CONCESSION AGREEMENT
between
THE MINISTER OF THE ENVIRONMENTAL PROTECTION,
NATURAL RESOURCES, AND FORESTRY
and
POL-TEX METHANE Ltd.
a limited liability joint venture
with foreign capital
located in Jastrzebie Zdroj
CONCESSION AGREEMENT
TABLE OF CONTENTS
DEFINITIONS
PREAMBLE
AGREEMENT
Article I The Purpose, Subject, and Scope of this Agreement
Article II Mine Utilization
Article III Compensation for Mine Utilization
Article IV Exploitation Fee [Royalty]
Article V Concession
Article VI Use of Concession [Rights]
Article VII Purchase Priority
Article VIII Employment and Training
Article IX Supervision
Article X Confidentiality
Article XI Advisory Committee
Article XII Use of Experts in Arbitration
Article XIII Announcements
Article XIV Commencement
APPENDIX "A" Map and Coordinates of the [Concession] Area
APPENDIX "B" The Project of Development
CONCESSION AGREEMENT
On this day February 9, 1993, in Warsaw, between the Minister of the
Environmental Protection, Natural Resources, and Forestry, represented by:
Dr. Michaf Xxxxxxxxxx, Deputy Minister, Chief Geologist of the Country
and "Pol-Tex Methane", a limited liability joint venture with foreign capital,
located in Jastrzcbie Zdroj, represented by:
1. Xxxxxxx Jeu President of the Management Committee
2. Xxx Xxxxxx Vice President of the Management Committee
agreed upon the following contract:
DEFINITIONS
1. "Parties" - identifies:
a) The Minister of the Environmental Protection, Natural Resources, and
Forestry (abbreviated as "Minister")
and
b) Pol-Tex Methane - a limited liability joint venture, located in
Jastrzebie Zdroj, registered in Commercial Registry by Local Court in Katowice,
Administrative Division VIII, on September 5, 1990, number RHIB 5508
(abbreviated as "Pol-Tex Methane")
and "Party" identifies one of the above mentioned appropriate party.
2. "Mining Law" - denotes the Mining Law statute dated May 6, 1953 (Xxxx of
Register: No 4, pos 12, 1978; No 35, pos 186, 1984; No 33, pos 180, 1987; No
41, pos 324, 1988; No 35 pos 192, 1989; No 14, pos 89, 1990; No 31, pos 128,
1991) and the relevant administrative regulations issued based on this statute.
3. "Geological Law" - denotes the Geological Law statute dated November 16,
1960 (Xxxx of Register: No 52, pos 303; No 38, pos 230, 1974; No 41, pos 324,
1988; No 35, pos 192, 1989; No 31, pos 129, 1991) and the relevant
administrative regulations issued based on this statute.
4. The "Statute for Economical Development" (abbreviated "U.D.G.") - denotes
the statute dated December 23, 1988 (Xxxx of Register No 41, pos 324 with
further amendments).
5. The definitions used in this agreement, in particular:
a) "mineral", b) "mineral deposits", c) "mining area", d) "mining
unit", e) "Mine Utilization", f) "concession", g) "concession organ", h)
"other definitions" as identified in the Mining Law, Geological Law, or any
binding law, will be understood only according to the meaning of the
particular law,
i) "Methane" - means hydrocarbons, occurring in a gas or liquid
state in natural ambient (atmospheric) conditions of temperature and
pressure, and in particular, methane-from coal seams, except petroleum and
natural gas from sediments deposited below Carboniferous (-age) strata,
j) "Development of the Resources" - identifies works conducted
according to the project of the Development, directed at production,
transport, and processing of Methane deposited in the mining area,
k) "Commencement of Production" - is the date of beginning of
Methane sales in commercial quantities,
l) "Well Head" - identifies the equipment installed at the outlet of
the drilling well for the purpose of connecting the producing pipes, with
seal between the conductor pipe and casing.
m) "person" - identifies a legal or physical entity, or an
organizational unit without legal status,
n) "sub-contractor". - is any person contracted by Pol-Tex Methane
to perform works under this agreement.
