Report No: AUS13094.

Republic of the Union of MyanmarEITI Scoping Study & Legal ReviewLegal ReviewDecember 20, 2013

GEEDR

EAST ASIA AND PACIFIC

.

.

Standard Disclaimer:

This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

.

Copyright Statement:

The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/ The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly.

For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, http://www.copyright.com/.

All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org.

Output Report - P155597 - EITI Scoping Study & Legal Review

This activity aimed to produce the Legal Review and the Scoping Study, both standard and essential parts of EITI implementation. The Legal Review was delivered in 2013. However the Scoping Study could not be delivered in time due to the long period of MSG deliberations on the topic. Contract was signed in early May and the Scoping Study will be delivered in August 2015, using a different funding source. The Legal Review provided an overview of laws which regulate the extractive industries. It further provided recommendations on what changes to the laws will be necessary to allow the country to implement EITI. These typically include such changes as waiving confidentiality requirements in contracts. All countries implementing EITI need to undertake such a Legal Review and the required changes are them carried out through amendments to the laws. The Legal Review Report was reviewed by the World Bank legal department, including Manush Hristov, Senior Counsel, based in Bangkok.

The Legal Review was completed in late 2013. It was the first major piece of substantive analytical work to be completed as part of the EITI process. Its delivery coincided with the formation of the MSG. The Review allowed all stakeholders to initiate discussions of how EITI could be implemented in the context of Myanmar’s regulatory environment, with the result that the MSG was able to begin discussions about how to approach the Scoping Study and first EITI report and what legal changes might be needed over the longer term. The final output report is annexed below.

Annex: The Extractive Industries Transparency Initiative in Myanmar, Legal Review Report, December 2013

The Extractive Industries Transparency Initiative in Myanmar Legal review report

20 December 2013

Private and confidential

Contents Section

1. Introduction 11.1 Legal review report 11.2 Structure of report 11.3 Scope of work 11.4 Recipients 11.5 Confidentiality 21.6 Definitions 21.7 Enquiries 2

2. Key Issues and Recommendations 33. Detailed Report 6

3.1 Introduction 63.2 Legal review of the O&G industry 73.3 Legal review of the mining industry 123.4 Review of other key legislation 153.5 Review of draft Law relating to the Registration of Associations 193.6 Legal and regulatory measures for EITI implementation 21

4. Definitions 265. Scope of Work 27

5.1 Scope of this report 275.2 Sources of information 275.3 Qualifications 275.4 Assumptions 28

Schedule A 29Current institutional framework for EITI in Myanmar 29

Schedule B 32Sources of Information 32

i Contents

1. Introduction 1.1 Legal review reportThis report has been prepared to assist the Myanmar EITI National Coordination Office, the World Bank and the UK Department for International Development (Donor Organisations) in connection with the implementation of the Extractive Industries Transparency Initiative (EITI) in Myanmar. This report sets out:

(a) the legal impediments to disclosure under the EITI Standard based on a review of the legislative and contractual frameworks governing the oil and gas and mining industries in Myanmar;

(b) recommendations on amendments to the legislative and contractual frameworks to facilitate the EITI implementation process in Myanmar; and

(c) recommendations on legal, regulatory and executive measures to support EITI implementation in Myanmar.

1.2 Structure of reportThis report is structured as follows:

(a) Section 2 (Key Issues and Recommendations) sets out the key legal issues and recommendations based on the Legal Review conducted to date;

(b) Section 3 (Detailed Report) sets out detailed commentary on the legal issues and recommendations for each of the areas covered by the Legal Review;

(c) Schedule A sets out an overview of the current institutional framework for EITI in Myanmar; and

(d) Schedule B provides details of the sources of information upon which this report is based.

1.3 Scope of workThe information and areas reviewed for this report are detailed in the scope of work set out in Section 5 and exclude, amongst other things:

(a) accounting, actuarial, financial, operational and technical matters; and

(b) review of licences and contracts except those set out in the Reviewed Documents (see Section B.1 of Schedule B).

Further, this report:(a) has been prepared on the basis of the assumptions and

qualifications as set out in Section 5; and(b) should be read in light of the matters set out in the

Schedules.

1.4 RecipientsConsistent with the scope of work set out in Section 5, this report seeks to raise issues of relevance to the Myanmar EITI National Coordination Office and the Donor Organisations for the purposes of implementing the EITI in Myanmar. It does not address or consider specific matters that may be relevant to individual companies, organisations or individuals participating in the EITI process in Myanmar and does not constitute legal advice to any such party. This report shall not be considered an exhaustive review of the legal framework applicable to the extractive industries in Myanmar.

1 Introduction

1.5 ConfidentialityThis report contains information that is confidential, may be commercially sensitive and/or subject to legal professional privilege. It is not to be published or otherwise made available to third parties without the Consultant's prior written consent.

1.6 DefinitionsWhere terms or expressions beginning with a capital letter are not defined in the text of the report, they are defined in Section 4 (Definition).

1.7 EnquiriesIf you have any questions regarding this report, please contact Melinda Tun at melinda.tun@bakermckenzie.com on +95 9 250 312 886 or +61 466 752 771.

