Confidentiality of the provisions of the production sharing agreement

When information is exchanged between different government agencies of a country as parties to an agreement, there is a concern about maintaining the full confidentiality of the provisions of production sharing agreements, even if disclosure is required by law.

 Let's consider the situation using the example of Ukrainian legislation.

Ukraine has undertaken international obligations in connection with joining the Extractive Industries Transparency Initiative, as well as implementing European Union legislation on increasing the transparency of economic activities in the extractive industries, namely Directive 2013/34/EU of the European Parliament and of the Council on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings.

The mechanism for implementing the Law of Ukraine No. 2545-VIII consists in providing the Ministry of Energy of Ukraine, as the central executive body, which ensures the formation and implementation of state policy in the fuel and energy complex, exclusively by business entities operating in the extractive industries and parent companies in the extractive industries of payment reports, information on the essential terms of contracts (agreements) for the use of subsoil, as well as information on amendments made to them.

However, production sharing agreements contain a high standard of confidentiality, as no information regarding the contractual areas, the content of the production sharing agreements themselves, including any documents, information, data and reports of any nature, any discussions or any decisions, are subject to disclosure.

Given the above, information about production sharing agreements is not published even in open sources.

At the same time, Law No. 2545 – VIII (the law as the will of the party to the agreement represented by the state) requires the investor to provide data on the payment report, in particular, data on the volume of products subject to transfer to the state for the reporting period, information on the cost of products excluding value added tax, information on the volume of the state share of profitable products, the cost of the state share of profitable products), as well as information on the form of obtaining the state share.

That is, there is a controversial dilemma according to which the investor is subject to additional obligations to provide new reporting forms to those specified in the production sharing agreement and the state's public commitments in international obligations to demonstrate transparency in the extractive industries.

From the point of view of the expediency of obtaining reporting information as part of production sharing agreements, it is not so important, since the disclosure of information in payment reports and consolidated payment reports only duplicates the information that the state already possesses.

We believe that in production sharing agreements, private interest should prevail over the public obligations of the state, as a party to the production sharing agreement.