PNG.
16.2 INSURANCE CLAIMS
If any claim is made by Refiner under the insurance covering
the Project, the Parties acknowledge that the Financing
Agreements may require that any proceeds of the claim received
by Refiner be paid into an escrow account established in
accordance with the terms and conditions of the Financing
Agreements and that disbursements from such account shall be
controlled by the terms and conditions of the Financing
Agreements.
17. ELECTRIC POWER GENERATION
The Refiner and/or an Affiliate shall have the right and shall be
granted a licence, if necessary, to generate electric power for the
construction and operation of the Project. The State shall ensure that
Refiner will not be charged for such electric power by ELCOM or any
other Government Agency.
18. ACCESS TO CRUDE OIL
18.1 TIMELY ACCESS TO PNG CRUDE OIL
During the Term, the State shall use its best efforts to
persuade and induce producers of domestic Crude Oil in PNG and
its offshore area to provide each domestic Crude Oil refinery
with the ability to purchase, in a timely manner, Crude Oil
from PNG's domestic Crude Oil production at the prevailing
fair market value and under the prevailing market terms for
Kutubu Crude Oil or any other indigenous Crude Oil to the
extent of each such refinery's requirements to operate at full
capacity ("CRUDE ACCESS"). The State will, if necessary by
seeking legislation and issuing executive orders or policy
directives, ensure that sufficient sales in PNG of Crude Oil
produced domestically in PNG are conducted so that domestic
Crude Oil refineries shall not be denied Crude Access.
However, the State has no obligation under this Clause 18.1 to
procure the domestic production of Crude Oil beyond that which
would otherwise be produced. In the event of a dispute between
the State and Refiner as to whether the proposed price and
terms for the purchase of domestically produced Crude Oil that
are offered to Refiner by a domestic Crude Oil producer are at
the prevailing fair market value and under the prevailing
market terms contemplated hereunder, Refiner and the State
30
shall submit the matter to a Sole Expert with expertise in the
pricing of Crude Oil in PNG (or, if no one with such expertise
is available, with expertise in the Asia Pacific region)
pursuant to Clause 27.7 to determine and certify whether the
disputed price and terms are consistent with prevailing market
prices and terms as set forth above.
18.2 DOMESTIC MARKET OBLIGATIONS
During the Term, the State shall procure that all petroleum
development and production agreements wholly or partially
relating to Crude Oil entered into or renegotiated by the
State or any Government Agency after the Execution Date will
contain a Domestic Market Obligation.
18.3 ACCESS TO NON-PNG CRUDE OIL
In addition to Crude Access pursuant to Clause 18.1, Refiner
will be entitled to purchase Crude Oil from outside Papua New
Guinea.
18.4 FURTHER ASSURANCES
The State shall promptly do all acts and sign, execute and
deliver all instruments to give full effect to this Clause 18.
The State shall seek all legislation and issue executive
orders or policy directives which are necessary for the
prevention or mitigation of conduct intended to, or likely to,
avoid or frustrate Crude Access by domestic Crude Oil
refineries.
18.5 EXISTING PETROLEUM CONTRACTS
The State shall not be obligated under this Clause 18 to take
any action, including legislation, to renegotiate, cancel or
repudiate petroleum agreements existing at the Execution
Date.
19. SALES OF PRODUCTS
19.1 OBLIGATION TO PURCHASE FROM DOMESTIC PRODUCERS
The State will ensure that Domestic Distributors shall
purchase Products first from domestic production of such
Products to the extent that such Products produced
domestically (i) are available on a basis equivalent to the
basis on which the same Products that could be obtained
through import markets, (ii) are equivalent in quality to the
same Products that could be obtained through import markets,
and (iii) are offered by domestic producers of Products at
prices that are not greater than the Import Parity Price
calculated in accordance with Appendix "A".
19.2 OBLIGATION TO PREVENT DUMPING OF PRODUCTS BY IMPORTERS
The State shall not allow Domestic Distributors or importers
of Products into PNG to offer Products to PNG's domestic
markets at prices lower than the Import Parity Price for such
Products for the purpose or having the effect of dumping, or
of avoiding or frustrating the ability of domestic refiners to
sell Products in domestic markets in PNG at Import Parity
Prices. The State shall seek legislation and issue executive
decisions and policy directives, if
31
necessary, to prevent or mitigate the effects of dumping or
other conduct intended to, or likely to, avoid or frustrate
access of any domestic Crude Oil refinery to domestic markets
to sell Products in domestic markets in PNG at Import Parity
Prices.
19.3 FURTHER ASSURANCES
The State shall seek legislation, issue policy directives or
executive decisions and perform such other acts and sign,
execute and deliver all instruments to give full effect to and
as may be necessary to perform its obligations under this
Clause 19.
20. REPRESENTATIONS AND WARRANTIES
20.1 REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Each of the Parties represents and warrants that:
(a) It has the capacity to enter into and perform this
Agreement and where applicable the Base Lease and all
transactions and agreements contemplated herein and
in the Base Lease and that all corporate and other
actions required to authorise it to enter into and
perform this Agreement and the Base Lease and all
transactions and agreements contemplated herein and
in the Base Lease have been or shall be properly
taken.
(b) Its execution, delivery and performance of this
Agreement and where applicable the Base Lease have
been duly authorised by all required actions of its
governing authority or owners and do not and shall
not:
(1) Violate any law, rule regulation, order or
decree applicable to it; or
(2) Violate its organisational documents.
(c) Each of this Agreement and where applicable the Base
Lease is a legal and binding obligation of the Party,
enforceable against that Party in accordance with its
terms, except to the extent enforceability is
modified by bankruptcy, reorganisation and other
similar laws affecting the rights of creditors
generally and by general principles of equity.
(d) It shall not breach any other agreement or
arrangement by entering into or performing this
Agreement and where applicable the Base Lease and
this Agreement and the Base Lease when signed shall
have been duly executed by it and shall be valid and
binding upon it in accordance with their respective
terms.
20.2 REPRESENTATIONS AND WARRANTIES OF REFINER
Refiner represents and warrants that:
(a) It is duly organised, validly existing and in good
standing under the laws of Papua New Guinea.
