The Present Law is elaborated
by the President of Turkmenistan Saparmurat Turkmenbashy on the basis of the Constitution of Turkmenistan, taking into consideration
the national interests of Turkmenistan and its people, and is directed towards securing rational and effective exploitation
of the Petroleum resources and the protection of the natural wealth of Turkmenistan for future generations.
1. General Provisions
Article 1. Definitions
In this Law the definitions listed hereunder shall have the following
“Block” - areal section on land or on water which is partially or completely located in the
territory under the jurisdiction of Turkmenistan and designated as such on a specially compiled map of Blocks.
water basins” - lakes, artificial water reservoirs and other surface water circumvented by land under the jurisdiction
“Production Operations” - all types of operations for recovery of Petroleum, its saving,
treating, handling, storing, transporting, metering, delivery and marketing as well as operations connected with primary and
secondary production and other kinds of activities connected with these operations.
“Contract” - agreement
entered into between a Contractor (Contractors) and the Competent Body or Concern for the conduct of Petroleum Operations.
“Contract Area” - the area delineated and defined by geographical coordinates, as described in the Appendices
to a Contract, within which a Contractor is allowed to conduct Petroleum Operations.
- State Body, to which the Cabinet of Ministers delegates powers, to issue Licenses and enter into the Contracts with the
“Concern” - an operating structure of the Petroleum Sector of Turkmenistan, conducting Petroleum
Operations on its own account or in a Joint Venture or in other forms.
“License” - the legal instrument
instituted in the form of legal act and issued by the Competent Body and granting the right to carry out all or certain types
of Petroleum Operations.
“Person” - a physical or legal person.
- a discovery of Petroleum, which, after consideration of all relevant data and of the operative, technical and economical
factors could be developed commercially.
“Petroleum Operations” - all Exploration and Production Operations
and related operations for treating, metering, saving, storing, marketing, delivery and transportation of Petroleum and its
derivatives as well as other operations connected to the implementation of a Contract.
“Normal Atmospheric Pressure
and Temperature” - pressure of 1,01325 atmospheres and temperature of 60 degrees Fahrenheit.
Holder” - a Physical or a Legal Person being granted a License pursuant to the present Law.
- a Physical or a Legal Person being a License Holder and having entered into a Contract with the Competent Body or the Concern
pursuant to the present Law.
“Natural Gas” - hydrocarbons, which are in the gaseous state at Normal Atmospheric
Temperature and Pressure associated or non-associated to Crude Oil.
“Exploration Operations” - geological,
geophysical, aerial and other surveys, the drilling of such shotholes, core holes, stratigraphic tests and other wells for
the discovery of Petroleum and the purchase as well as the leasing of materials and equipment therefor.
Company” - a Legal Person which owns more than 50% of the voting shares of the Contractor and which controls him at
the general meetings.
“Affiliate” - a Legal Person which executes control over the Contracting Party or
is controlled by such Contracting Party, or is controlled by an other Legal Person which at the same time executes control
over the Contracting Party. For the purposes of this definition the control is understood as the power to define strategy
of the Legal Person or the Contracting Party though direct or indirect ownership of more than 50% of the voting shares.
Venture” - the activity carried out by an aggregation of Persons, without constitution of a new legal entity, jointly
participating in the supply of technical and financial resources for the implementation of the Contract entered into between
the Competent Body and such aggregation.
“Contracting Parties” - the Competent Body or the Concern and
a Contractor at the moment of entering into a Contract.
“Crude Oil” - any hydrocarbons, including distillates
and condensates extracted from Natural Gas, which at Normal Atmospheric Pressure and Temperature, are in liquid state at the
well head or oil/gas separator.
“Model Contract” - standard form of an agreement elaborated by the Competent
Body for drafting a Contract and entering into a Contract with a Contractor.
“Petroleum” - Crude Oil and
Natural Gas as well as all components derived therefrom or produced therewith.
Article 2. Sphere of application of
the present law
The present Law regulates relations arising in the course of conduct of Petroleum Operations in the
territory under the jurisdiction of Turkmenistan, including sea and internal water basins, issuance of the Licenses, entering
into and implementation of the Contracts on conduct of such Operations, and regulates powers, rights and obligations of State
Entities as well as of the Companies, Enterprises and Organisations carrying out Petroleum Operations.
legislation of Turkmenistan contain rules conflicting with those contemplated herein the provisions of this Law shall apply.
Should an international treaty to which Turkmenistan is a signatory party set rules different from rules contemplated
herein, then the rules of the international treaty shall apply.
Article 3. Ownership of Petroleum
in its natural state in or upon the land in the territory of Turkmenistan is the exclusive property of Turkmenistan.
for ownership, exploitation and disposal of Petroleum is granted to the Cabinet of Ministers (the Government) of Turkmenistan
pursuant to the provisions of this Law.
Chapter 2. Competence of the Cabinet of Ministers (the Government) of
Turkmenistan, the Competent Body and the Concern in the sphere of exploitation of Petroleum resources
Article 4. Competence
of the Cabinet of Ministers (the Government) of Turkmenistan
The Cabinet of Ministers (the Government) of Turkmenistan
within the field of exploitation of Petroleum resources and the conduct of Petroleum Operations:
- defines the strategy
for exploitation, further expansion of the productivity of Petroleum reserves as well the rates of its production;
sets the order of priority for the exploitation of Petroleum resources and the rules of protection thereof.
measures for the natural environment, public life and health protection, ensuring healthy and safe labour conditions in the
conduct of Petroleum Operations;
- organises statistic reports on Petroleum reserves;
- sets restrictions
for the conduct of Petroleum Operations in certain areas with the purpose of saving holy sites, historical and cultural monuments
and the like, being important for the safeguard and development of the traditional values and culture of the Turkmen people;
- exercises other powers granted to it by the Laws and the acts of the President of Turkmenistan.
