The Council of Ministers of Suriname has recently approved a draft state decree (staatsbesluit) which aims to provide clarity to IOC’s on the legal status of the Fiscal Stability Clauses and other commitments made to them in their PSC’s with Staatsolie, the NOC of Suriname. The state decree will become effective after it has been signed by the President of the Republic of Suriname and published in the Official Gazette of Suriname. Before signing the President will consult the State Council (Staatsraad) for advice. The State Council generally consults with relevant stakeholders before submitting its advice to the President.
The Explanatory Note to the draft state decree describes that it is based on Article 15, paragraphs 2 and 3 of the Petroleum law 1990 and should be considered in view of the development of the oil and gas industry in Suriname.
These articles of the Petroleum law provide for that upon written request of Staatsolie, the Government, by state decree, may issue a guarantee to the Contractor concerned, with regard to:
As noted in one of my previous posts, expectations are high that Suriname may soon hit the first oil discovery in its Offshore Area. Staatsolie’s CEO, Rudolf Elias,
in a presentation last January to the Trinidad and Tobago Energy Conference and Trade Show 2018, announced that its current PSC-partners will drill four Exploration Wells in 2018. The first of which is scheduled to be drilled in April by Kosmos Energy Suriname in Offshore Block 45.
But there is also a growing concern at the side of the IOC’s about the legal status and the interpretation of commitments made to them in the PSC’s with Staatsolie, especially with regard to the Fiscal Stabilization Clauses included in the PSC’s.
With this state decree the Government says to respond to a call from the IOC’s to provide clarity in these issues.
The official title of the regarding draft state decree is “Staatsbesluit houdende voorzieningen ten behoeve van Contractors en Contractorpartijen die met de staatsonderneming Staatsolie Maatschappij Suriname N.V. een Petroleum-overeenkomst zijn aangegaan in de zin van de Petroleumwet 1990”.
In Article 2 of the draft state decree Suriname (as State) recognizes that in compliance with Article 5 of the Petroleum law 1990, it is fully aware of all commitments made to IOC’s in their PSC’s with Staatsolie and confirms that the provisions of the state decree shall apply to all existing and future PSC’s signed with Staatsolie.
Although Suriname is not (directly) a Party to the PSC’s, all PSC’s are subject to approval by the Minister of Natural Resources after being authorized to that end by the Government of Suriname. Consequently Suriname may be considered to have endorsed all commitments made therein. Article 2 of the draft state decree therefore should be seen as a confirmation of this.
Article 3 of the draft state decree provides for that Suriname guarantees to fulfill as its own primary obligations all commitments made to each PSC-partner of Staatsolie. This is quite understandable in view of the foregoing.
Actually most of the issues addressed in the state decree are a reaffirmation of what originally has been provided for in the Petroleum law and the PSC’s
(and to some extent has been confirmed in rulings of the Tax Authorities). But some of them are new and quite far-reaching from a legal point of view. Without having the intention to be complete in this regard, among others the following is included in the draft state decree:
The government of Suriname should be commended for its efforts to provide clarity and comprehensibility to the PSC-partners of Staatsolie.
However, my first impression after reading the draft state decree is that on some points there is room for improvement to reach the clarity and comprehensibility the Government is aiming at. In particular in view of the far- reaching impact of some of the provisions.
The draft state decree is a very complex document. Partly because the wording in Dutch (which is the official language in Suriname) is lengthy and in some cases seems rather inconsistent, which makes it difficult to access and quite confusing. E.g. the Dutch word “Regering” is used where “(de Staat) Suriname” or “de Staat” probably would be more appropriate.
It further seems that some issues are (repeatedly) addressed in different articles, which makes it difficult to determine what actually should apply.
E.g. Article 4, sub f, Article 4 sub g and Article 4, sub i, with regard to taxation issues (Fiscal Stabilization).
But more fundamentally, it seems to me that some provisions with regard to tax issues do not (fully) comply with Article 155 of the Constitution, which mandatorily provides for that
The term “law” in this regard refers to the principle that any issue related to taxation and tax related incentives should be approved by the Parliament.
That basically can be done by either the Parliament approving such incentive in a (separate) law or by Parliament approving a law in which it mandates the Government to provide for such (specifically mentioned) incentives in a state decree.
The Preamble of the state decree refers to Article 15, sub 2 and 3 of the Petroleum law as justification for the provisions included in the state decree.
But since these Articles explicitly refer to “to the extent that Government is authorized thereto (safeguarding rights and claims of contractors)” and “pursuant to the provisions of the Constitution on this matter (Fiscal Stabilization)”, I actually doubt whether this provides sufficient legislative basis for the state decree.
In view of this I therefore recommend that it should be examined whether the Government is (really) authorized hereto and whether in case of the Fiscal Stabilization issues, the Government has done this compliant with Article 155 of the Constitution.
To limit myself to the Fiscal Stabilization issues, it is my preliminary opinion that, except for the Income tax, the provisions in the state decree related to taxation and tax incentives for Turnover tax, Dividend tax and Stamp duty actually do not comply with Article 155 of the Constitution.
Fiscal Stabilization with regard to Income tax has been (correctly) provided for in an amendment to the Petroleum law in 2001, which resulted into insertion of a paragraph 8 to Article 9 of the law and reads as follows:
“A Contractor, pursuant to the Income tax Law of 1922, shall be subject to income tax pursuant to the rates applicable on the date that the petroleum agreement (PSC) enters into force. In case the tax rates are adjusted, such adjustment shall not be applicable to the contractor and shall have no influence on his liability to pay taxes pursuant to the Income tax Law of 1922”.
I am not aware of any such provision in the Petroleum law or in respectively the Turnover Tax Code, the Dividend Tax Code or the Stamp Duty Code, which allows incentives (of a general nature) as included in the draft state decree with regard to these taxes.