32
(b) It has the corporate power to complete Implementation
of the Project and achieve Commencement of Commercial
Production.
(c) It has carried out a thorough examination of the
economic feasibility of the Project and of its
projected costs and revenues based on fair and
reasonable assumptions and projections.
21. INSPECTION
At reasonable intervals and on reasonable notice, Refiner shall allow
qualified representatives of the State access during planned shutdowns
to inspect the facilities of the Refinery and its Products; provided
that any such representative given access shall be obligated to fully
abide by all safety procedures and regulations in effect at the
Refinery. Any dispute arising out of such inspection shall be referred
to the Sole Expert in accordance with Clause 27.7.
22. RIGHT OF REFINER TO EXPAND FACILITY
Refiner shall have the right, in its sole discretion, to expand the
Refinery, its activities and operations, provided that upon completion
of such expansion Refiner obtains the necessary Authorisations and
continues to be in compliance with the terms of this Agreement and all
applicable laws.
23. FORCE MAJEURE
23.1 EXCUSE OF OBLIGATIONS; NOTICE OF FORCE MAJEURE
A Party's obligations under this Agreement shall be excused
when and to the extent its performance of those obligations is
prevented by Force Majeure; provided, however, that the State
is not excused if the only Force Majeure affecting the State's
performance is a State Force Majeure and neither Refiner nor
the State is excused if the obligation excuses an obligation
to pay money. The Party rendered unable to fulfill its
obligations under this Agreement by reason of Force Majeure
shall notify the other Parties in writing of this circumstance
within thirty (30) days of its occurrence and shall exercise
due diligence to end the inability as promptly as practicable;
provided, however, that a Party is not required to settle any
strike, or labour or landowner dispute in which it may be
Involved. For the avoidance of doubt, the State shall be
obligated to perform all of its obligations under this
Agreement during periods of State Force Majeure.
23.2 REMOVAL OF FORCE MAJEURE
In the event of Force Majeure the Parties will use all
reasonable efforts to remove its cause without being obliged
to settle or compromise any strike, or labour or landowner
dispute.
33
23.3 SUSPENSION OF OBLIGATIONS
If Force Majeure substantially prohibits the performance by a
Party of its obligations under this Agreement within any
period herein specified or implied during which that Party is
required to carry out such obligations and notice of the Force
Majeure is given as required by Clause 23.1 the period during
which such obligations are to be performed or carried out is
extended for a period equal to the period during which such
obligations are substantially prohibited or delayed as result
of Force Majeure. If any Force Majeure occurs and, on account
of such Force Majeure, the Project is materially damaged or
delayed and that damage or delay is not covered by insurance,
Refiner shall not be obligated to restore or replace the
Project unless the Parties agree on appropriate terms for that
reinstatement.
24. TERMINATION
24.1 TERMINATION BY THE STATE
Each of the following events (each a "REFINER TERMINATION
EVENT"), if not cured within the time period permitted (if
any) to cure, shall give rise to the right on the part of the
State to terminate this Agreement pursuant to Clause 24.3;
provided, however, that no such event shall be a Refiner
Termination Event (i) if it results from a breach by the State
of this Agreement or the Base Lease or (ii) if it is an event
described in Clause 24.1(4) and it occurs as a result of or
during a Force Majeure for the period provided pursuant to
Clause 24.1(5):
(1) During the Construction Period, an Abandonment by
Refiner;
(2) After the Commencement of Commercial Production,
Refiner ceasing operations for a period of ninety
(90) consecutive days without prior written notice to
and the prior written consent of the State;
(3) Except for the purpose of amalgamation or
reconstruction, Refiner goes into voluntary or
involuntary winding up as a result of a resolution
being passed (and not being revoked within seven
days) or an order being made (and not being cancelled
within seven days) for the liquidation of Refiner;
(4) Any material breach by Refiner of this Agreement that
is not remedied within sixty (60) days after notice
from the State stating that a material breach of this
Agreement has occurred that could result in the
termination of this Agreement, identifying the
material breach in question in reasonable detail and
demanding remedy thereof, or
(5) Any Force Majeure other than a State Force Majeure
that continues and prevents Operations for more than
eighteen (18) months.
24.2 TERMINATION BY REFINER
Each of the following events (each a "STATE TERMINATION
EVENT"), if not cured within the time period permitted (if
any) to cure, shall give rise to the right on the part of
Refiner to terminate this Agreement pursuant to
34
Clause 24.3; provided, however, that no such event shall be a
State Termination Event (i) if it results from a breach by
Refiner of this Agreement, or (ii) if it is an event described
in Clause 24.2(2), (4) or (5) and it occurs as a result of or
during the period provided pursuant to Clause 24.2(6):
(1) The expropriation, compulsory acquisition or
nationalisation by the State or any Government Agency
of (i) Refiner or any equity interest in Refiner, or
(ii) any material asset or right of Refiner;
(2) Failure by Refiner to obtain the Authorisations and
tax clearances and exemptions specified in Schedule 1
within twelve (12) months after the Execution Date,
so long as such failure is not the sole fault of, or
solely caused by, Refiner;
(3) Any material breach by the State of this Agreement or
the Base Lease that is not remedied within sixty (60)
days after notice from Refiner to the State stating
that a material breach of this Agreement or
the Base Lease, as the case may be, has occurred that
could result in the termination of this Agreement,
identifying the material breach in reasonable detail
and demanding remedy thereof;
(4) Any Material Change that (i) makes unenforceable,
invalid or void any material undertaking of the State
or any Government Agency under, or pursuant to this
Agreement or the Base Lease or (ii) makes it unlawful
for Refiner, its contractors, the Lenders or the
Investors to make or receive any payment, to perform
any obligation or to enjoy or enforce any material
right under this Agreement, any agreement to which
the Refiner is a party in connection with the
Operations of the Refinery or any Financing
Agreement, or any such payment, the performance of
any such material obligation or the enjoyment or
enforcement of any such material right becomes
unenforceable, invalid or void as a result of any
such Material Change, provided that, in the case of
(i) and (ii) above, any such effect continues for
more than ninety (90) days;
(5) Any change in the laws of Papua New Guinea placing
any material restrictions or limitations (other than
restrictions or limitations that are in existence on
the date of the execution of this Agreement) on the
ability of Refiner to exchange Kina for United States
Dollars or to remit United States Dollars or other
foreign currency offshore or for the Investors to
repatriate any capital, dividends, distributions or
other proceeds from Refiner (provided that such
distributions do not arise in connection with a
breach of this Agreement) which restrictions or
limitations remain in place for more than one hundred
and eighty (180) days without an arrangement being
provided to exempt Refiner and the Investors from all
such restrictions and limitations;
(6) Any Force Majeure that continues and prevents
Operations for more than twelve (12) months; or
(7) The circumstances described in Clause 14(e) have
arisen and a suitable alternative site has not been
found.