5. Competence of the Competent Body
The Competent Body in the field of exploitation of Petroleum reserves and the
conduct of Petroleum Operations:
- under the assignment by the Cabinet of Ministers (the Government) of Turkmenistan
sets uniform rules for the development of Petroleum fields which shall comply with the uniform standards of the international
practice for the conduct of Petroleum Operations;
- carries out the activity for preparation of a tender to be held
in compliance with the rules set by this Law and other legislative acts of Turkmenistan and publishes terms, conditions and
procedure for holding a tender;
- works out a Model Contract and gives it for consideration to Legal and Physical
entities interested to obtain a License;
- carries out negotiations with a License applicant;
- carries out
negotiations with a potential License Holder and Contractor about the terms and conditions of a Contract;
the Licenses pursuant to this Law;
- signs a Contract;
- provides for registration of the Contract within
fiveteen (15) days from the date of its signature;
- executes control over the conduct of Petroleum Operations and
their compliance with the laws as well as with the terms of the License and the Contract;
- suspends and revokes a
License pursuant to this Law;
- upon the nomination by the Cabinet of Ministers (the Government) and jointly with
the Contractor carries out negotiations and enters into agreements with relevant authorities of other States concerning the
construction and operation of transportation facilities for the transportation of the produced Petroleum through their territory
and also concerning the utilisation of such transportation facilities, being available and used in these Countries;
submits annual reports to the Cabinet of Ministers (the Government) of Turkmenistan on the implementation of Contracts;
exercises other powers attributed to him by the laws and the acts of the President of Turkmenistan.
Body is entitled to require the License Holder and the Contractor to submit a bank guarantee or the guarantee of its Parent
Company. Granting of the License and entering into the Contract may be subject to providing such guarantees.
Body in the exercise of its powers shall comply with the national interests of Turkmenistan.
Article 6. Competence
of the Concern
The Concern assists the Competent Body in the exercise of its powers.
The Concern is entitled
to sign Contracts, conduct on its own account Petroleum Operations in specific sites of the Turkmen territory, to act as a
member of Joint Ventures as well as an entity authorised to execute control over the conduct of Petroleum Operations in accordance
with the established order.
Chapter 3. Licensing of Petroleum Operations
Article 7. Types of Licenses
present Law determines the following types of Licenses:
Exploration and Production License.
Article 8. Methods for granting a Licenses
An Exploration or a Production
License or a combined Exploration and Production License shall be granted on the basis of a tender or direct negotiations
carried out by the Competent Body with the License applicant.
The method for granting a License shall be determined
by the Cabinet of Ministers (the Government) of Turkmenistan.
Article 9. Main conditions for holding a tender
tender could be open or with a short list of bidders.
Tender conditions are published or delivered to the potential
bidders not later than 90 days prior to the tender starting date.
A tendering procedure consists of 2 phases: submission
of the application to prequalify and the submission of the bidding proposal.
All Persons wishing to prequalify are
entitled to obtain an information related to the procedure and conditions for holding a tender.
A notice for holding
a tender should contain the following information on:
- timing and location of the tender and on the deadline for
submission of applications;
- main conditions for prequalification;
- location and description of the Blocks,
offered for conduct of Petroleum Operations.
An application for prequalification should contain:
- name of
the applicant, its address, its nationality (for legal persons) or citizenship (for physical persons);
- data on applicant`s
shareholders, its directors and authorised representatives which shall represent it upon holding the tender or conducting
the negotiations, as well as upon the granting of the License;
- data on applicants`s technical, managerial, organisational
and financial capabilities.
An application shall be accepted for consideration after the payment by the applicant
of a tender fee, the amount of which is determined by the Competent Body.
Upon the compliance with the conditions
for submission of applications, it shall be accepted for participation to a tender, and the applicant shall be notified to
this effect within one month from the date of its filing.
Prequalified applicants shall be notified about the second
phase of the tender. Such notification should contain an information on the cost of the package with technical and legal documents,
on the deadline for paying such cost and on the main conditions for determination of the tender winner.
An applicant, within the deadlines set by terms of the tender, and in compliance with the requirements
set therein, shall compile a bidding proposal and submit it to the Competent Body.
A bidding proposal shall be regarded
as an application for the grant of an Exploration or a Production License or a combined Exploration and Production License,
as the case may be.
Article 11. Evaluation of bidding proposals
The Competent Body shall form a commission
of experts for the evaluation of technical, financial and organisational capabilities of the applicants and their bidding
The winner of the tender is determined on the basis of a combination of the following criteria:
the commencement date of the operations and the work implementation pace;
- the expected date for start-up of Production
and the projected time to attain the peak production (in the case of the issuance of a Production or a combined Exploration
and Production License);
- the minimum commitments of an applicant in terms of conduct of geological and geophysical
operations and exploratory drilling as well as appraisal and development drilling (in the case of the issuance of a combined
Exploration and Production License) and of the expenditures for the conduct of aforesaid operations;
with the requirements for the protection of natural environment and subterranean resources and the safe conduct of operations;
- a projection of revenues for Turkmenistan during the Contract validity.