Editor's Note: The Polish term-of-art "Uzytkowanie Gornicze"' has been
translated as "Right to Utilize by Mining" and the English equivalent of the
Polish term-of-art equally short of specifics, "Mine Utilization." The term
corresponds to the right and permission granted to conduct all necessary
operations to utilize the natural resources which are conveyed via the related
concession. These operations generally include exploration, exploitation,
development, production, processing, distribution and sales activities. It also
includes the permission and authority to establish a mining organization to be
regulated by the mining authorities. Ownership and the right to dispose of the
natural resource is conveyed by the concession and regulated by a contract which
is signed when the concession is issued.
PREAMBLE
WHEREAS mineral deposits belong to the State Treasury (mining ownership) [and
are] administered by the Minister of the Environmental Protection, Natural
Resources, and Forestry; and,
WHEREAS on November 9, 1992 Pol-Tex Methane submitted an application for a
concession for Methane recovery in the manner and for the area described in
detail in said application;
Pol-Tex Methane, as reflected in its application dated November 9, 1992 and
[other] supplied documents, declares and assures that it has the qualifications,
expertise, technical and financial capabilities, and means to conduct
development operations directed at Methane recovery; and
The Minister, confirms that the above-mentioned application does fulfill
the requirements of the Mining Law and confirms that the submitted
qualifications are sufficient and he confirms with this contract the following:
AGREEMENT
Article I
The Purpose, Subject, and Scope of the Agreement
1. The Parties sign this agreement to define in detail the mutual rights and
obligations for:
the Minister, having the right as defined in the Mining and Geological Laws
to execute in the name of the State Treasury which owns mineral deposits and
above all performing the functions of concession organ,
Pol-Tex Methane, in receiving the right to utilize through mining [further
abbreviated as "Mine Utilization"] and a concession to conduct commercial
operations related to Methane production [recovery].
2. By this contract, Pol-Tex Methane acquires [the right to] Mine Utilization
of Methane deposits located within the boundaries of the area described in
detail in Appendix "A" to this agreement, and [receives] and a promise of [the
granting of] a concession to Pol-Tex Methane to conduct development of Methane
from this deposit.
Article II
Mine Utilization
1. As defined in Article V, Paragraph 3, Point 1, the Minister gives and
Pol-Tex Methane takes the Mine Utilization of the listed Methane deposits,
within the mining areas as defined in detail in the concession.
2. Through Mine Utilization, Pol-Tex Methane obtains the exclusive right to
recover Methane from the deposits mentioned above and to utilize the recovered
Methane with in accordance with the provisions of Article VII.
3. The right of ownership of Methane is passed to Pol-Tex Methane at the
production well head.
4. Pol-Tex Methane, as a mine operator, will utilize the rights described
above according to the laws and rules of social cooperation, considering in
particular:
a) requirements for proper exploitation [development] of the
resource [Plan of Development] as approved by the Minister;
b) protection of the environment.
5. Pol-Tex Methane will conduct Mine Utilization by itself [personally] and
this will be considered true even when [the work] is done by sub-contractors [of
Pol-Tex Methane].
6. The [right to] Mine Utilization will expire when the concession expires or
is revoked.
7. When the Mine Utilization expires, Pol-Tex Methane will return the deposit
[mining area] to a proper state in accordance with the requirements of proper
development and subject to the conditions of this agreement, and the liquidation
of the mining unit in accordance with the Mining Law.
Article III
Compensation for Mine Utilization
1. As Compensation for Issuing Mine Utilization, Pol-Tex Methane will pay one
lump sum of $8,090,000 zloty (Concession Fee).
2. The Compensation for Mine Utilization [previously referred to as a "Special
Charge" in the Ministry's model contract] will be taken as a percentage of
revenue from the sale of gas produced from the deposits under Mine Utilization.