2 Introduction

2. Key Issues and RecommendationsThis section sets out key issues and recommendations arising from the legal review. This table is not intended to be a substitute for reading this report in its entirety. Further information on each of the key issues and recommendations is set out in Section 3 (Detailed Report) and the Schedules.

No. Issue Recommendation Detailed report ref

2.1.1 Confidentiality provisions in existing Production Sharing Contracts between MOGE and operators need to be waived to permit the disclosure of data for EITI

The model PSC used by MOE contains a confidentiality provision which prevents the public disclosure of information relating to O&G operations by both MOGE and the operators. This confidentiality provision would need to be waived to permit EITI reporting.

The waiver can be a short-form written instrument (e.g. side letter) between MOGE and each individual operator which provides for:

an exception to the confidentiality provision for EITI disclosure; and

a commitment or undertaking by MOGE and the operator to comply with any EITI and disclosure requirements.

Please refer to Section 3.23.2.3 for detailed recommendations on the contract waivers.

3.23.2.3

2.1.2 Model Production Sharing Contracts (and other contracts) used by MOE should be amended to permit disclosure of data for EITI

The confidentiality provision in the model PSC and O&G contracts used by MOE should be amended to permit disclosure for EITI purposes and include an EITI reporting obligation on the operators and MOGE.

Further, the new contracts that MOGE will be entering into with successful bidders in the recent rounds of the O&G block auctions should incorporate these amendments, to avoid the need to seek contract waivers for EITI reporting in the future.

3.23.2.3

2.1.3 Provisions for EITI should be included in the mining law and regulations which are currently being amended

An EITI/transparency provision be included in the amendments to the Mines Law 1994 to provide a legal basis for EITI implementation. This can be done through minor amendments to the law with more detailed EITI implementing regulations issued by the Ministry of Mines at a later stage.

This approach has the benefit of overriding any confidentiality restrictions in mining contracts and legally obliging mining operators to comply with the EITI

3.33.3.7

Detailed Report3

requirements. It is likely to be the most effective means of EITI implementation as the mining industry which has a large number of private operators.

2.1.4 The foreign investment regulatory regime could be used to impose an EITI reporting obligation on companies investing in the extractive industries

The Foreign Investment Legislation could be used to impose EITI disclosure requirements on investor companies in the extractive industries as the MIC can impose specific conditions on investments. This can also apply to local companies in the extractive industries under the local citizens' investment regime.

This regulatory mechanism can impose EITI reporting obligations on future investments in the extractive industries only (existing operations would not be included since such regulatory change should not be retrospective). It should be assessed whether it is appropriate for the MIC to be included in the EITI institutional framework in Myanmar.

3.43.4.2

2.1.5 Minor disclosure restrictions exist in legislation that can be addressed through regulatory and executive measures

There are confidentiality restrictions in the Oil-Fields Rules 1918, the Mines Rules 1996, Income Tax Law 1974 (as amended) and the Myanmar Official Secrets Act 1923. These confidentiality provisions are limited in scope and allow the Government to waive compliance with the relevant confidentiality requirement. They would have limited impact on EITI reporting, provided that the Government authorises disclosure for EITI reporting through measures such as contract waivers, regulatory instruments and executive orders.

Please refer to Section 3 for detailed commentary on each of these provisions.

3.23.2.2

3.33.3.2

3.43.4.3

3.43.4.6

2.1.6 The MSG can be established by the Leading Authority

The MSG can be formally established by the Leading Authority with an executive notice as it is within the mandate of the Leading Authority (set out in the President's Office Notification No. 99/2012). This would provide an institutional basis for the MSG, backed by the executive authority of the Leading Authority. The executive notice establishing the MSG should set out key matters such as the composition of the MSG and the mandate of the MSG.

3.63.6.3

2.1.7 The institutional framework for EITI can be established by an executive order of the President

After Myanmar has achieved EITI candidacy status, an executive order of the President's Office should be used to formally establish the institutional framework for Myanmar EITI (MEITI). The order should clearly set out the roles and responsibilities of the MSG and all other EITI-related institutions in Myanmar. As the order would be binding on the executive branch of Government, it should also set out a framework for participation and reporting by Government agencies and state-owned enterprises for EITI.

3.63.6.4

Detailed Report4

2.1.8 EITI Law After achieving EITI candidate status and based on the country's practical experience in preparing for its first EITI report and/or the validation process, there should be consideration given to adopting an EITI Law to legally entrench the EITI institutions and reporting framework in the country.

3.63.6.5

Detailed Report5

3. Detailed ReportThis section discusses issues and recommendations arising from the Legal Review. It expands on the matters referred to in Section 2 (Key Issues and Recommendations) and also comments on other significant matters.

3.1 Introduction3.1.1 Overview of the EITI

The EITI seeks to promote transparency in the extractives industries of participating countries through public disclosure of information relating to:

payments by companies and receipts by government; licensing regimes in the extractives sector; State ownership in the extractives sector; production and export data; and if material, transfers to local governments, social and

infrastructure investment and transportation payments. In accordance with the EITI Standard, countries seeking to implement the EITI are required to form a national multi-stakeholder group (comprised of representatives from government, industry and civil society) (MSG) to oversee EITI implementation in the country and to publish an EITI report in which government revenues and company payments (amongst other information) are disclosed and independently reconciled.