Article 12. Application for the
grant of a License
An application for the grant of an Exploration License shall contain:
- name of the applicant,
its address, nationality (for Legal Persons) and citizenship (for Physical Persons);
- data on applicants` shareholders,
its directors and authorised representatives which shall represent it upon holding a tender or conduct of negotiations as
well as upon granting a License;
- data on applicant`s technical, managerial, organisational and financial capabilities;
- information on previous activities of the applicant, including a list of the States where he has conducted Petroleum
Operations during the last five years, and also a balance sheet for the said period;
- proposals of the applicant
in respect to the conduct of Petroleum Operations, including minimum commitments with indication of quantity of work and expenses
for its implementation;
- obligations of the applicant concerning natural environment protection including replanting
and reclamation of the Contract Area;
- numbers of the Blocks applied for by an applicant;
- sources of financing
of Petroleum Operations;
- the time period the Exploration License is applied for.
In case of a Commercial
Discovery the Exploration License Holder shall have an exclusive right to be granted a Production License subject to the submission
of an application therefore.
An application for a Production License shall contain:
- data on the results
of the Exploration Operations;
- official notification of the Commercial Discovery including relevant data and conclusions;
- a detailed plan for the development of the Commercial Discovery with the indication of recoverable Petroleum reserves;
- an expected start-up date for the development of the Commercial Discovery and the expected date for the start-up
of the production of Petroleum;
- an estimated profile of production and expected date for attaining its peak production;
- an estimated calculation of the expenditures, associated with the development and production operations and of the
proceeds from the sales of Petroleum;
- an analysis of the economic viability of the Commercial Discovery;
a projected cash flow for Turkmenistan and recovery for capital investments
into the development of an operational and
social infrastructure of the Contract Area.
An application for a grant of a combined Exploration and Production License
shall contain conditions required for the application for a grant of an Exploration and a Production License.
13. Terms and procedures for the issuance of Licenses
A License shall be issued to a Person to which the right to
conduct Petroleum Operations shall be granted as the result from a tender or direct negotiations..
A License shall
be issued upon reaching an agreement on the terms of the relevant Contract and concurrently to its conclusion.
License issuance procedure shall be determined in compliance with the rules set forth by the present Law and other regulatory
legal acts of Turkmenistan adopted in accordance with the present Law.
A License shall be issued to Foreign Physical
and Legal Persons who register in Turkmenistan as an individual entrepreneur or open a branch in Turkmenistan of a foreign
Legal Person or register as a member of Joint Venture.
Article 14. Purpose of a License
No person is entitled
to conduct Petroleum Operations without a relevant License. A License Holder is entitled to conduct only those kinds of Petroleum
Operations which are specified in the License.
The terms of the Contract shall comply with the terms of the License.
Article 15. Licensing Body
The issuance of the Licenses giving the right to conduct Petroleum Operations is
carried out by the Competent Body after its approval by the Decree of the President of Turkmenistan.
Article 16. Content
of an Exploration License
An Exploration License should contain:
- data on the License grantee;
type of Petroleum Operations the License is issued for;
- delimitation of the Contract Area through the indication
of the geographical coordinates;
- License validity period;
- type of the Contract entered into between the
- commitments of the Contractor to comply with the requirements for the protection of the natural
- conditions for the extension of the License validity period;
- other similar elements, as may
be determined by the Competent Body.
Article 17. Content of a Production License
A Production License should
- data on the License grantee;
- type of the Petroleum Operations the License is issued for;
delimitation of the part of the Contract Area which encompasses the Commercial Discovery;
- License validity period
and conditions for its extensions;
- confirmation of the applicability of the Contract entered into by the Contracting
- commitments of the License Holder to comply with the requirements of natural environment protection;
other similar elements as may be determined by the Competent Body.
A combined Exploration and Production License should
contain all the conditions contained in an Exploration and a Production Licenses.
Article 18. License validity periods
An Exploration License shall be granted for the period of up to 6 years.
An Exploration License Holder shall
have the right to extend the License validity period subject to the fulfilment of the work program and other commitments stipulated
in the License and the Contract.
The validity period of an Exploration License may be extended twice with duration
of each extension period of up to 2 years.
A Production License shall be granted for the period of 20 years. The validity
period of a Production License may be extended for the period of 5 years, if the License Holder applies for the extension
of the License not earlier than 2 years and not later than 1 year prior to the Production License expiry date.
application for the extension of the License validity periods shall be examined not later than in one month from the date
of their submission to the Competent Body.
A combined Exploration and Production License shall be granted for a period,
which includes the Exploration License validity period and the Production License validity period, including their possible
The License validity period is counted from the date of its simultaneous registration with the Contract
in the authorised bodies.
Article 19. Rights of a License Holder
An Exploration License Holder shall have
an exclusive right to carry out an Exploration of Petroleum and required kinds of Petroleum Operations connected to the Exploration
pursuant to this Law and the terms of a License and provided for in the Contract.
A Production License Holder shall
pursuant to the present Law and the terms of the License, have the exclusive rights:
- to carry out Exploration development
and Production Operations in that parts of the Contract Area, which are specified in the content of the License;
to sell or otherwise dispose of its share of Petroleum;
- to carry out such operations and works inside and outside
the Contract Area as required for or connected to the issues provided for in the section 2 of this Article 21.