It will be calculated as follows:
"R Factor" The Compensation for Mine Utilization
as a percentage of revenue from gas sales
R < 1.76 0
1.76 < = R <= 1.80 4.S
1.80< =R< =1.90 6.0
190 < = R < = 2.00 13.5
R > 2.00 18.0
3. The R Factor is calculated according to the formula:
R = P / K where:
P - accumulated total revenue from the sales of gas from the deposits
(under Mine Utilization) from the commencement of the contract to the end of the
fiscal year.
K - accumulated total of the following expenses from the commencement of
the contract to the end of the fiscal year:
a) the expenses incurred the production of gas from the deposits
under Mine Utilizations, in accordance with Art 15, paragraphs 1 and 2,
statute dated Feb. 15, 1992 regarding income tax from legal persons and the
amendments of certain laws regulating taxation (Xxxx of Register No 21, pos
86 with further changes),
b) income taxes based on the regulations of the above mentioned
statute,
c) expenses incurred in accordance with Art 16, pos 1, of the above
mentioned statute if they are incurred in the production of deposits under
Mine Utilization incurred in the tax year prior to the [respective] year
for which the special charge is calculated,
d) non depreciated part of the investment.
4. Pol-Tex Methane will submit to the Minister an estimate of the R Factor
with its calculations within thirty days of the [end of the] first month of the
year [January].
5. The final value of the R Factor will be calculated after Pol-Tex Methane's
accounts are audited and it will be submitted to the Minister within 14 days
from the date when the audit is finished.
6. Any overpayment resulting from a change in the R Factor during the year
will be credited against future payments. Any underpayment will be paid within
7 days from the date specified in Point 5 of this Article.
7. The Compensation for Mine Utilization is [estimated and] paid quarterly and
is due by the 20th day of the month following the end of the quarter.
8. The Concession Fee and the Compensation for Mine Utilization described in
Paragraph 1 and 2 will be declared by administrative decision [of the Minister].
Article IV
Exploitation Fee [Royalty]
1. Pol-Tex Methane will pay an Exploitation Fee for recovery of methane. The
Exploitation Fee is assessed by the Minister for the amount of mineral sold to
the market according to the rate described in Paragraph 3.
2. Pol-Tex Methane will submit to the Minister, within the time period and in
the manner described in appropriate regulations, the amount of produced Methane,
its price, and other conditions which may have an influence on the amount and
determination of the exploitation fee.
3. Because the Parties acknowledge that the Methane will be produced in
geological-mining conditions that are recognized [well-defined], the rate of the
Exploitation Fee will be a fixed amount of 9% of the value of sold Methane for
20 years from the commencement of sale from each individual well, unless the
conditions for the exploitation is worse than expected [for each individual
well] such that it justifies a lowering the fee to the level of the base
[statutory] fee. The decision concerning the charges will be made
administratively.
4. Pol-Tex Methane has the right to use appropriate quantities of raw or
processed Methane at without paying an Exploitation Fee.
Article V
Concession
1. According to the regulations cited in Articles I and II of this contract,
and considering that the signing of this agreement satisfies the conditions of
Article 12.c., Paragraph 1 of the Mining Law, the Minister will immediately
grant the concession to Pol-Tex Methane, after he has coordinated the required
acts [such as forming request and receipt of the opinions of the Gminy] of the
Mining Law.
2. The concession will be granted via an administrative decision.
3. The decision will in particular:
a) confirm [the right to] Mine Utilization for Pol-Tex Methane
according to Article II,
b) define the mining area in accordance with Article I, paragraph 2,
c) permit Pol-Tex Methane's to develop Methane within the boundaries
of the mining area described in point 2, and define the fundamental
conditions for these operations in accordance with Article VI,
d) define the validity period [term] of the concession for 35 years
with the option to extend [this period],
e) define the time Pol-Tex Methane has to prepare the Plan of
Development,
f) define the Exploitation Fee according to Article IV, Paragraph 3.