EITI reports must meet the minimum standards of disclosure set out in the EITI Standard and the information necessary to comply with these disclosure requirements must be sought from companies and government agencies. As such, the rights and obligations of the stakeholders to disclose the necessary information is crucial to the EITI process.

3.1.2 Legal barriers to EITI implementation

The EITI Standard requires countries to identify potential legal or regulatory obstacles to EITI implementation. This entails a review of a country's legal and regulatory framework to identify and address barriers to EITI disclosure requirements.

In the context of Myanmar, the Legal Review covered legislation governing the O&G and mining industries as well as other legislation relevant to the extractives industries in Myanmar in order to identify barriers to data disclosure. Model contracts in the O&G industry were also reviewed in order to identify contractual barriers to disclosure. Detailed findings of this review are set out in Sections 3.2 to 3.5 of this report.

3.1.3 Legal measures for EITI implementation

The EITI implementation process involves the adoption of enabling measures for EITI within the existing legal framework of a country. This includes identifying appropriate legal or regulatory measures for EITI implementation and to address legal barriers to implementation.

In the context of Myanmar, this Legal Review recommends a number of measures to entrench EITI institutionally and legally in Myanmar as well as measures addressing legal barriers to EITI implementation. Detailed recommendations for this are set out in Section 3.6 of this report.

Detailed Report6

3.2 Legal review of the O&G industry For the purposes of the Legal Review, the following key laws and subsidiary legislation relevant to the O&G industry were reviewed (together, the O&G Legislation):(a) Oil-Fields Act 1918; (b) Oil-Fields Rules 1918;(c) Notifications under the Oil-Fields Act 1918;(d) Petroleum Act 1934; and (e) Petroleum Rules 1934.

It should be noted that although these laws and regulations remain in effect, they are generally not applied or enforced in Myanmar today. In practice, all O&G operations in Myanmar today are governed by the terms of contracts entered into between MOGE and private operators, including production sharing contracts (PSCs) and improved petroleum recovery contracts.

3.2.2 Disclosure restrictions under the O&G Legislation

The O&G Legislation is outdated and do not reflect the current regulatory or policy practices of the MOE. However, these laws have not been repealed or amended and are technically relevant for EITI implementation to the extent they affect the reporting and disclosure obligations of operators and the Government. Under the Oil-Fields Rules 1918 (made pursuant to the Oil-Fields Act 1918) (Oil-Fields Rules), O&G operators are required to record, make available for inspection and report certain technical, operational and production information to the Government (Rules 9 to 13). However, the Oil-Fields Rules also require the Government to maintain the confidentiality of such information and to disclose it in limited circumstances which would not apply for EITI reporting purposes (Rule 14). This confidentiality provision applies only to the Government and only in respect of information obtained from operators under the

Oil-Fields Rules which are no longer applied today. In fact, information is usually obtained from operators by the MOE in accordance with the terms of the contracts (e.g. PSCs) governing the relevant projects. As such, this restriction on disclosure has limited practical impact on EITI reporting. In any event, this confidentiality provision can be amended by the President who has express authority under the Oil-Fields Act 19181 to "make rules for regulating all matters connected with or subsidiary to any operations for the winning of oil or gas or both" (Section 13). Therefore, this restriction can be addressed in an executive order of the President proposed to be issued after Myanmar obtains EITI candidacy status (see Section 3.63.6.4) by including a general provision which waives, for the purposes of EITI reporting, any confidentiality obligations in regulatory or administrative instruments which the President has authority under law to amend or issue.

Recommendation

The Oil-Fields Rules contain a confidentiality provision which applies to information obtained by the Government from O&G operators under the Oil-Fields Rules 1918. This provision has limited practical impact on the EITI reporting requirements as the rules are no longer actively applied by MOE today. In any event, the rule can be waived by the President relying on his authority under the Oil-Fields Act 1918 to make rules for O&G operations.

It should also be noted that the O&G Legislation does not impose any obligations to publicly disclose all information relevant to EITI that could be used as a legal basis for EITI reporting in the O&G industry.

1 Note that British colonial era laws such as these were amended through the Union of Burma (Adaptation of Laws) Order 1948 to incorporate references to Myanmar's modern system of government (using terminology such as "President" and "Union Parliament").

Detailed Report7

3.2.3 Contractual restrictions on disclosure

In practice, the contracts between MOGE and private O&G operators primarily govern the conduct of O&G operations in Myanmar today. As such, the contractual obligations of MOGE and the operators in relation to reporting and disclosure under the O&G contracts are particularly relevant for EITI implementation.