20. Termination of the License
A License shall terminate:
- upon expiration of the License validity periods
or extensions thereof;
- if it is revoked in accordance with the present Law;
- in the event of the termination
of the Contract pursuant to the provisions provided therein.
Article 21. Suspension of a License
of a License shall be suspended by the Competent Body in the event when the License Holder:
- conducts Petroleum Operations
not provided for in the License;
- carries out the activities within the framework of the License, but not under the
program provided for in the Contract;
- in the course of its activities systematically violates the legislation of
Turkmenistan in respect with the protection of subterranean resources and of natural environment and of safe conduct of Petroleum
In the event of suspension of the License validity, the Competent Body shall notify in written the License
Holder of the reasons for such suspension and shall set a reasonable deadline for their elimination.
Upon the elimination
by the License Holder of the reasons which have caused the License suspension, its validity shall be immediately restored
and the License Holder shall be notified in writing to that effect.
The suspension of the License validity shall entail
the suspension of the Contract entered into on the basis of said License. The validity of the Contract shall be restored at
the same time as the License validity is restored.
Article 22. Revocation of a License
The Competent Body
shall have the right to revoke the issued License in the following cases:
- when the License Holder refuses to eliminate
the causes that have resulted in taking the decision to suspend the License or if he fails to eliminate such causes within
the fixed deadline;
- upon discovery of the fact of a deliberate submission to the Competent Body of false information
which has materially affected the latter" s decision to issue a License to such person;
- in the event of a deliberate
infringement by the License Holder of the deadline for the signing and registration of the Contract as well as the commencement
date for conduct of Petroleum Operations stipulated in the Contract;
- in other cases provided for in this Law.
of the License shall entail the cancellation of the Contract entered into on its basis.
Chapter 4. Contracts
23. Types of Contracts
For carrying out Petroleum Operations in Turkmenistan the following types of Contracts shall
- Production Sharing Contract;
- Joint Venture Contract.
Under a Production Sharing Contract
the Concern and/or the Competent Body shall sign the Contract on behalf of the Turkmen side. Under such type of the Contract
also the Concern shall have the right to act in the role of Contractor.
Under a Joint Venture Contract the Concern
or any other entity designated by the Government shall participate as one party to the Joint Venture.
the nature of the specific Petroleum Operations and other circumstances, a combination of the aforementioned types of Contracts
and other types of contracts are allowed.
Article 24. Validity periods and terms of a Contract
period and terms of a Contract shall be defined by the agreement between the Parties in conformity with the present Law and
the License, and also taking into account provisions of the Model Contract.
Article 25. Signing of Contracts and registration
It is a mandatory procedure that the Contract shall be agreed upon with State Entities in charge of health
protection and sanitation, ecology, subterranean resources protection and safe conduct of Petroleum Operations. The time for
such agreement shall not exceed 15 days from the date of filing of the contractual documents by the relevant entities. The
absence of the agreement of the aforesaid entities within the fixed deadline shall not constitute an impediment for the registration
of the Contract.
A Contract shall be registered in the competent entities designated by the Cabinet of Ministers (the
Government) of Turkmenistan.
A Contract shall enter into force from the date of its registration in the competent
Article 26. Annulment of a Contract
A contract shall be rendered null and void in case of revocation
of the License granted to the Contractor.
Article 27. Amendments to and termination of the Contract
to the terms of the Contract can be made only upon written consent by the Contracting Parties provided that such terms are
consistent with requirements of the License and the present Law.
A Contractor and the Competent Body may terminate
the Contract on the grounds and in accordance with the procedure provided for in the Contract.
Revocation of the License
shall entail termination of the Contract.
The parties shall not be released from the discharge of current obligations
which remain outstanding at the time of delivery of the notice on termination of the Contract.
In the event of premature
termination of the Contract the Contractor shall, unless otherwise provided for in the Contract, have the right to freely
dispose of the assets owned by him. In this case the Competent Body shall have the priority right to an acquisition of such
The issues concerning the transfer of ownership of such assets belonging to the Contractor, during the Contract
validity as well as upon its expiration, are stipulated in the Contract.
A Contractor shall leave the Contract Area
in the condition which corresponds to the duly approved rules for conduct of Petroleum Operations and the protection of subterranean
resources and natural environment.
Chapter 5. Conduct of Petroleum Operations
Article 28. Conditions for
the conduct of Petroleum Operations
Conditions for the conduct of Petroleum Operations including a work program and
a budget for expenditures for its implementation shall be specified in the Contract.
If the Exploration results in
a Commercial Discovery of Petroleum, the Contractor shall be obliged to notify the Competent Body of such discovery, to carry
out an appraisal of the field including an appraisal of its reserves and prepare a report on whether the latter constitutes
a Commercial Discovery. The deadline for the notification of the discovery, the results of the field appraisal and the preparation
of a report on whether the field constitutes a Commercial Discovery shall be defined in the Contract.
If a Commercial
Discovery is achieved the Contractor shall have the right to full recovery of its expenses related to the conduct of Petroleum
Operations, the amount of which shall not exceed an amount of proceeds for its Petroleum entitlement share.
the expiration of the Exploration License validity or its extension periods no Commercial Discovery is achieved, a Contractor
shall have no right to recover its investments. In this case, the validity of the License and the Contract shall terminate.