Article VI
Use of Concession [Rights]
1. Pol-Tex Methane will conduct commercial development as defined in the
concession tend [and in] accordance with the Mining Law, Geological Law,
regulations on the environmental protection, and other common laws, including
the decision of Article III.
2. Pol-Tex Methane is required in particular:
a) to create a "mining unit" within the joint venture,
b) to undertake the investment charges described in Appendix B,
c) to create the Plan of operation (Plan Ruchu) for the mining unit have
it approved by the appropriate organ of state mining authority,
d) to provide qualified supervision and inspection,
e) to maintain geological-mining documentation, and evidence of reserves,
f) to provide security, safety, and mining rescue, and, in case the
concession expires or is revoked,
g) to liquidate the mining unit, and
h) to deliver documentation defined by Geological and Mining Laws to the
proper organs.
Article VII
Purchase Priority
Polish interior market will have the priority to purchase Methane, with the
stipulation that commercial conditions offered will be no less favorable than if
the gas were exported. Methane which is not sold on the interior market may be
exported and the offer of the internal market must be submitted in the manner
and timing allowing its acceptance will not interfere with prior export
obligations.
Article VIII
Employment and Training
1. Pol-Tex Methane will have the freedom to employ the personnel and sub-
contractors necessary to perform the works. Pol-Tex Methane assumes Polish
nationals will be given preference in this choice based on their training,
qualifications, and expertise, and, in choosing sub-contractors, contractors
will be selected from among Polish contractors under the stipulations that they
are proficient in the areas of: creditability, quality, cost, and timeliness of
the contracted work.
2. Pol-Tex Methane will train Polish nationals employed to perform works while
the concession is in force, and it will create the appropriate fund for this
purpose.
3. The minimum value of the fund described in Paragraph 2, the expenditures of
the fund, and the training will be decided by the Parties in a separate
agreement, signed on the day of granting of the concession.
[The amount of this fund was set at USD 50,000.00 per year with the Advisory
Committee being responsible for both the disbursement of and accounting for
these funds.]
Article IX
Supervision
1. The Minister has the right to supervise commercial development of the
concession granted to Pol-Tex Methane.
2. Supervision will be exercised in the manner described in Art 22 of U.D.G.
[the above mentioned statute concerning economical development, Paragraph 4 of
Definitions].
3. The above provisions shall not limit the powers granted by law to the
supervising organs, in particular the powers of state mining authority and the
organ of environmental protection.
Article X
Confidentiality
1. All the documents, information, and data pertaining to the mining area and
concession works, which are not commonly available, will be treated by the
Parties as confidential, and will not be released to a third party, except in
instances incorporated by this agreement and with the written consent of the
Parties. The above statement will not limit Pol-Tex Methane from providing such
information and data to its employees or contractors and their [the
contractor's] employees, to the extent necessary to accomplish works. This
limitation will not forbid Pol-Tex Methane to provide banks and other financial
institutions with the appropriate information, when such statements are required
to obtain funds to finance concession works. It also pertains to the process of
obtaining expertise. The party which released restricted data to a third party
will require from it [the third party] in a written agreement that the data will
be used only for the purpose of this [concession] agreement and the
confidentiality of any information released in this manner will be maintained.
2. The confidentiality stipulation expressed in Paragraph 1 will be in force
for five years from expiration or revocation of the concession, however the
Minister will not be bound by the confidentiality of documented data defined in
Article VI, Paragraph 2, Point 7[g].
Article XI
Advisory Committee
1. The Advisory Committee composed of six members (three nominated by the
Minister and three by Pol-Tex Methane) will be created within 30 days from
granting of the Concession.
2. The meetings of the Advisory Committee will be directed alternatively by
the president elected by each party from among its members.
