Production Sharing Agreements in the Context of Public-Private Partnerships

Foreign experience proves that production sharing agreements are a form of public-private partnership.

That is, as if the country's government is both a party to the agreement and a partner in production.

In practice, the inclusion of a public-private partnership block in production sharing agreements leads to contradictions.

Thus, due to the involvement of the government or state holdings in production, the investor's tax agreements, which are indicated in the declarations regarding the cost of oil and profit, may not coincide with the data of the government or state holding.

In addition, the risk of concluding an operating agreement between the investor and the government may be subject to tax risks of various surcharges.

The main problem is that the government, as an active party to the production sharing agreement for hydrocarbon production, acts simultaneously as a service provider and a service recipient.

However, the nature and inherent commercial essence of production sharing agreements cannot give rise to quasi-additional rights and obligations for investors.

As rightly pointed out in the Tax Appellate Tribunal in Case No. 86004 of 2019 on the appeal of B.G. Exploration and Production India Ltd: "production sharing contracts between the Government of India and the appellant is joint venture and the activities undertaken by the co-ventures within the framework of a joint venture cannot be considered as rendition of "service tax".

Cost petroleum is not a consideration for service and thus not taxable per se".

Ukraine has abandoned the form of cooperation with investors in terms of a production sharing agreement within the framework of a public-private partnership.