The existing O&G contracts are predominantly PSCs entered into between MOGE and O&G operators (and shareholders in the project). The PSCs are generally supplemented or amended for specific matters by way of side letters entered between the parties. The PSCs are all based on a model contract that the MOE has used for many years. This model contract contains a confidentiality provision which prevents the public disclosure of information relating to O&G operations by both MOGE and the operators as follows:

Contractor undertakes to maintain in strictest secrecy and confidence all data and information purchased or acquired from MOGE as well as during the course of operations in the Republic of the Union of Myanmar. The Contractor understands fully that this undertaking and obligation is a continuing one which will be binding also on its successors and permitted assigns, until such time when MOGE agrees in writing to release Contractor from its undertakings and obligations.[*Note that the latest model PSC contains an exception for disclosures required by law (which only applies to operators and not MOGE).]

MOGE may use at its own discretion all the data and information obtained during the course of operations in the Republic of the Union of Myanmar but shall undertake to maintain such data and information in strictest secrecy and confidence during the term of this Contract. (clause 27.5 of the model PSC)

This confidentiality provision is understood to be contained in all PSCs entered into by MOGE. It is drafted broadly and would capture information required to be disclosed by MOGE and operators for EITI reporting purposes, including production and payment data. This confidentiality provision would also implicitly prohibit the disclosure of the PSCs themselves. This confidentiality obligation would need to be waived to permit the disclosure of information for EITI.

The waiver can be in the form of a short-form written instrument (such as a side letter) entered into between MOGE and each O&G operator. A waiver instrument would need to be drafted for each existing PSC and O&G contract which contains the confidentiality provision. The waiver should include:

(a) an amendment to the confidentiality provision to include an exception for disclosures required by law, regulations or rules, or to meet requirements set out by a national body established for the purposes of implementing the EITI in Myanmar. This would permit both MOGE and the operator to disclose any information required for EITI as mandated by law, regulatory instruments or an EITI institution such as the MSG or the Leading Authority; and

(b) as an additional measure, a commitment or undertaking by MOGE and the operator to comply with any reporting and disclosure requirements mandated by a national body established for the purposes of implementing the EITI in Myanmar. This would create a positive contractual obligation on operators to comply with EITI disclosure requirements (even in the absence of a formal legal requirement under a law or regulation).

The waivers would need to be drafted based on a review of each contract and in consultation with MOGE, MOE (including the Energy Planning Department) and the Attorney General's Office as

Detailed Report8

the main Government agencies concerned with the O&G contracts.

Further, MOE has been conducting two rounds of auctions of onshore and offshore O&G concessions in Myanmar which commenced in 2012. The successful bidders of the onshore block auctions were announced in October 2013 and successful bidders in the offshore block auctions are expected to be announced in early 2014. The contracts (mainly PSCs) between MOGE and successful bidders in these auctions have not been finalised, although the model contracts have been provided to all bidders. Therefore, there is an opportunity to incorporate the amendments required for EITI implementation in these new full form contracts. This includes amending the confidentiality provision in the model PSC to permit disclosure for EITI reporting purposes and including a positive obligation to comply with EITI reporting requirements (as proposed in the contract waivers). Incorporating these amendments prior to execution of the contracts would remove the need to seek individual contract waivers for EITI reporting at a later stage (and possibly delay the EITI process).

Recommendations

It is recommended that the Government seeks waivers of confidentiality obligations in the O&G contracts and propose a draft waiver as an official Government position on EITI implementation. As noted in Section 3.23.2.8 below, the MOGE has a close working relationship with current O&G operators which can be leveraged to facilitate the process for obtaining such waivers.

It is further recommended that the Government amends the confidentiality provision in the model PSC and O&G contracts to permit disclosure for EITI purposes and to include an EITI reporting obligation. This is strongly recommended for the new contracts that MOGE will be entering into with successful bidders in the recent rounds of the O&G block auctions.

For completeness, it should be noted that the model PSCs contain a "change of conditions" clause (clause 27.6) and a "stabilisation" clause (clause 27.7). The stabilisation clause requires the parties to negotiate amendments to the contract to ensure that new or amended laws, decrees or regulations do not materially change the economic benefit of the parties under the contract. It is arguable that the "stabilisation" clause is not directly relevant to the EITI process as any changes to laws and regulations for EITI implementation should not result in material changes to the economic position of the parties. The "change of conditions" clause requires the parties to negotiate any amendments to the contract which are required as a result of a change in circumstances not envisaged in the contract. As the EITI implementation process is not envisaged in the contract, this clause could require the parties to negotiate and agree necessary amendments to the contract.

However, given that EITI only relates to data disclosure, any amendments should be limited to the confidentiality clause and should not be used as a basis to renegotiate other terms of the contract (which could result in delays to the EITI process). The contract waivers should be proposed by MOGE as the only amendments to the contract sought for EITI implementation. Other amendments or renegotiation of the contracts should be kept a separate process from the contract waivers to prevent any delays to the process.

3.2.4 Register of O&G concessions

The EITI Standard requires countries to maintain a public register of extractive sector licences and concessions which discloses the name of the concession holders, the concession area, date and duration of concession and the commodity produced (EITI Requirement 3.9). The O&G Legislation does not prohibit the disclosure of such concession information by the Government.

Detailed Report9

There is presently no publicly available register of O&G concessions in Myanmar, although information about the current O&G operators, coordinates of the O&G blocks and term (i.e. duration) of the projects is publicly available from various sources. International O&G companies which are subject to the disclosure laws in their home jurisdictions may also publicly disclose details of their projects in Myanmar. However, this is not in the form of a central register or cadastre system and the Government would need to develop a public register of O&G concessions in order to meet the EITI Standard.