35
24.3 TERMINATION NOTICES
(1) Upon the occurrence of a State Termination Event or a
Refiner Termination Event, as the case may be, that
is not cured or for which a cure is not being
diligently pursued, within the applicable cure
period, if any, by the State (in the case of a
Refiner Termination Event) or Refiner or the Lenders
(in the case of a State Termination Event), the other
Party may, at its option, initiate termination of
this Agreement by delivering a written notice (a
"Notice of Intent to Terminate") of its intent to
terminate this Agreement to the defaulting Party.
(2) Following the delivery of a Notice of Intent to
Terminate, the State and Refiner shall consult for a
period of up to ten (10) days in case of a failure to
make payments when due, and up to one hundred and
twenty (120) days with respect to any other Refiner
Termination Event or State Termination Event (or such
longer period as they may mutually agree) as to what
steps shall be taken with a view to remedying or
mitigating the consequences of the relevant Refiner
Termination Event or State Termination Event taking
into account all prevailing circumstances.
(3) Upon expiration of the consultation period described
in Clause 24.3(2) and unless the State and Refiner
shall have otherwise agreed or unless the Refiner
Termination Event or State Termination Event giving
rise to the Notice of Intent to Terminate shall have
been remedied, the State (in the case of a Refiner
Termination Event) or Refiner (in the case of a State
Termination Event) may terminate this Agreement by
delivering a Termination Notice to the other Parties.
Upon the delivery of a Termination Notice, the rights
and obligations of the Parties under this Agreement
shall immediately terminate, and upon the
satisfaction of such continuing rights and
obligations, this Agreement shall immediately
terminate.
24.4 TERMINATION BY EITHER PARTY
Either the State or Refiner shall have the right to terminate
this Agreement by notice in writing to each of the other
Parties if the conditions precedent to the obligations of the
Parties under Clause 3.3 have not been fulfilled within
eighteen (18) months after the Execution Date, provided that
neither Refiner or State may terminate the Project Agreement
under this Clause 24.3 if such party is in breach of its
obligations under Clause 4.1 or Clause 4.2, as applicable.
25. CONSULTATION
Any of the Parties may at any time request consultation with the other
Parties on the implementation, application or proposed amendment of
this Agreement. Such consultation shall begin with thirty (30) days
from the date the request is made by written notice to the other
Parties, unless the Parties agree otherwise.
36
26. REMEDIES
26.1 LIQUIDATED DAMAGES FOR THE STATE'S FAILURE TO PROVIDE CRUDE
ACCESS
If Refiner is unable to purchase Crude Oil from domestic
producers to meet its requirements as a result of the State's
failure to meet its obligations under Clause 18 and as a
consequence Refiner must purchase imported Crude Oil as a
substitute for domestic Crude Oil, then the State shall pay
Refiner in liquidated damages the amount in U.S. Dollars by
which:
(i) the aggregate cost of the Imported Crude Oil
purchased by Refiner, including all transportation
and landing costs, exceeds
(ii) the cost of the same quantity of domestic Crude Oil
at the prevailing market price and terms on the date
on which Refiner purchased imported Crude Oil as a
substitute including transportation and other landed
costs.
This amount shall accrue to Refiner as liquidated damages for
failure by the State to meet its obligations under Clause 18
in lieu of and as a full substitute for any actual damages or
claims for breach under Clause 18.
26.2 LIQUIDATED DAMAGES FOR THE STATE'S FAILURE TO ENSURE SALES TO
DOMESTIC PRODUCERS
If the State fails to meet its obligations under Clause 19.1,
and, as a result of such failure, Refiner must sell Products
at prices lower than the Import Parity Price, then State shall
pay Refiner in liquidated damages the amount in U.S. Dollars
by which:
(i) the Import Parity Price for such Products on the date
on which the sale of such Products would have
occurred had the State fulfilled its obligations
calculated based on the services that Refiner could
have provided, exceeds
(ii) the actual sales price of such Products.
This amount shall accrue to Refiner as liquidated damages for
failure by the State to meet its obligations under Clause 19
in lieu of and as a full substitute for any actual damages or
claims for breach under Clause 19.
26.3 NO SET-OFFS, NO PENALTY
(a) Any amount calculated and paid in accordance with
this Clause 26 shall not be set off against or
deducted from any other type of liability, damages or
amounts due under this Agreement.
(b) The Parties acknowledge that the liquidated damages
set forth herein are reasonable and appropriate
measures of the damages Refiner would suffer for
failures by the State to meet its obligations under
Clauses 18 and 19 and do not represent a penalty or
consequential damages for losses sustained by Refiner
as a result of such failures.
37
27. DISPUTES AND ARBITRATION
27.1 DISPUTES
For the purposes of this Clause, "DISPUTE" means any dispute,
disagreement, controversy or claim arising out of or relating
to this Agreement or the interpretation or performance of
provisions of this Agreement or the breach, termination or
validity thereof, which the Parties are unable to resolve by
mutual agreement within a reasonable time. It does not include
any difference of view or disagreement which, pursuant to
provisions of this Agreement, has been submitted for
determination of a Sole Expert.
27.2 SUBMISSION TO ICSID
The Parties irrevocably consent to submit any Dispute between
the State, Developer and Refiner to the International Centre
for Settlement of Investment Disputes ("ICSID") for settlement
by arbitration pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of Other
States (the "CONVENTION").
