Journey to Sakhalin
Journey to Sakhalin
Sakhalin Island’s resources include oil, gas and coal, as well as forestry and fishing. Before the collapse of the USSR, oil and gas were being extracted from the ground. Several geological studies show that the vast reserves of Sakhalin’s oil and gas were mainly under the Sea of Okhotsk. After the disintegration of the USSR, Russia was eager to rebuild its economy and oil and gas were resources that it could leverage for foreign assistance. Before Sakhalin II, Russia would contract with foreign investors or companies to exploit their natural resources with agreements in line with Russian laws and tax codes. The Sakhalin project was the first Russian production-sharing agreement (PSA) with foreign corporations. A PSA is a commercial contract between investor(s) who are willing to make a large, long term and high risk investments with the host country that has the natural recourses (usually oil and/or gas) to exploit. The terms behind PSAs are usually different than regular commercial contracts, as they usually bypass some of the regulations that the host country imposes on foreign investments. The agreements also last for the lifetime of the project. Under the terms of the PSA, the investing company gets the larger share of revenues at the beginning of the contract to recoup the cost of investment. As time goes by, the net revenues (revenues after the cost of operations) are shared between the investment companies and the host country, usually a 20/80 split.
PSAs are controversial in Russia because they bypass some of the taxes and licenses that a foreign company would have to pay. Previous foreign companies had worked in Russia under the regular tax system, therefore it was argued that PSAs don’t treat all businesses equally and create a sense of unfairness. Furthermore, PSAs apply only to greenfields.. Greenfields are unexploited, undeveloped large pieces of lands with exploitable resources, and some circles felt that Russia should not
Sakhalin Island’s resources include oil, gas and coal, as well as forestry and fishing. Before the collapse of the USSR, oil and gas were being extracted from the ground. Several geological studies show that the vast reserves of Sakhalin’s oil and gas were mainly under the Sea of Okhotsk. After the disintegration of the USSR, Russia was eager to rebuild its economy and oil and gas were resources that it could leverage for foreign assistance. Before Sakhalin II, Russia would contract with foreign investors or companies to exploit their natural resources with agreements in line with Russian laws and tax codes. The Sakhalin project was the first Russian production-sharing agreement (PSA) with foreign corporations. A PSA is a commercial contract between investor(s) who are willing to make a large, long term and high risk investments with the host country that has the natural recourses (usually oil and/or gas) to exploit. The terms behind PSAs are usually different than regular commercial contracts, as they usually bypass some of the regulations that the host country imposes on foreign investments. The agreements also last for the lifetime of the project. Under the terms of the PSA, the investing company gets the larger share of revenues at the beginning of the contract to recoup the cost of investment. As time goes by, the net revenues (revenues after the cost of operations) are shared between the investment companies and the host country, usually a 20/80 split.
PSAs are controversial in Russia because they bypass some of the taxes and licenses that a foreign company would have to pay. Previous foreign companies had worked in Russia under the regular tax system, therefore it was argued that PSAs don’t treat all businesses equally and create a sense of unfairness. Furthermore, PSAs apply only to greenfields.. Greenfields are unexploited, undeveloped large pieces of lands with exploitable resources, and some circles felt that Russia should not