3.2.5 Disclosure of allocation and transfer of O&G concessions

The EITI Standard further requires countries to disclose detailed information regarding the award or transfer of extractive sector licences and concessions to companies covered in the EITI reports, including a description of the process, the technical and financial criteria used and information about the recipient(s) (EITI Requirement 3.10). The EITI Standard also requires the Government to disclose the applicants and bid criteria used in auctions of the licences or concessions (EITI Requirement 3.10(b)).

The O&G Legislation does not restrict the disclosure of the award or transfer of O&G concessions or the bid criteria used in the O&G block auctions. However, the confidentiality provision in the PSC contracts (discussed in Section 3.2.3 above) would restrict the disclosure of the transfer of O&G concessions under PSCs by MOGE.

In practice, the MOE has been publicly announcing the award of O&G blocks to operators, although the technical and financial criteria used to award the blocks have not been disclosed in full. In the recent O&G block auctions, the initial request for expressions of interest and list of qualified applicants were publicly released by MOE. However, full details of the bid criteria including

the criteria for assessing the bids were not publicly released. Disclosure of such information would be required as part of the EITI regime in Myanmar.

In addition, the transfer (or renewal) of O&G blocks or interests in the blocks is not publicly released by MOE. The confidentiality provision in the PSCs would also prohibit the disclosure of any information regarding the transfer of O&G concessions and a waiver of the confidentiality provision in the PSCs would be required (as discussed in Section 3.2.3 above). It is worth noting that the transfer of interests in O&G blocks by operators is uncommon in practice, and the price required to be paid to the Government for such transfers (under the model PSCs) is widely considered to be commercially unfavourable by operators.

Recommendation

For the purposes of EITI Requirement 3.10(a), a waiver of confidentiality provision in the PSCs would be required in order to disclose information on the transfer of O&G interests. Such contract waiver on the terms recommended in Section 3.2.3 above should be obtained by the Government to ensure that this EITI disclosure requirement can be met.

In addition, Myanmar should also consider including in the EITI report information on the renewal or extension of O&G concessions (e.g. extension of contracts or project terms) and the assessment criteria for such renewals. Including this information as enhanced disclosure matters in the EITI report would improve transparency and address concerns regarding the renewal of certain O&G contracts (which were raised in the context of the recent auctions).

3.2.6 Disclosure of beneficial ownership details

Detailed Report10

From 2016, the EITI Standard would require countries to maintain a public register of beneficial ownership details of the companies (except public companies) that bid for, operate or invest in extractive assets (EITI Requirement 3.11(a)-(b)). There are no restrictions on the disclosure of beneficial ownership information by the Government, state-owned enterprises and private companies under the O&G Legislation.

Many of the private operators in the Myanmar O&G sector are publicly listed companies which would not be subject to such disclosure. The other main group of industry players in the Myanmar O&G sector are foreign government owned enterprises for which disclosure of ownership details should not present a burden. A potential group of industry players that this reporting requirement would impact are private Myanmar companies which have been established to partner with foreign companies in the bids for onshore and shallow water offshore blocks (as it is a requirement of MOE for foreign companies to have local partners). These private local companies are already subject to the scrutiny of MOE and the Myanmar Investment Commission, including as to their ownership details which would need to be disclosed for EITI purposes in the future.

3.2.7 Government policy on disclosure of O&G contracts and concessions

The EITI Standard encourages implementing countries to publicly disclose contracts and licences in the extractive industries and requires the Government to set out its policy on disclosure of contracts and licences in the extractive industries (EITI Requirement 3.12). There are no express restrictions under the O&G Legislation on the public disclosure of O&G contracts and concessions by the Government. However, as discussed in Section 3.2.3 above, contracts entered into between MOGE and O&G operators contain confidentiality provisions which will need to be amended for EITI implementation.

In practice, the MOE publicly discloses a model short-form "terms and conditions for PSCs" (which sets out the key financial and production sharing regime), but does not disclose the full terms of the contracts. A copy of the PSC between MOGE and Total for the Yadana project dated 9 July 1992 is available publicly2 but no other long-form PSCs are publicly available.

In terms of the disclosure practices for O&G concessions, information on O&G blocks in Myanmar and the identity of the concession holders is generally publicly available although, as noted before, it is not available through a central government portal. Other information such as the assessment criteria for the award, renewal and transfer of O&G concessions is not publicly disclosed. Disclosure of such information is not prohibited under the O&G Legislation and would enhance transparency in the industry.

3.2.8 Consultation with O&G companies

Consultations held with private operators for the Legal Review indicate that the operators would be fairly cautious in their approach to contract disclosure. Given that the short-form "terms and conditions for PSCs" which contains most of the commercial terms of the contract is publicly released by MOE, it is arguable that full disclosure of PSCs would not be commercially adverse to the operators.

