Section 163p. 163

PUBLIC INTERNATIONAL LAW COMPENDIUM VOLUME I

the approved date of commencement of commercial

production is postponed because of a delay in issuing the

production authorization, in accordance with article 151,

the annual fixed fee shall be waived for the period of

postponement. From the date of commencement of

commercial production, the contractor shall pay either

the production charge or the annual fixed fee, whichever

is greater.

4. Within a year of the date of commencement of

commercial production, in conformity with paragraph 3, a

contractor shall choose to make his financial contribution

to the Authority by either:

(a) paying a production charge only; or

(b) paying a combination of a production charge and a

share of net proceeds.

5. (a) If a contractor chooses to make his financial

contribution to the Authority by paying a production

charge only, it shall be fixed at a percentage of the

market value of the processed metals produced from the

polymetallic nodules recovered from the area covered by

the contract. This percentage shall be fixed as follows:

(i) years 1-10 of commercial production 5 per cent

(ii) years 11 to the end of commercial production 12 per

cent

(b) The said market value shall be the product of the

quantity of the processed metals produced from the

polymetallic nodules extracted from the area covered by

the contract and the average price for those metals

during

the

relevant

accounting

year,

as

defined in

paragraphs 7 and 8.

6.

If

a

contractor

chooses

to

make

his

financial

contribution to the Authority by paying a combination of

a production charge and a share of net proceeds, such

payments shall be determined as follows:

(a) The production charge shall be fixed at a percentage

of the market value, determined in accordance with

subpara-graph (b), of the processed metals produced

from the polymetallic nodules recovered from the area

covered by the contract. This percentage shall be fixed as

follows:

(i) first period of commercial production 2 per cent

(ii) second period of commercial production 4 per cent

If, in the second period of commercial production, as

defined in subparagraph (d), the return on investment in

any accounting year as defined in subparagraph (m) falls

below 15 per cent as a result of the payment of the

production charge at 4 per cent, the production charge

shall

be

2

per cent instead of 4 per cent in that

accounting year.

(b) The said market value shall be the product of the

quantity of the processed metals produced from the

polymetallic nodules recovered from the area covered by

the contract and the average price for those metals

during

the

relevant

accounting

year

as

defined

in

paragraphs 7 and 8.

(c) (i) The Authority's share of net proceeds shall be taken

out of that portion of the contractor's net proceeds which

is attributable to the mining of the resources of the area

covered

by

the

contract,

referred

to

hereinafter

as

attributable net proceeds.

(ii) The Authority's share of attributable net proceeds shall

be

determined

in

accordance

with

the

following

incremental schedule:

(d) (i) The first period of commercial production referred

to in subparagraphs (a) and (c) shall commence in the

first

accounting year of commercial production and

terminate

in

the

accounting

year

in

which

the

contractor's

development

costs with interest on the

unrecovered portion thereof are fully recovered by his

cash surplus, as follows:

In the first accounting year during which development

costs are incurred, unrecovered development costs shall

equal the development costs less cash surplus in that

year. In each subsequent accounting year, unrecovered

development

costs

shall

equal

the

unrecovered

development

costs

at

the

end

of

the

preceding

accounting year, plus interest thereon at the rate of 10 per

cent per annum, plus development costs incurred in the

current

accounting

year

and

less

contractor's

cash

surplus in the current accounting year. The accounting

year in which unrecovered development costs become

zero for the first time shall be the accounting year in

which the contractor's development costs with interest

on the unrecovered portion thereof are fully recovered by

his cash surplus. The contractor's cash surplus in any

accounting year shall be his gross proceeds less his

operating costs and less his payments to the Authority

under subparagraph (c).

(ii) The second period of commercial production shall

commence

in

the

accounting

year

following

the

termination of the first period of commercial production

and shall continue until the end of the contract.

(e) "Attributable net proceeds" means the product of the

contractor's

net

proceeds

and

the

ratio

of

the

development

costs

in

the

mining

sector

to

the

contractor's development costs. If the contractor engages

in

mining,

transporting

polymetallic

nodules

and

production primarily of three processed metals, namely,

cobalt, copper and nickel, the amount of attributable net

proceeds shall not be less than 25 per cent of the

contractor's net proceeds. Subject to subparagraph (n), in

all other cases, including those where the contractor

engages in mining, transporting polymetallic nodules,

and

production

primarily

of

four

processed

metals,

namely,

cobalt,

copper,

manganese

and

nickel,

the

Authority may, in its rules, regulations and procedures,

prescribe appropriate floors which shall bear the same

relationship to each case as the 25 per cent floor does to

the three-metal case.

(f) "Contractor's net proceeds" means the contractor's

gross proceeds less his operating costs and less the

recovery

of

his

development

costs

as

set

out

in

subparagraph (j).

(g) (i) If the contractor engages in mining, transporting

polymetallic nodules and production of processed metals,

"contractor's gross proceeds" means the gross revenues

from the sale of the processed metals and any other

monies deemed reasonably attributable to operations

under the contract in accordance with the financial rules,

regulations and procedures of the Authority.

(ii)

In

all

cases

other

than

those

specified

in

subparagraphs

(g)(i)

and

(n)(iii),

"contractor's

gross

proceeds" means the gross revenues from the sale of the

semi-processed metals from the polymetallic nodules

recovered from the area covered by the contract, and any

other

monies

deemed

reasonably

attributable

to

operations under the contract in accordance with the

financial

rules,

regulations

and

procedures

of

the

Authority.

(h) "Contractor's development costs" means:

(i) all expenditures incurred prior to the commencement

of commercial production which are directly related to

the development of the productive capacity of the area

covered by the contract and the activities related thereto

for operations under the contract in all cases other than

that specified in subparagraph (n), in conformity with

generally recognized accounting principles, including,

inter

alia ,

costs

of

machinery,

equipment,

ships,

processing plant, construction, buildings, land, roads,

prospecting and exploration of the area covered by the

contract, research and development, interest, required

leases, licences and fees; and

(ii) expenditures similar to those set forth in (i) above

incurred

subsequent

to

the

commencement

of

© Compiled by RGL

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