In the event, that the Contractor deems that the field doesn`t constitute a Commercial Discovery or fails to proceed
with the development of the Commercial Discovery, Contractor shall be obliged to relinquish that part of the Contract Area,
which encompasses such field.
Article 29. Unit Development of a Field
Unit Development of a field means coordination
between two or more Contractors carrying out their activity for the development of the same field which lies on the adjoining
Contractors may enter into written agreements between themselves on unit development of the field,
such agreement being subject to the approval by the Competent Body.
If Contractor (Contractors) fails to enter into
an agreement with another Contractor (Contractors), or, if Contractor is not in agreement with the unit development plan,
the Competent Body is entitled to bind him (them) to enter such agreement, or to direct preparation of such plan by an independent
expert and its following mandatory implementation. In the event of failing to comply with the Competent Body`s directions,
the Production License issued for such field shall be revoked, and the relevant area shall be withdrawn from the exploitation
by the Contractor (Contractors).
Article 30. Artificial Islands, Dams and Structures
The construction, operation
and use of artificial islands, dams and other structures installed for the purpose of conduct of Petroleum Operations at sea,
shall be carried out on the basis of the permission issued to the Contractor by the Competent Body, subject to the protection
by the Contractor of natural environment and bioresources.
A safety zone shall be established around such artificial
islands, dams and other structures which shall extend to a distance of 500 meters from each point of their external boundaries.
Location of the artificial islands, dams and other structures shall not constitute an impediment to the customary
sea routes of significance for navigation and fishing activities.
Contractors or subcontractors in charge of the construction,
maintenance and operation of artificial islands, dams and other structures shall ensure their safeguard and constant availability
of warning facilities, signalling their location.
Abandoned or unused artificial islands, dams and other structures
shall, if they cannot be used for other purposes, be dismantled in such a manner, that they do not constitute a hazard for
human safety and an impediment to the navigation and fishing activities.
Article 31. Discharge and burial of wastes
associated with the conduct of Petroleum Operations
Discharge into and burial in the sea of wastes associated with
the conduct of Petroleum Operations shall not be allowed.
Discharge of industrial waters into the sea shall be allowed
only on the condition of their pre-treatment in order to bring them down to the permissible levels of impurity.
32. Turkmenistan`s right to purchase Petroleum
The Cabinet of Ministers (the Government) of Turkmenistan shall have
the priority right to purchase, at the proportionate basis, Petroleum from the entitlement share of foreign or Turkmen contractors
of the private form of property, in order to satisfy the internal market requirements, and, on the condition that such requirements
were not satisfied by full utilisation of the Turkmenistan`s entitlement share of Petroleum.
The maximum amounts of
the Petroleum purchased, pricing procedure, form of the payment and the payment currency shall be specified in the Contract.
Article 33. Requisition of Petroleum and its compensation
In the event of war, natural hazard or other circumstances,
specified by the legislation on emergency situations, the Cabinet of Ministers (the Government) of Turkmenistan shall have
the right to requisition Petroleum belonging to the Contractor.
The requisition shall be carried out to such an extent
as is necessary to satisfy the needs of Turkmenistan during the period when such emergency situation remain.
of Turkmenistan shall guarantee the compensation of the requisitioned Petroleum either in kind or by payment of its value
in freely convertible currency at the international market price.
Article 34. State control over the conduct of Petroleum
State control over the conduct of Petroleum Operations shall be carried out by the Competent Body and other
state entities (within their competence) in accordance with the current legislation of Turkmenistan. The officers of such
entities shall be obliged to secure the confidentiality of any information received during an inspection.
35. Measurement of Petroleum produced
The Contractor shall carry out measuring and weighing of Petroleum, produced
or saved in the Contract Area, at regular time intervals, specified in the Contract, with the application of methods adopted
in the international practice for conduct of Petroleum Operations.
Application of other methods for measurement or
weighing of Petroleum as well as appliances and equipment used for such purposes by the Contractor, shall be done only upon
the written consent of the Competent Body.
The Competent Body shall have the right, systematically and at specified
time intervals, to direct that the equipment or appliance used for weighing and measurement of Petroleum be tested.
any Petroleum weighing or measuring equipment or appliance, upon its test or examination, found to be false or unjust, such
equipment or appliance shall, if it is impossible to determine the time at which such equipment or appliance became false
or unjust, be deemed to have been false or unjust during a period which is represented by half of the period from the last
date upon which the equipment and appliances were tested and found to be in good order to the date upon which such equipment
and appliance were found to be false or unjust. Adjustment to all relevant terms under a contract shall be then effected.
Chapter 6. Rights and obligations of a Contractor
Article 36. Rights of a contractor
shall have the right:
- to use the Contract Area for carrying out the activities specified in the Contract
in the License;
- to construct inside and outside the Contract Area facilities of operative, logistic and social infrastructures
necessary for the conduct of Exploration and Production Operations, and also to use, upon agreement with the owners, facilities
and communications of general use inside as well as outside the Contract Area;
-to avail itself of the services of
sub-contractors in performing certain types of Petroleum Operations;
- to freely dispose of its Petroleum entitlement
share in Turkmenistan as well as in other States, subject to the special agreement with such States;
-to carry out,
with the right of first refusal, negotiations in respect with the extension of the Contract validity period above the periods
provided for in the part 4 of Article 18
- to surrender all or part of its rights and to terminate its activities
in accordance with terms specified in the Contract.