One particular concern raised by an operator was the disclosure of the terms of the gas supply contracts and in particular, the pricing information under such contracts. Disclosure of gas supply arrangements would be relevant for EITI if it involves payments or benefits to the Government (which may or may not include the sensitive pricing information) or involve state participation. The Government may encounter this issue in seeking waivers of the

2 Available at http://www.revenuewatch.org/sites/default/files/Total%20PSC.pdf (accessed on 14 October 2013).

Detailed Report11

confidentiality provisions in the O&G contracts and would need to consult with the operators to clarify their disclosure obligations with respect to such information.

It was evident from the consultations that there was a close working relationship between MOGE and operators which can be leveraged for EITI implementation. The companies consulted indicated that in practice they would take the lead of MOGE on the EITI process, including on the disclosure and reporting requirements and on waivers of confidentiality restrictions. The operators are clearly aware that they need to maintain a close working relationship with MOGE in the long run and appear to be willing to accommodate reasonable requests by MOGE for EITI implementation. Therefore, if MOGE plays a facilitating role for the O&G industry's participation in the EITI process, the operators in the O&G sector are likely to comply with the regime, even in the absence of legal obligations.

It is understood that MOE has already provided written notice to the current O&G operators of the Government's intention to implement the EITI and have received written responses from operators indicating their support for the process. This is a good step in the EITI implementation process for the O&G sector. An important follow-up step would be to agree the contract waivers to address the confidentiality restrictions in the O&G contracts and to seek participation of the O&G companies in the MSG.

3.3 Legal review of the mining industryFor the purposes of the Legal Review, the following laws and subsidiary legislation governing the mining industry were reviewed (together, the Mining Legislation):

(a) Myanmar Mines Law 1994; (b) Myanmar Mines Rules 1996; and(c) Myanmar Gemstone Law 1995.

A number of other sector-specific laws which apply in the Myanmar mining industry, i.e. the Salt Enterprise Law 1992 and the Myanmar Pearl Law 1995, were not reviewed as those sectors are not expected to be part of the scope of EITI in Myanmar.

3.3.2 Disclosure restrictions under the Mining Legislation

The Mining Legislation does not contain disclosure restrictions, except for a confidentiality provision in the Mines Rules 1996 (Mines Rules) which prohibits a mines inspector from disclosing information obtained in the course of a mine inspection without the consent of the MOM (Rule 111). This disclosure restriction is fairly narrow and covers only information obtained in mine inspections. MOM also has authority to consent to the disclosure of the information at its discretion. Therefore, if the EITI reporting regime includes information obtained from physical mine inspections, the MOM would need to provide its consent to the disclosure of such information for EITI purposes.

The Mining Legislation is administered by the MOM. The Mines Law 1994 has been superseded in some respects by current policy practice of the MOM and later laws. For example, the law provides for six types of permits to be issued (i.e. prospecting permit, exploration permit, large scale production permit, small scale production permit, subsistence production permit and an integrated permit) whereas it is understood that MOM no longer issues subsistence production permits and integrated permits. Further, although the Mines Law 1994 covers gemstone mining, it has been superseded by the Gemstone Law 1995 which provides that all matters relating to gemstones shall be governed by that law, notwithstanding anything contained in the Mines Law 1994 (section 46 of the Gemstone Law).

Detailed Report12

It should also be noted that the Mining Legislation (in its current form) does not impose any obligations to publicly disclose EITI relevant information that can be used as a legal basis for EITI reporting in the mining industry.

3.3.3 Contractual restrictions on disclosure

The Mines Rules permit the MOM to enter into agreements for prospecting, exploration or production with mining operators and to establish joint-ventures between mining state-owned enterprises and operators (Rules 83 and 84). MOM can enter into such contracts on a production-sharing basis or profit-sharing basis (Rule 85).

The current policy of the MOM is for PSCs to be entered into between private mining operators and the Department of Geological Survey and Mineral Exploration (which is a department of the MOM). Under these PSCs, operators are required to contribute 100% of the investment capital and the Government receives a share of the production (based on a negotiated ratio). Mining operators are also required to pay signature bonuses, dead rent and royalties and provide performance guarantees in connection with the PSCs. In the pre-production phase, the MOM also enters into agreements for exploration and feasibility study with private mining operators.

Given that contracts largely govern mining operations in Myanmar, there are likely to be contractual confidentiality provisions which could restrict the disclosure of information for EITI purposes. Depending on the scope of such confidentiality provisions, contract waivers or regulatory instruments may be required to permit the disclosure of data for EITI reporting purposes. .

If there are contractual barriers to disclosure and waivers are required from individual mining companies, it may be a time consuming process to seek such waivers. While the O&G industry in Myanmar is dominated by well-resourced international

companies with MOGE as a focal government liaison, the mining industry is dominated by smaller companies with limited resources and limited government liaison. In such circumstances, legal or regulatory mechanisms to overcome contractual confidentiality obligations and impose an EITI disclosure obligation on mining companies may be more efficient for EITI implementation. Please refer to Section 3.3.7 below for a discussion on incorporation EITI in the Mining Legislation.

3.3.4 Register of mining permits

As noted above, the EITI Standard requires countries to maintain a publicly available register of extractive sector licences and concessions (EITI Requirement 3.9). The Mining Legislation does not prohibit the disclosure of licence information required by the EITI Standard.