27.3 ICSID ARBITRATION
(a) For the purposes of Article 26(2)(b) of the
Convention the Parties agree that, although Refiner
is a national of Papua New Guinea, it is ultimately
owned by United States corporations, and further that
for the purposes of the Convention it shall be
treated as a national of the United States.
(b) An ICSID Arbitral Tribunal constituted pursuant to
this Agreement (the "TRIBUNAL") shall consist of a
single arbitrator appointed by agreement between the
Parties, but if the Parties are unable to agree on
the identity of the single arbitrator to be so
appointed within 45 days of the date on which the
Secretary-General of ICSID has dispatched
notification of the registration of a request for
arbitration, the Tribunal shall consist of three
arbitrators. In that event, one arbitrator shall be
appointed by each Party and the third arbitrator, who
shall be the President of the Tribunal, shall be
appointed by agreement between the Parties or in the
absence of such agreement by the Chairman of the
Administrative Council of ICSID in accordance with
Article 38 of the Convention.
(c) Nothing in any notice by the State pursuant to
Article 25(4) of the Convention shall be read or
construed as limiting the jurisdiction which a
Tribunal established under the Convention pursuant to
this Agreement would otherwise have to settle by
arbitration a Dispute.
(d) For the purposes of submission of any Dispute to
arbitration by ICSID, the Parties agree (without
limitation) that a Dispute about any of the following
is fundamental to the Refiner's investment in the
Project:
(i) any of the matters which are the subject of
conditions precedent set out in Schedule 1;
38
]
(ii) the continuation of the Base Lease and the
Authorisations resulting from the fulfilment
of the conditions precedent set out in
Schedule 1;
(iii) the right to retain foreign currency in
foreign currency accounts and to convert
Kina into foreign currency which can be
remitted out of PNG, as provided for in
Clause 10;
(iv) access to PNG crude oil as provided for in
Clause 18;
(v) the right to sell its Products in PNG as
provided for in Clause 19
(vi) non-discrimination and related matters under
Clause 13; and
(vii) the ability of Refiner to obtain financing
on commercial terms.
27.4 AWARD
An award or a decision, including an interim award or
decision, in arbitral proceedings pursuant to the Convention
shall be binding on the Parties and judgement on it may be
entered in any court having jurisdiction for that purpose.
27.5 COSTS OF ARBITRATION
Unless otherwise agreed or provided, the cost of any
arbitration proceedings will be borne:
(a) equally by the two parties to the Dispute where it
has been referred jointly by them; or
(b) otherwise, by the unsuccessful party in accordance
with the ICSID Arbitration Rules.
27.6 STAY OF OTHER PROCEEDINGS
Where a Dispute has been referred to arbitration pursuant to
this Clause 27, neither party to the Dispute shall be entitled
to exercise any rights or election, or commence or pursue any
other action or proceedings, arising in consequence of any
alleged default by the other arising out of the subject matter
of the Dispute until the Dispute has been resolved by the
decision of the arbitrators.
27.7 SOLE EXPERT
Where any difference of view or disagreement between any two
or more of the Parties is, pursuant to any other provision of
this Agreement, submitted for determination of a Sole Expert,
the Sole Expert shall act as an expert and not as an
arbitrator, and accordingly the foregoing provisions of this
Clause 27 do not apply. A determination by a Sole Expert shall
be binding on the Parties. Unless otherwise agreed, the cost
of submitting any such matter to a Sole Expert will be borne:
39
(a) if one Part calls for the matter to be determined by
the Sole Expert and loses, by that Party;
(b) if one Party calls for the matter to be determined by
the Sole Expert and wins, equally by all Parties to
the determination; and
(c) if a number of Parties jointly submit the matter to
be determined by the Sole Expert, equally by all of
them.
28. SOVEREIGN IMMUNITY
The State hereby unconditionally and irrevocably waives any claim to
sovereign or other immunity:
(a) In respect of arbitration proceedings;
(b) In respect of proceedings to recognise, enforce or execute any
such award including, without limitation, immunity from
service of process and from the jurisdiction of any court; and
(c) In respect of the execution of any such award against its
assets.
The State unconditionally and irrevocably agrees that the execution,
delivery and performance by it of this Agreement and any other
agreements relating to the Project to which it is a party constitute
private and commercial acts.
29. LAW AND JURISDICTION
29.1 GOVERNING LAW
This Agreement is governed by and shall be construed in accordance with
the law in force in Papua New Guinea except insofar as the laws of
Papua New Guinea are inconsistent with the rules of international law
or relevant international convention, in which case the relevant rules
of international law or the provisions of the relevant international
convention will apply.
29.2 SUBMISSION TO JURISDICTION
The Parties hereby submit to the non-exclusive jurisdiction of the
National Court of Papua New Guinea (and any court hearing appeals from
it) for:
(a) the determination of any matter arising out of this Agreement
or the Project which is not a Dispute referrable to
arbitration under Clause 27 or a difference of view or
disagreement referrable to a Sole Expert under Clause 27.7;
and
(b) the enforcement of any award resulting from arbitration under
Clause 27.
30. ASSIGNMENT
Subject to the provisions of Clause 11, a Party shall not assign in
whole or in part the benefits or obligations arising under this
Agreement without the consent in writing
40
of the other Parties which consent shall not be unreasonably withheld.
Upon any assignment under this Clause 30, the party acquiring an
interest hereunder shall be substituted in place of the Party whose
interest was assigned under this Agreement.
31. OWNERSHIP OF MATERIALS AND CONFIDENTIALITY
31.1 CONFIDENTIALITY AND PUBLICITY
All information exchanged between the State and the Refiner
respectively during negotiations relating to the Refinery and
this Agreement are confidential to the Parties and may not be
disclosed to any person except:
(a) with the consent of the Party that supplied the
information; or
(b) if required by the laws or by any Stock Exchange
listing or similar rules of any jurisdiction to which
a Party or any Affiliate is or becomes subject or by
the order of a court of competent jurisdiction; or
(c) if the information is generally and publicly
available or becomes publicly available other than as
a result of breach of this provision by the person
disclosing the information; or
(d) if the information was known by the disclosing party
prior to it being disclosed by a Party in connection
with the transactions contemplated by this Agreement.