Article 37. Obligations of a Contractor
In the course
of implementation of a Contract the Contractor shall be obliged:
- to adopt the most efficient methods and technologies
for the conduct of Petroleum Operations, based on standards of the international practice for the conduct of Petroleum Operations.
- to conduct Petroleum Operations in strict compliance with this Law, terms of the Contract and the License, to comply
with the requirements pertaining to the protection of natural environment and subterranean resources;
- to control
the flow and prevent the waste or escape of Petroleum inside or outside the Contract Area;
- to prevent damage of
productive strata, caused by water or other matter entering into Petroleum reservoirs;
- to take measures to prevent
pollution of any water spring, river, canal, irrigation system, lake, sea by the escape of Petroleum, salt water, drilling
mud, chemical additives or any other waste product or effluent. In case if pollution occurs, Contractor shall treat or disperse
it in an ecologically acceptable manner;
- to give preference to the equipment, materials and finished products produced
in Turkmenistan, if they are competitive in terms of quality, price, operating parameters and delivery conditions;
to give preference to Turkmen citizens in hiring personnel for the conduct of Petroleum Operations and to provide for training
programs of such personnel in accordance with the terms of the Contract;
- to provide free access to the necessary
documents, information and the sites of operations to the authorised representatives and officers of the Cabinet of Ministers
(the Government) of Turkmenistan and of the Competent Body;
- to make payment of taxes and other mandatory payments
in due time;
- to participate in the development of social infrastructure in accordance with the Contract;
to restore, at its own account, parts of land and other natural cites which have been damaged in connection with the conduct
of Petroleum Operations to the condition acceptable for their further utilisation.
Contractor shall be liable for
the damages resulting from risks connected with the conduct of Petroleum Operations. The enumeration of such risks is given
in Article 52.
Chapter 7. Main pipeline
Article 38. Ownership of the Main Pipeline
means an engineering facility consisting of the main (linear) part of the pipelines systems and associated on-land facilities,
communications and equipment designated for transportation of Petroleum from the place of production (treatment) to the place
of transfer to another transportation, refining and consumption facilities.
Construction, financing, operation and
maintenance of the Main Pipeline shall be carried out by a specially established company, the owners of which can be the Government,
Contractor, independent investors or jointly aforesaid entities and persons.
Article 39. Transportation tariff
tariff shall be set and charged by the Pipeline Company
Article 40. Construction of main pipeline
shall be planned and constructed in such a way as to allow a throughput capacity, necessary for handling and transportation
to land or seaboard terminals of Petroleum, estimated in accordance with medium and long term projections of production.
the event that an extra throughput capacity is available in the Main Pipeline, and subject to the payment of relevant transportation
tariff, independent producers may use such capacity for the transportation of their Petroleum production.
41. Maintenance of the Main Pipeline
The maintenance of the Main Pipeline and its associated facilities shall be carried
out in conformity with the norms for maintenance, safety and security applied in the international practice for conduct of
Petroleum Operations. A control over the application of such norms shall be executed by the Cabinet of Ministers (the Government)
of Turkmenistan and the Competent Body.
The owner (owners) of the Main Pipeline jointly with the Governmental Bodies
of the States, which territories are crossed by the pipeline, shall elaborate the plan for joint control over the safe operation
of the Main Pipeline and prevention of eventual accidents and emergencies.
A conduct of any operations or actions
within the security zone of the Main Pipeline, set by owners, shall be prohibited.
Construction of any objects and
facilities, which are not related to the pipeline and its purpose, shall be prohibited within the minimum distance from the
Main Pipeline, set in conformity with the construction standards and safety norms, applicable in Turkmenistan.
42. Construction, laying and operation of submarine pipelines and cables
Construction, laying and operation of submarine
pipelines and cables shall be carried out in conformity with the safety and natural environment protection rules applied in
the international practice for conduct of Petroleum Operations in respect of such types of activities.
8. Natural environment protection
Article 43. Status of natural environment protection measures
and health protection measures for the population and the Contractors` personnel are the obligatory condition for planning
and carrying out any types of Petroleum Operations.
Article 44. Ecological grounds for conduct of Petroleum Operations
Before starting a conduct of Petroleum Operations a Contractor shall submit to the special competent State entities
a plan for the natural environment protection measures that he intends to adopt in the implementation of its work program.
Conclusion of the special Competent Body shall be given in writing within 30 days of the date of submission of the
aforesaid plan and shall be applied by the Contractor to the extent to which it is compatible with the conduct of the planned
activity and relevant planned expenditures. In case of absence within the fixed deadline of the decision of the special competent
bodies the Contractor shall have the right to start implementation of the aforesaid plan.
Article 45. Monitoring
starting the conduct of Petroleum Operations and for the entire period of their conduct, a Contractor shall set up a monitoring
system for obtaining comprehensive current information on changes occurring in the natural environment and on the nature of
environmental impact of the Petroleum Operations conducted, with the purpose of taking necessary measures to eliminate and
reduce the negative impact on the natural environment and ensure ecologically safe conduct of Petroleum Operations.
9. Financial and fiscal regime
Article 46. Currency transactions
The procedure for carrying out currency transactions
by the Contractor and sub-contractor shall be determined by the current legislation of Turkmenistan and specified in the Contract.