There is presently no public register of mining permits/concessions in Myanmar and limited information is available on mining permit holders, permit areas and duration of the permits. The Government would therefore need to develop a public register of concessions and permits for the mining industry as part of EITI implementation.

3.3.5 Disclosure of allocation or transfer of mining permits

The EITI Standard requires countries to disclose detailed information regarding the award or transfer of mining permits to companies covered in the EITI reports, including a description of the process, the technical and financial criteria used and information about the recipient(s) (EITI Requirement 3.10). The Mining Legislation does not contain any restrictions on the disclosure of such information.

Currently, the MOM does not publicly release any information on the award or transfer of mining permits. The Government would need to disclose such information for the mining companies which fall within EITI reporting regime. There may be restrictions on

Detailed Report13

disclosure of the transfer of permits contained in individual contracts between MOM and operators. Such contractual restrictions would need to be addressed through contractual waivers or by legal/regulatory means (depending on the scope of the confidentiality provision).

3.3.6 Disclosure of beneficial ownership details

The EITI Standard would require the Government and state owned enterprises to disclose their level of beneficial ownership in mining companies operating in Myanmar and any changes in ownership level (EITI Requirement 3.11(c)). From 2016, countries would also be required to maintain a public register of beneficial ownership details of the companies (except public companies) that bid for, operate or invest in extractive assets (EITI Requirement 3.11(a)-(b)). There are no restrictions on the disclosure of beneficial ownership information by the Government, state-owned enterprises and private companies under the Mining Legislation.

The MOM does not currently disclose such information publicly and would need to do so as part the EITI reporting process.

It should be noted that beneficial ownership details can be fairly sensitive information for private companies to disclose, and the mining industry in Myanmar is dominated by smaller privately owned companies with limited experience in transparency standards. Specific legal or regulatory mechanisms, therefore, are likely to be required to compel companies to provide this information for EITI purposes if it becomes mandatory under the EITI Standard. This can be addressed in the mining law and regulations (refer to Section 3.33.3.7 below).

3.3.7 Incorporating EITI in the Mining Legislation

The Myanmar Mines Law 1994 is currently being amended and expected to be tabled in parliament for approval in the near future. A new set of mining regulations will also be prepared to support the amended mining law. In light of these legislative reforms, it is

recommended that some high-level references to EITI or transparency principles be included in the mining law in order to provide a legal platform for EITI implementation in the mining industry.

This can be done by including:

as one of the objectives of the law (set out in section 3 of the Mines Law) - "to promote high standards of transparency in the Myanmar mining industry including through the implementation of EITI". The statement can be drafted in general terms as it is a statement of principle rather than a substantive statutory obligation (but can provide a legal basis for policy-making by the MOM);

a provision in the law that the Ministry of Mines and all mining permit holders shall, in order to promote transparency in the mining industry, comply with all applicable reporting and disclosure requirements mandated by a national body established for the purposes of implementing the EITI in Myanmar;

a provision waiving all confidentiality obligations in mining contracts to the extent necessary for the MOM and the mining permit holders to comply with applicable reporting and disclosure requirements mandated by a national EITI body; and

detailed EITI disclosure and reporting requirements in the mining regulations. If the Mines Law includes a reference to transparency/EITI requirements, the MOM can issue more detailed regulations for EITI implementation at a later stage as it has authority under the law to issue regulations for the purpose of administering the law (section 39 of the Mines Law).

The key advantages of including an EITI-related provision in the Mines Law are as follows:

Detailed Report14

(a) the EITI will be embedded in the legal framework for the mining industry and will not be subject to changes in political will to implement EITI;

(b) there will be a legal basis to compel mining operators to comply with EITI requirements and to enforce such obligations, in circumstances where there is a diverse group of operators who may not be familiar with EITI;

(c) an EITI provision in the law can be used to overcome any confidentiality provisions in the mining contracts. This is simpler and less time-consuming than seeking waivers for contractual confidentiality provisions from individual operators; and

(d) only minor amendments to the law are required and there is flexibility for the MOM to issue regulatory instruments in the future to tailor and update the EITI regime in the mining industry as necessary.

Providing a legal basis for EITI implementation in the mining law is likely to be the most efficient approach given the timing of the mining law reform. The alternative approach would be to rely on executive orders and regulatory instruments issued by the Government (which have limited enforcement powers without statutory backing) and seek contractual waivers/undertakings from operators. This approach has a higher risk of non-compliance and would be more time-consuming. Alternatively, an EITI law could be passed in Myanmar in order to cover these matters in the future (see Section 3.63.6.5 below). However, the process of drafting and enacting an EITI law would take time and is not likely to start until Myanmar has received candidacy status.

Recommendations

It is recommended that an EITI /transparency provision be included in the Mines Law to provide a legal basis for EITI implementation in the mining industry. This can be done through minor amendments

to the law with more detailed EITI implementing regulations issued by the MOM at a later stage.

This approach has the benefit of overriding any confidentiality restrictions in contracts and legally obliging mining operators to comply with the EITI requirements. It is likely to be the most effective means of EITI implementation in the Myanmar mining industry which has a large number of private operators with limited experience in transparency.