31.2 DISCLOSURE OF CONFIDENTIAL INFORMATION
A Party disclosing information under Clause 31.1 shall use all
reasonable endeavours to ensure that persons receiving
information from it are put under a binding obligation not to
and do not disclose the information except in circumstances
permitted by Clause 31.1.
32. MISCELLANEOUS
32.1 HEAD OFFICE
Refiner shall maintain its principal place of business and
head office in PNG during the Term.
32.2 WAIVER
No Party shall be deemed to have waived any right under this
Agreement unless such Party shall have delivered to the other
Parties a written waiver signed by an authorised officer or
representative of such waiving Party. No waiver by any Party
of any default of another Party under this Agreement shall
operate or be construed as a waiver of any right or subsequent
default, whether of a like or different character.
41
32.3 SEVERABILITY
If any provision of this Agreement shall be held to be invalid or
unenforceable under the governing law of this Agreement or by a
judgement or decision of any court of competent jurisdiction or any
authority, whose decisions shall have the force of law binding on the
Parties, the same shall be deemed to be severable and the remainder of
this Agreement shall not be deemed to be affected or impaired thereby
and shall remain valid and enforceable to the fullest extent permitted
by law. Notwithstanding the foregoing the Parties will thereupon
negotiate in good faith in order to agree the terms of a fair,
reasonable and mutually satisfactory provision to be substituted for
the provision so found to be void or unenforceable.
32.4 FURTHER ASSURANCE
Each Party must do, sign, execute and deliver and must procure that
each of its employees and agents does, signs, executes and delivers,
all deeds, documents, instruments and acts reasonably required of it or
them by notice from another Party to effectively carry out and give
full effect to this Agreement and the rights and obligations of the
Parties under it.
32.5 APPLICATION FOR AUTHORISATIONS
Wherever in this Agreement the State is obliged to ensure that
Developer, Refiner or the Project is granted or issued with any
Authorisation, Developer or Refiner (as the case may be) must first
apply in the normal course and in a timely manner (as required under
relevant PNG legislation) for such Authorisation and comply with any
necessary formal procedures associated with the grant or issue of such
Authorisation.
32.6 PROTECTION OF PROJECT SITE
The State shall provide protection to the Project Site and shall use
its best endeavours to intervene in any dispute to effect a resolution
and a resumption of operation of the Refinery.
32.7 ENTIRE AGREEMENT
This Agreement is the entire agreement of the Parties on the subject
matter. The only enforceable obligations and liabilities of the Parties
in relation to the subject matter are those contained in this Agreement
and the Base Lease. All representations, warranties, communications and
prior agreements in relation to the subject matter are merged in and
superseded by this Agreement. The Parties expressly negate any other
representation or warranty, written or oral, express or implied prior
to the execution of this Agreement.
32.8 COSTS GENERALLY
Each Party must bear and is responsible for its own costs (including
without limitation legal costs) in connection with the negotiation,
preparation, execution, and completion of this Agreement.
42
21 May 97
32.9 AGREEMENT PREVAILS
If there is any inconsistency (whether expressly referred to or to be
implied from this Agreement or otherwise) between the provisions of
this Agreement and those of any of the agreements and contracts
referred to in this Agreement, those agreements and contracts are to be
read subject to this Agreement and the provisions of this Agreement
prevail to the extent of the inconsistency.
32.10 RIGHTS CUMULATIVE
The rights and remedies provided in this Agreement are cumulative with
and do not exclude any rights or remedies provided by law.
32.11 COUNTERPARTS
This Agreement may be executed in any number of counterparts and all of
those counterparts taken together constitute one and the same
instrument.
32.12 RELATIONSHIP OF PARTIES
Nothing contained herein shall be construed as establishing or creating
between the State and the Refiner the relationship of employer and
employee or principal and agent, or partnership or joint venture.
32.13 LISTING ON PNG STOCK EXCHANGE
Refiner agrees to consider that within four (4) years of Commencement
of Commercial Production, that up to 15% of the ordinary shares of the
issued capital of Refiner could be made available to be listed and sold
at a price acceptable to Refiner on a local PNG stock exchange, if and
when such an exchange becomes operational, pending the acceptance of
listing requirements, board approval and other issues deemed acceptable
to Refiner.
32.14 AMENDMENT OF AGREEMENT
All modifications, amendments or changes to this Agreement, whether
made simultaneously with or after the execution of this Agreement, must
be in writing and executed by the Parties to be binding.
32.15 NOTICES
All notices hereunder, except those specifically provided for under
other provisions of this Agreement, shall (without prejudice to any
other means of service) be deemed duly given if in writing and sent by
pre-paid post registered or certified mail, messenger or telefax
addressed to the respective parties at the addresses stated below or
such other addresses as they shall respectively hereafter designate in
writing from time to time.
43
21 May 97
INDEPENDENT STATE OF PAPUA NEW GUINEA
Attention: The Secretary
Address: Department of Mining and Petroleum
Private Mail Bag
Port Moresby Post Office
National Capital District
Papua New Guinea
Facsimile: 675 322-7617
INTEROIL PTY LIMITED AND EP INTEROIL, LTD.
Address: Director
P O Box 1971
Port Moresby
National Capital District
Papua New Guinea
Facsimile: 675 320-2601
WITH A COPY TO:
Enron Papua New Guinea Ltd.
333 Clay Street, Suite 1800
Houston, Texas 77002
United States of America
Attention: Mr Glen B Rector
Facsimile: 1-713-646-6190
44
21 May 97
EXECUTED AS AN AGREEMENT
SIGNED for and on behalf of )
THE INDEPENDENT STATE OF )
PAPUA NEW GUINEA by ) /s/ SIR WIWA KOROWI
SIR WIWA KOROWI, G.C.M.G., K., ST. J ) ------------------------------------
Governor General, acting with and in ) GOVERNOR GENERAL
accordance with the advice of the ) SIR WIWA KOROWI G.C.M.G., K., St. J.