3. The Advisory Committee will meet at least every six months at the time
agreed upon by its members. The president will assemble the Committee on the
request of the Minister or Pol-Tex Methane. The Parties will receive a fifteen
day notice, or, on the occasion requiring urgent action, according to the
time-frame agreed to by the members. The notice will indicate time, place, and
the order of the meeting. The resolutions of the Advisory Committee may be made
by means of: correspondence, telex, fax, if all the members approve such ways to
make resolutions.
4. At least four members of the Advisory Committee must be present when the
resolution is made. The resolutions must be passed by the majority of votes,
each member will have one vote. When the votes are not settled, and in the
opinion of the Minister or Pol-Tex Methane the lack of settlement may impede the
development, efficiency, the right, or the obligation of the party, the Minister
or Pol-Tex Methane may submit the matter to the experts, in accordance with
Article XII.
5. The main tasks of the Advisor Committee are the overall supervision of the
works, providing proper communication, and cooperation between the Parties, as
long as the rights or the obligations of Pol-Tex Methane are maintained. The
Advisory Committee may consider and issue the opinion on all matters under this
contract.
Article XII
Expertise
1. The party which desires to have a problem resolved by an expert will notify
the other party and will submit the list of at least three proposed experts.
The notified party will respond to the notification within thirty days from
obtaining it and will either accept one of the proposed experts or will submit a
list of three additional experts. In this case, the party which has initiated
the dispute by requesting an expert may either accept one of the experts or
decline all of the experts proposed by the other party within thirty days. If
the party fails to submit such notification, all of the experts will be
rejected.
2. If the Parties fail to choose an expert within sixty days from delivery of
the first notification according to Article 1, both Parties may apply to the
Technical Expertise Institute by the International Chamber of Commerce (ICC) in
Paris (France) to appoint an expert according to its [ICC] rules.
3. If the expert agreed according to Article I or appointed according to
Article 2 refuses to fulfill the responsibilities, dies, or is unable to perform
his expertise in some other way, the Parties will meet without delay to appoint
a replacement expert. If the Parties fail to appoint a replacement expert
within thirty days from the meeting called by either of the Parties, then each
party may apply to the Technical Expertise Institute (ICC) to appoint a
replacement expert according to its [ICC] rules.
4. The Parties will cooperate with the expert to the fullest extend to ensure
his effectiveness and each party will furnish the services of its employees.
The expert will have an access to the data and information which the Parties or
their employees are able to provide and which, according to his opinion, may
help resolve the matter. The representatives of the Parties will have the right
to consult the expert and to provide the written materials, and the expert may
reasonably limit this right and independently evaluate the acceptability of the
data and the information.
5. All the expenses involving the selection and hiring the expert will be
incurred evenly by the Parties.
Article XIII
Announcements
1. All the announcements, declarations, requests, applications, agreements,
notifications, understandings, instructions delegations, relinquishments, and
other communications delivered, submitted, or processed for this contract by
either one of the Parties will be valid if they are written and hand delivered
to the recipient party's authorized representative, or when they are delivered
to the address of the other party or to the address expressed in a written form
by means of: special delivery, telegram, telex, fax:
to the Minister:
MINISTER OCHRONY SRODOWISKA,
ZASOBOW NATURALNYCH I LESNICTWA
xx. Xxxxxxxx 00/00
00-000 XXXXXXXX
to Pol-Tex Methane:
POL-TEX METHANE spolka z o.o.
xx. Xxxxxxxx 0
00-000 XXXXXXXXXX ZDROJ
2. The notifications delivered according to Paragraph 1 will be valid if
delivered during working hours on the working days. If they are received after
working hours, they will become valid on the next working day.
Article XIV
Commencement
1. The agreement becomes valid on the date of its signing except for
provisions cited in Paragraph 2.
2. The provisions of Article III of the contract will become valid when the
common tax regulations allow Compensation for Mine Utilization to be included as
a cost of producing income.
The Minister of the Environmental Protection,Pol-Tex Methane Ltd.
Natural Resources and Forestry
/s/
Xxxxxxx X. Jeu, President
/s/
Xxx Xxxxxx, Vice President
