Open Joint Stock Company Gazprom

the field is located, the Ministry of Natural Resources or its relevant regional authority (committee) andthe licensee.There are three types of licences applicable to the study, exploration and production of naturalresources: for geological exploration of the subsoil plot without production right, for exploration andproduction of natural resources and combined licences for study, exploration, evaluation and furtherproduction of natural resources. Under the Subsoil Resources Law, licences are granted for a fixed orindefinite term which is stipulated in the license: for the exploration licences (up to five years) and forthe exploration and production licences generally (either for a period for which the field is operational(2)or for a short term of up to one year). The Subsoil Resources Law allows the subsoil user to request anextension of the existing licence in order to complete either the exploration of the field or the proceduresnecessary to vacate the land once the exploitation of the subsoil is complete, provided such usercomplies with the terms and conditions of the licence. Indefinite term licences are also provided for theconstruction and operation of facilities used for the burial of waste, and for underground facilities, whichare either unrelated to mining production or used for the storage of natural gas and liquefiedhydrocarbons.Licences granted in accordance with the Subsoil Resources Law cannot be sold or transferred toan-other entity except in limited circumstances (set out in the Subsoil Law), such as to a spin offcompany or a 50 per cent or a majority owned subsidiary of the licensee. A licence cannot be held bymore than one legal entity, unless the right to use the subsoil is granted to a consortium, in which casethe licence is issued in the name of only one member of the consortium and other members are listedin the licence.Under a licence agreement, the licensee makes a number of commitments, for example: toextract an agreed volume of natural resources each year; to keep environmental pollutants withinspecified limits; and to clean up environmental contamination. When the licence expires, the licenseemust return the relevant land, at its own expense, to a condition which is adequate for future use. Thelicensee can be fined or the licence can be revoked in the event of repeated or significant breaches ofthe licence conditions and laws, or the right to subsoil use can be terminated if the licence remainsunused for a substantial period of time. The right to use the subsoil resources may also be suspended,restricted, or terminated early by the licensing authorities either on the occurrence of a direct threat tothe lives or health of people working or residing in an area where licensed activities are carried on, oron the emergence of force majeure events such as wars or natural disasters.Although most of the conditions set out in a licence and its integral components are based onmandatory rules contained in Russian law, there are a number of provisions in a licensing agreementwhich may be amended by further agreement between the licensing authorities and a licensee,provided that the correct procedures are observed.An exploration and production licence holder is subject to a quarterly tax for production of mineralre-sources, which is calculated as a certain percentage of the value of the resources it extracts. Currentlegal acts establish the 16.5% tax rate for the production of natural gas and gas condensate.A holder of a licence for geological exploration with the purpose of exploration and evaluation ofhydrocarbons has to make regular payments for the allotment use based on the total area of suchallotment (in square meters) and a specific rate ranging from RUR 120 to RUR 360 per sq.m.Regular payments for subsoil use are payable on a quarterly basis in accordance with theprocedures established by the Government of the Russian Federation. The exact rates for calculationof payments are determined by the executive bodies of the regions of the Russian Federation.Regular payments for subsoil use do not substitute the relevant tax obligations applicable to thelicence holder in accordance with general tax legislation.The Unified Gas Supply SystemIn accordance with the Gas Supply Law, the UGSS is the basis for natural gas suppliesthroughout Russia. It is defined as a production complex consisting of technologically and economically107