National Executive Council in the )
presence of:
/s/ SIR ALBERT KIPALAN, MP
- -------------------------------
Witness
Name (printed)
Sir Albert Kipalan, MP
SIGNED for and on behalf of ) /s/ CHRISTIAN M. VINSON
INTEROIL PTY LIMITED by its duly ) ------------------------------------
appointed attorneys under a Power of ) Attorney
Attorney dated May 1997 ) Name (printed):
in the presence of: ) Christian M. Vinson
/s/ PETER INGLIS /s/ GLEN B. RECTOR
- ------------------------------- ------------------------------------
Witness Attorney
Name (printed): Name (printed):
Peter Inglis Glen B. Rector
SIGNED for and on behalf of )
EP INTEROIL, LTD by its duly ) /s/ CHRISTIAN M. VINSON
appointed attorneys under a Power of ) ------------------------------------
Attorney dated May 1997 ) Attorney
in the presence of: ) Name (printed):
Christian M. Vinson
/s/ KELLY KIMBERLY /s/ GLEN B. RECTOR
- ------------------------------- ------------------------------------
Witness Attorney
Name (printed): Name (printed):
Kelly Kimberly Glen B. Rector
45
21 May 97
EXTENSION DEED
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
(State)
INTEROIL LIMITED
(Refiner)
EP INTEROIL, LTD.
(Developer)
(PAPUA NEW GUINEA LOGO)
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Oil and Gas Act, No. 49 of 1998
s.100
MEMORANDUM OF APPROVAL
(OF AN INSTRUMENT CREATING AN INTEREST)
PETROLEUM PROCESSING FACILITY LICENCE NO. 1
I, Dr FABIAN POK, M.P., Minister for Petroleum and Energy, by virtue of the
powers conferred upon me by the Oil and Gas Act No. 49 of 1998 and all other
powers me enabling, do hereby approve the within application pursuant to Section
100 of the said Act.
DATED this 11th day of August ,2000
/s/ HON. Dr FABIAN POK, M.P.
- ---------------------------------
HON. Dr FABIAN POK, M.P.
Minister for Petroleum and Energy
The Minister for Petroleum and Energy on the 16th day of August, 2000
approved the within application
DATED this 17th day of August, 2000
/s/ C. WARRILLOW
- ---------------------------------
C. Warrillow
A Delegate of the Director
ENTERED IN THE REGISTER this 17th day of August,2000
/s/ C. WARRILLOW
- ---------------------------------
C. Warrillow
A Delegate of the Director
CONTENTS
<Table>
<Caption>
CLAUSE HEADING PAGE
1. INTERPRETATION .......................................................... 2
2. PROJECT AGREEMENT IN FULL FORCE AND EFFECT .............................. 3
3. VARIATIONS OF PROJECT AGREEMENT ......................................... 3
4. CONFIRMATION OF GOOD STANDING ........................................... 7
5. RATIFICATION AND CONFIRMATION ........................................... 7
6. DISPUTE RESOLUTION AND SOVEREIGN IMMUNITY ............................... 7
7. LAW AND JURISDICTION .................................................... 7
8. ADMINISTRATIVE PROVISIONS ............................................... 8
</Table>
EXTENSION DEED
DATED: 1st July 1999 (STAMP)
PARTIES
1. THE INDEPENDENT STATE OF PAPUA NEW GUINEA care of the Office of
National Planning, Vulupindi Haus, 3rd Floor, PO Box 710, Waigani,
National Capital District, Papua New Guinea (STATE).
2. INTEROIL LIMITED, a company duly incorporated in Papua New Guinea, of
PO Box 1971, Port Moresby, National Capital District, Papua New Guinea
(REFINER).
3. EP INTEROIL, LTD., a company formed under the laws of the Cayman
Islands, Ugland House, South Church Street, Georgetown, Grand Cayman,
Cayman Islands, British West Indies (DEVELOPER)
BACKGROUND
A. The State, Refiner and Developer are parties to an agreement dated 29
May 1997, which by a letter dated 2 October 1998 from the Minister of
Petroleum and Energy, was amended to extend to 30 June 1999 the
time for the Developer and Refiner to achieve financial closure (the
PROJECT AGREEMENT).
B. The Project Agreement contains various conditions that the Developer
and/or Refiner must fulfill and in accordance with the Project
Agreement the Refiner and Developer have satisfied certain of these
conditions.
C. The parties wish to extend the time to comply with some of the
conditions and to delete some of the other conditions in the Project
Agreement and have agreed to amend the Project Agreement in accordance
with the terms of this Deed.
D. The parties otherwise wish to reaffirm and ratify their obligations
under the Project Agreement.
PAGE 2
OPERATIVE PROVISIONS
1. INTERPRETATION
1.1 INTERPRETATION
In this Deed unless the context otherwise requires:
reference to a person includes any other entity recognised by law and
vice versa;
the singular includes the plural and vice versa;
words importing one gender include every gender;
any reference to any of the parties by their defined terms includes
that party's executors, administrators or permitted assigns or, being a
company, its successors or permitted assigns;
an agreement, representation, or warranty on the part of two or more
persons binds them jointly and severally;
an agreement, representation, or warranty in favour of two or more
persons is for the benefit of them jointly and severally;
clause headings are for reference purposes only;
reference to a statute, ordinance, code, or other law includes
regulations and other instructions under it and consolidations,
amendments, re-enactments, or replacements of it.
1.2 DEFINITION
In this Deed unless the context otherwise requires:
PROJECT AGREEMENT means the agreement titled "Project Agreement" dated
29 May 1997 between the State, the Refiner and the Developer including
all schedules, appendices, attachments and annexures to that agreement
and as varied by the Variation Letter;
VARIATION LETTER means a letter dated 2 October 1998 from the Minister
of Petroleum and Energy addressed to Mr Phil Mulacek, InterOil.
1.3 INCORPORATION
A word or phrase (other than one defined in this Deed) defined or
incorporated in the Project Agreement has the same meaning in this Deed
with necessary consequential changes as if they were set out in full in
this Deed.