Proceeds accruing to the Contractor from the sale of its Petroleum entitlement share may be deposited on the accounts
in Turkmen banks as well as in foreign banks. In doing so, the Contractor shall submit statements of such accounts to the
competent entities of Turkmenistan for control in accordance with the current legislation of Turkmenistan.
shall have the right to open and maintain accounts in national currency of Turkmenistan and foreign currency in banks in the
territory of Turkmenistan.
Article 47. Customs regime
Customs regime shall be applied in accordance with the
legislation of Turkmenistan.
All materials and equipment used in the conduct of Petroleum Operations shall be exempted
from custom duties and the registration at the State Commodity Exchange of Turkmenistan.
Contractor shall not be exempted
from the payment of custom duties and other payments for the conduct of operations other than Petroleum Operations.
48. Taxes and payments
In the conduct of Petroleum Operations the Contractor shall pay only the following taxes and
- a tax on profit at the rate established by the legislation of Turkmenistan. Procedure for determination
of the taxable profit shall be provided for in the Contract.
- a royalty on Petroleum production at the rate specified
in the Contract.
Payment of the bonus in form of lump-sum may be provided for in the Contract at the rate specified
therein. A bonus may be paid upon the signing of the Contract and upon achievement of certain Petroleum production level specified
in the Contract.
In the event that new taxes or levies are introduced subsequently to the date of entering into a
Contract, a Contractor shall pay only those which are substituting taxes and levies paid by him. In such a case, an overall
amount of due payments shall not exceed the amount of taxes and levies imposed on the Contractor as for the time the Contract
is entered into.
Payment of taxes and levies envisaged in the present Law and the Contract shall not release Contractor
from the payment of other taxes and levies due for the activities other than Petroleum Operations.
shall pay profit tax at the same rate as imposed on the Contractor and no other taxes than the Contractor.
of contractor and of its subcontractors shall pay income tax in accordance with the legislation of Turkmenistan and provisions
of the Contract.
In the event of amendments to the legislation of Turkmenistan, which was applicable at the time when
the Contract was entered into, including amendments due to the changes to the international treaties to which Turkmenistan
is a signatory party, the Contractor and the Competent Body shall consider an issue of introducing the amendments into the
Contract in order to secure balance in the interests of the Contracting Parties and economic results, which were expected
by them in accordance with the terms of the Contact at the time the Contract was entered into.
Article 49. Bookkeeping
Contractor (sub-contractor) shall maintain bookkeeping and submit accounting in compliance with the legislation
of Turkmenistan in respect with the salaries and social security of the Turkmen employees.
For the purpose of recording
Contractor`s costs and revenues, as well as for calculation of the taxable profit, bookkeeping and accounting shall be maintained
in compliance with the international practice for bookkeeping and accounting applied in the conduct of Petroleum Operations
and in accordance with the Contract provisions. For the purposes of foregoing a freely convertible currency shall be used
as the monetary unit of the bookkeeping.
National currency shall be used for the purpose of periodical and annual
reporting through the translation of foreign currency at the official exchange rate of the Central Bank of Turkmenistan.
of the financial and economic activity of the Contractor (subcontractors) shall be carried out by the Competent Body or other
State entity designated by the Government, at the time intervals, specified in the Contract. The aforementioned entities shall
be entitled to avail themselves of the services of independent auditing firms.
Chapter 10. Legal terms
50. Assignment of the Contractor`s rights and obligations
Contractor may assign all or part of its rights and obligations
under the License and the Contract to the other interested party, with the prior written consent of the Competent Body.
shall be entitled to assign all or part of its rights and obligations under the License and the Contract to an Affiliate or
one of its members (in case of the multi-membered Contractor), with no consent required, subject to the submission of the
document, endorsed by assignor, such document stating the joint liability of the Contractor for all the actions of the assignee.
As long as Contractor retains any participation interest in the License and the Contract, such Contractor and the
assignee of its rights and obligations, shall bear joint responsibility under the Contract.
Expenses associated with
the assignment of rights and obligations shall be borne by the Contractor.
Article 51. Ownership of information
on subterranean resources
Ownership of geological and geophysical information, data on Petroleum reserves and all
other information obtained or prepared by the Contractor in the course of conduct of Petroleum Operations, shall belong to
the Government. Such information shall not include proprietary rights and secrets of the Contractor.
Contractors shall be obliged to obtain and maintain an insurance as follows:
- all risks insurance,
covering all plant, equipment, buildings and other property of the Contractor, used or intended for use in the conduct of
- insurance, covering eventual loss of Petroleum and its by-products up to the point in time
and location at which the title is transferred from Contractor to the Competent Body (in respect to the Competent Body`s entitlement
share of production) or other persons;
- insurance, covering clean-up costs for damage to the natural environment,
including pollution of the air, water, surface and subsurface soil under and in the Contract Area;
- general liability
insurance, covering property damage and life and health harm resulted from or in connection with the conduct of Petroleum
- control-of-well insurance, covering control of well and redrill costs caused by
accidents to wells
in the Contract Area.
- health, life and accidents insurance, covering the insurance for employees and other persons,
engaged by the Contractor for the conduct of Petroleum Operations;
- such other types of insurance, as would be applied
by the Contractor in compliance with the international practice for conduct of Petroleum Operations;
- such other
insurance required by the current legislation of Turkmenistan on obligatory types of insurance.
Contractor shall be
obliged to require sub-contractors, which activities are connected to the conduct of Petroleum Operations, to obtain and maintain
insurance in such forms and amounts stipulated by the relevant contracts of sub-contractors.