2. PROJECT AGREEMENT IN FULL FORCE AND EFFECT
The State, the Refiner and the Developer confirm that the Project
Agreement is in full force and effect and as at the date of this Deed
has not been varied (except as specified in the Variation Letter),
rescinded or terminated.
3. VARIATIONS OF PROJECT AGREEMENT
On and from the date of this Deed, the Project Agreement is amended as
follows.
(a) Clause 1.1 is amended by inserting the following as a new
definition:
"Domestic Refiners" means the Developer and/or Refiner and
includes the Chevron refinery facility located in the Southern
Highlands Province and any other comparable refiner of Product
established and operating in PNG;"
(b) Clause 3.2(e) is deleted
(c) Clause 3.3 is amended by inserting the following as an
additional paragraph to that clause after sub-clause 3.3(c):
"It is agreed between the Parties that Clauses 3.3(a), 3.3(b)
and 3.3(c) are for the sole benefit of the Refiner and the
Developer and only those Parties may waive those conditions
precedent by notice in writing to the State."
(d) Clause 4.3 is amended as follows:
(i) The second milestone pursuant to the Milestone
Schedule in clause 4.3 is deleted and replaced with
the following:
PAGE 4
"Milestone Date (unless otherwise
agreed by the Parties)
Satisfaction of
the condition Thirty-six (36)
precedent months after the
specified in Execution Date"
Clause 3.3(a)
(ii) The third and fourth milestones pursuant to the
Milestone Schedule in Clause 4.3 are deleted.
(e) Clause 10.1(b) is amended by inserting the words "and the
Developer (on a consolidated basis)" after the word "Refiner"
appears in the first line of that clause.
(f) Clause 10.3(c) is amended by inserting the words "(other than
the Developer)" after the words "third parties" as it appears
in the second line of that Clause 10.3(c).
(g) Clause 10.3(e) is amended by inserting the words "and the
Developer (on a consolidated basis)" after the word
"Refiner" as it appears in the first line of that Clause
10.3(e).
(h) Clause 11.1 is amended by inserting the words "and the
Developer" after the word "Refiner" as it appears in lines 3,
4 and 6 of that Clause 11.1.
(i) Clause 19.1 is deleted and replaced with the following:
"19.1 OBLIGATION TO PURCHASE FROM DOMESTIC REFINERS
To the extent that a Domestic Refiner will from time to time
offer to Domestic Distributors Product that is included in
PLATT'S (or, if PLATT'S no longer reports Singapore Product
Postings, another price reporting service that is mutually
satisfactory to the State and the Refiner) by the refiners
listed in sub-paragraph (a) of Appendix "A", the State will
ensure that Domestic Distributors purchase such Product first
and foremost from the Domestic Refiner, provided such Product
is being supplied by the Domestic Refiner in conformity with
the
PAGE 5
following terms or such other terms as may be acceptable from
time to time to the Domestic Refiner:
(i) the Product must be paid for in full within 20 days
of the date nominated for delivery and is supplied in
volumes ordinarily available to purchasers of Product
in PNG from Singapore;
(ii) all Product will be supplied FOB at the Domestic
Refiner's nominated locations in PNG;
(iii) the Product is of a type ordinarily quoted in the
manner specified in Appendix "A";
(iv) the Product is supplied at prices equivalent to the
Import Parity Price calculated in accordance with
Appendix "A"
(j) Clause 19 is further amended by inserting the following as an
additional Clause 19.4:
"19.4 ENFORCEMENT-PURCHASE FROM DOMESTIC PRODUCERS
The State must carry out its obligations under Clauses 19.2
and 19.3 within 60 days after notification in writing from a
Domestic Refiner to the effect that Domestic Distributors or
Importers of Product are:
(a) refusing to purchase Product from a Domestic Refiner
or are involved in conduct intended to or likely to
avoid or frustrate the ability of Domestic Refiners
of Product to sell Product in domestic markets at the
Import Parity Price for such Product; or
(b) involved in conduct for the purpose of dumping or
otherwise avoiding or frustrating the ability of
Domestic Refiners of Product to sell Product in
domestic markets at the Import Parity Price for such
Product.
Upon receiving such notification the State will seek to pass
legislation and regulations under the Customs Tariff Act 1990
(as amended) and any other relevant law or power so as to
impose additional import duties on Products that may be
imported into PNG in violation of the rights to supply Product
to Domestic Distributors
PAGE 6
hereby guaranteed to the Developer and Refiner as necessary
to:
(c) discourage such violations; and
(d) establish a source from which payments the State may
become liable to make to the Developer and/or Refiner
under Clause 26 may be funded."
(k) Clause 24.4 is amended by:
(i) replacing the words "Clause 3.3" in the third line
with the words "Clause 3.3(a)"; and
(ii) deleting the words and figures "eighteen (18)" in the
fourth line and inserting the words and figures:
"thirty six (36)".
(1) Clause 26.1 and Clause 26.2 are amended by replacing all
references to "Refiner" with "the Developer and/or Refiner".
(m) Clause 26 is further amended by inserting the following as an
additional sub-clause 26.3.
"26.3 PAYMENT OF LIQUIDATED DAMAGES
(a) To the extent that the Refiner and/or Developer seeks
to recover liquidated damages from the State, the
Refiner and/or Developer must provide notice to the
State ("LIQUIDATED DAMAGES NOTICE")giving details of
the amount of liquidated damages claimed.
(b) The State must pay the liquidated damages within 60
days of the date of the Liquidated Damages Notice.
(c) The amount specified in the Liquidated Damages Notice
is conclusive evidence (in the absence of manifest
error) as to the amount of damages payable."
(n) The current clause 26.3 entitled "No Set-offs, No Penalty"
will be deemed to be Clause 26.4 and all reference to Clause
26.3 will be deemed to be adjusted accordingly.
(o) Clause 32.15 is amended by deleting the words commencing with:
"with copy to" and ending with "Facsimile 1-713-646-6190"
where appearing after the address of InterOil Pty Ltd in that
clause.
PAGE 7
4. AUTHORISATIONS
The State will ensure that all Authorisations now applied for but
unprocessed (in particular, application for Harbours Board approvals,
grant of import duty exemption, approval of financing plan, foreign
exchange and Authorisations consequent thereto and otherwise generally
required for the purposes of project finance, construction and
operations) are forthwith dealt with according to law and that the
Refiner and/or Developer receive full, fair and timely responses within
30 days from Government departments, agencies and authorities in
relation to the grant of all Authorisations.
5. CONFIRMATION OF GOOD STANDING
5.1 The State acknowledges and confirms that as at the date of this Deed
neither the Refiner nor the Developer are in breach of any obligations
under the Project Agreement.
5.2 The State acknowledges and confirms that as at the date of the Deed all
obligations required to be performed by the Developer or Refiner have
either been performed, or alternatively, the date by which these
obligations must be performed, whether through extension with the
agreement of the State, or otherwise, have not yet occurred.
6. RATIFICATION AND CONFIRMATION
Except to the extent that it is amended by this Deed, the terms and
conditions of the Project Agreement are ratified and confirmed, and as
amended the Project Agreement continues in full force and effect.
7. DISPUTE RESOLUTION AND SOVEREIGN IMMUNITY
The parties agree that clauses 27 and 28 of the Project Agreement are
incorporated into, and form part of this Deed as if set out in full in
this Deed.
8. LAW AND JURISDICTION
8.1 GOVERNING LAW
This Deed is governed by and shall be construed in accordance with the
law in force in Papua New Guinea except insofar as the laws of Papua
New Guinea are inconsistent with the rules of international law or
relevant international convention, in which case the relevant
PAGE 8
rules of international law or the provisions of the relevant
international convention will apply.
8.2 SUBMISSIONS TO JURISDICTION
The parties hereby submit to the non-exclusive jurisdiction of the
National Court of Papua New Guinea (and any court hearing appeals from
it) for:
(a) the determination of any matter arising out of this Deed which
is not a Dispute referable to arbitration under clause 27 of
the Project Agreement (as incorporated into this Deed) or a
difference of view or disagreement referable to a Sole Expert,
under clause 27 of the Project Agreement (as incorporated into
this Deed); and
(b) the enforcement of any award resulting from arbitration under
clause 27 of the Project Agreement (as incorporated into this
Deed).
9. ADMINISTRATIVE PROVISIONS
9.1 SEVERABILITY
If any provision of this Deed shall be held to be invalid or
unenforceable under the governing law of this Deed or by a judgement or
decision of any court of competent jurisdiction or any authority, whose
decisions shall have the force of law binding on the parties, the same
shall be deemed to be severable and the remainder of this Deed shall
not be deemed to be affected or impaired thereby and shall remain valid
and enforceable to the fullest extent permitted by law. Notwithstanding
the foregoing the parties will thereupon negotiate in good faith in
order to agree the terms of a fair, reasonable and mutually
satisfactory provision to be substituted for the provision so found to
be void or unenforceable.
9.2 FURTHER ASSURANCE
Each party must do, sign, execute and deliver and must procure that
each of its employees and agents does, sign, executes and delivers, all
deeds, documents, instruments and acts reasonably required of it or
them by notice from another party to effectively carry out and give
full effect to this Deed and the rights and obligations of the parties
under it.
PAGE 9
9.3 COSTS GENERALLY
Each party must bear and is responsible for its own costs (including
without limitation legal costs) in connection with the negotiation,
preparation, execution and completion of this Deed.
9.4 DEED PREVAILS
If there is any inconsistency (whether expressly referred to or to be
implied from this Deed or otherwise) between the provisions of this
Deed and those of any of the agreements and contracts referred to in
this Deed, those agreements and contracts are to be read subject to
this Deed and the provisions of this Deed prevail to the extent of the
inconsistency.
9.5 RIGHTS CUMULATIVE
The rights and remedies provided in this Deed are cumulative with and
do not exclude any rights or remedies provided by law.
9.6 COUNTERPARTS
This Deed may be executed in any number of counterparts and all of
those counterparts taken together constitute one and the same
instrument.
9.7 RELATIONSHIP OF PARTIES
Nothing contained herein shall be construed as establishing or creating
between the State and the Refiner the relationship of the employer and
employee or principal and agent, or partnership or joint venture.
PAGE 10
EXECUTED as a deed. )
SIGNED for and on behalf of THE )
INDEPENDENT STATE OF PAPUA )
NEW GUINEA by SIR SILAS )
ATOPARE, GCMG., K. ST. J., ) /s/ SILAS ATOPARE
Governor-General, acting with and in ) ---------------------------
accordance with the advice of the ) [GOVERNOR GENERAL]
National Executive Council in the ) SIR SILAS ATOPARE, GCMG.,
presence of: ) K. ST. J.
) 1st July, 1999
/s/ TIPO VIATIDA )
- --------------------------------------- )
WITNESS
TIPO. VIATIDA
- ---------------------------------------
NAME (PLEASE PRINT)
SIGNED for and on behalf of )
INTEROIL LIMITED by its duly )
authorised representative in the )
presence of: )
)
/s/ DAVID E. COYLE ) (SEAL)
- --------------------------------------- )
SIGNATURE OF WITNESS ) /s/ CHRISTIAN M. VINSON
) ------------------------------
David E. Coyle - Company Secretary ) Christian M. Vinson - Director
- --------------------------------------- )
NAME OF WITNESS )
)
P.O. Box 1971, Port Moresby )
- --------------------------------------- )
ADDRESS OF WITNESS )
)
)
SIGNED for and on behalf of )
EP INTEROIL, LTD. by its duly )
authorised representative in the )
presence of:
/s/ DAVID E. COYLE ) /s/ CHRISTIAN M. VINSON
- --------------------------------------- ) ------------------------------
SIGNATURE OF WITNESS ) Christian M. Vinson - Director
)
)
David E. Coyle - Company Secretary )
- --------------------------------------- )
NAME OF WITNESS )
)
P.O. BOX 1971, Port Moresby )
- --------------------------------------- )
ADDRESS OF WITNESS