Article 53. Employment
The employment legal relations of the Contractors with its employees are regulated by the legislation of
Turkmenistan, collective or individual employment contracts.
Employment contracts of the Contractor with foreign employees
may contain special provisions in accordance with the international practice for entering such contracts. In such case, the
level of guarantees of labour rights of foreign employees should not be lower than the level of guarantees, provided for by
the legislation of Turkmenistan.
Article 54. Social insurance and social security
Social insurance and social
security of the employees, which have entered into the employment legal relations with Contractor (except for the pensions
provisions of foreign employees), are regulated by the legislation of Turkmenistan.
Contractor may contributes to
the State social insurance in respect of foreign employees only in such cases when latter wish to enjoy social benefits in
the territory of Turkmenistan.
Pension provisions and provisions on other kinds of social security of foreign employees
are regulated by employment contracts, and shall comply with the legislation of the States of their permanent residence.
55. Guarantees of Contractors` rights
Contractor shall be guaranteed the protection of its rights in accordance with
the principles of international law, legislation of Turkmenistan, the License and the Contract.
Article 58. Resolution
Disputes associated with the issuance, refusal to issue, suspension or revocation of the License, as well
as those related to the implementation of the Contract, shall be possibly resolved by way of negotiations, including the involvement
of independent international experts, or in accordance with dispute resolution procedures previously agreed in the Contract.
In the event that disputes cannot be resolved in accordance with the provisions of part 1 of this Article within 3
months from the moment of a written communication from either part to the other, either party may, with prior written notification
to the other party, refer to international arbitration bodies, determined by the parties in the Contract.
disputes, including disputes between the Contractor and Legal Persons and citizens of Turkmenistan, shall be resolved by competent
judicial bodies of Turkmenistan, unless otherwise provided for in the agreement of the parties.
Article 59. Force
Failure by the Contractor to fulfil the terms of the License and (or) the Contract or to comply with the requirements
of the legislation shall not constitute their infringement if such actions are caused by war, act of war, military conflicts,
natural hazard or other events, beyond the will and actions of the Contractor, or by other causes, envisaged in the Contract
as circumstances of Force-Majeur.
In the event of failure to fulfil terms of the License and/or the Contract, the
Contractor shall be obliged to immediately inform the Competent Body in that respect with indication of causes for such circumstances
Validity periods of the License and of the Contract shall be extended for periods during which the Contractor
did not exercise its rights and obligations in compliance with the present Law, the License and the Contract due to the circumstances
In the event that circumstances of Force-Majeur endure for more than 1 year, either party has the
right to propose to the other to terminate the Contract. Upon reaching agreement by the Parties the Contract shall terminate.
In the event that the circumstances of Force-Majeur remain during a period of more than 2 years, either party has
the right to unilaterally terminate the Contract with prior notification to the other party.
In the event that the
Contractor did not recover its costs connected to the conduct of Petroleum Operations the Contract may be terminated at the
The force of this Article shall not apply on the requirement of payments to be made in due time,
as provided for by this Law, the License and the Contract.
Chapter 10. Final provisions
Article 60. Information
required by the Competent Body
The Competent Body shall have the right to summon the Contractor in writing to furnish
an information and data related to Petroleum Operations, such data including also world price of Petroleum, in the event that
the Competent Body has the ground to believe that the Contractor is in possession of such information or data, which information
and data have not be submitted to the Competent Body in accordance with the provisions of the Law and terms of the Contract.
Contractor shall be obliged to provide such information.
Article 61. Powers of the Competent Body and authorised officers
In order to ensure control over the compliance with present Law and fulfilment of the terms of the Contract, the Competent
Body and authorised officers shall have the right to:
- enter any area, structure, vehicle being used in connection
with the conduct of Petroleum Operations;
- to carry out an inspection or testing of the equipment or appliance being
used in the conduct of Petroleum Operations;
- to extract samples of Petroleum or other substances from any area where
Petroleum Operations are being conducted, with the purpose of their analysis or testing, or for use as evidence upon the violation
of the Law or infringement of the terms of the Contract;
- carry out an inspection of the documents, relating to the
Petroleum Operations, make extracts from and make copies of such documents;
- give directions and introduce restrictions
on the activities of Contractor, related to securing safety and health protection of the Contractor`s personnel and of the
- carry out any necessary examination and inquiry in respect with the issues of compliance, by the Contractor,
with the laws, other regulatory acts and terms of the Contract.
In the exercise of its powers the Competent Body or
its authorised officers may involve other persons as experts.
Contractor shall be obliged to supply necessary help
and assistance to the Competent Body or an authorised officer in the execution of their powers.
Article 60. Confidentiality
Neither party has the right to publish, disclose or transfer any information, which is considered confidential
and is related To Petroleum Operations, to a third party, without prior written consent of the other Contracting Party.
information may be supplied to legal counsels, accountants, other consultants, underwriters, lenders, subcontractors, shipping
companies, subject to a prior written undertaking from such persons not to disclose the information received.
61. Indemnity of Turkmenistan and the Cabinet of Ministers of Turkmenistan
A License Holder and Contractor shall keep
the Government indemnified against all actions, claims and demands which may be brought or made against the Government by
reason of anything done by such License Holder and the Contractor, in the exercise of the latter`s rights and obligations
under the Law, the License and the Contract.
President of Turkmenistan Saparmurat Niyazov