3.4 Review of other key legislation In addition to the O&G Legislation and Mining Legislation, the following key legislation which are relevant to the extractive industries in Myanmar were reviewed to identify any legal barriers to EITI implementation: Constitution of Myanmar (2008);

income tax legislation;

foreign investment legislation;

companies legislation;

State-owned Economic Enterprises Law 1989;

Myanmar Official Secrets Act 1923; and

Contract Act 1872.

3.4.1 Constitution of Myanmar (2008)The Constitution provides for national ownership of all natural resources in Myanmar and grants legislative power to the Union (i.e. national level government) to enact laws for resource governance. This constitutional mandate is set out in Article 37 of the Constitution which states:

The Union:

Detailed Report15

(a) is the ultimate owner of all lands and all natural resources above and below the ground, above and beneath the water and in the atmosphere in the Union;(b) shall enact necessary law to supervise extraction and utilization of State owned natural resources by economic forces…

This broad mandate provides the national Parliament (Pyidaungsu Hluttaw) legislative authority to pass laws on initiatives such as the EITI which seek to supervise the economic development of the natural resources in Myanmar. The Constitution does not otherwise contain any transparency or privacy rights which may act as a barrier to EITI implementation in Myanmar.

3.4.2 Foreign investment legislation The foreign investment regime in Myanmar is governed by the Foreign Investment Law 2012 and subsidiary legislation (Notification No. 11/2013 of the Ministry of National Planning & Economic Development and Notification No. 01/2013 of the Myanmar Investment Commission) (together, the Foreign Investment Legislation). Foreign investors seeking to invest in Myanmar may apply for a permit from the Myanmar Investment Commission (MIC) which allows the investor to take advantage of a number of incentives, including: an income tax holiday of 5 years, with the possibility of

extension by the MIC (Section 27 of the Foreign Investment Law); and

the ability to obtain property leases of up to 50 years, with the potential to extend the lease for two further periods of 10 years each (Sections 31 and 32 of the Foreign Investment Law).

The Foreign Investment Legislation does not contain any restrictions on disclosure of information relevant to EITI purposes. In fact, it imposes certain reporting obligations on investors such

as the submission of quarterly business reports to the MIC, although these reporting obligations would not encompass all of the relevant information required for EITI disclosure. It is worth noting that the Foreign Investment Legislation provides an avenue to impose EITI disclosure requirements on foreign investors in the extractive industries. The MIC can impose specific conditions on investments by regulation and currently imposes conditions on foreign investments in the extractive industries, such as the following (under Notification No. 01/2013 of the Myanmar Investment Commission): for exploration, prospecting and feasibility study of minerals,

permits may only be issued for periods specified in the foreign investment regulations;

for large scale production of minerals, the approval of the Government is required and permits may only be for periods specified in the Foreign Investment Regulations.

for the production and marketing of rare earths, strategic minerals and gemstones, a joint venture with State is required; and

for the exploration and extraction of O&G, the approval of the Government and consultation with MOE is required.

The MIC also has wide authority under the Foreign Investment Legislation to supervise and monitor foreign investments in Myanmar and ensure compliance with the conditions imposed on foreign investments. Therefore, the MIC could issue a regulatory notification which imposes a condition on foreign investors in the mining and O&G industries to comply with any EITI reporting and disclosure requirements (as mandated by a national body established for the purposes of implementing the EITI in Myanmar). A similar regime would need to be applied for local investors under the Myanmar Citizens Investment Law 2013 and subsidiary regulations.

Detailed Report16

This is an alternative regulatory option to including an EITI reporting obligation in the model contracts in the O&G industry and in the laws/regulations in the mining industry. Contractual confidentiality restrictions would still need to be amended to prevent a conflict between the reporting obligation and confidentiality provisions. This approach would apply only to companies entering the extractive industries in the future (and cannot apply retrospectively to companies that are already operating in Myanmar). It should be noted that if Myanmar elects to seek disclosure of beneficial ownership information as part of the EITI process, this regulatory approach would be useful as it would apply to foreign and local companies that bid for or operate in the extractive sector, or invest in extractive assets (as per EITI Requirement 3.11(c)).Including an EITI reporting condition in investment permits would require the MIC to be involved in enforcing compliance with the condition (if necessary). The Government would need to consider whether including the MIC in the EITI institutional framework in Myanmar would be appropriate in light of the inter-ministry coordination and reporting structures. The work of the MIC currently falls under the portfolio of the Ministry of National Planning and Economic Development, which is not included in the Leading Authority but included in the Working Committee. The MIC is currently chaired by the Minister for Finance, H.E. U Win Shein. Given the MIC's mandate and current workload, it would need to be assessed whether this is an appropriate institutional structure for EITI implementation. Please also refer to Section 3.6 below for a discussion of other legal and regulatory measures for EITI implementation.

3.4.3 Income Tax Legislation

The national income tax legislation in Myanmar consists of the Income Tax Law 1974 (as amended) and subsidiary legislation (Income Tax Regulations and Income Tax Rules issued under

Notifications No. 102/2012 and 103/2012 of the Ministry of Finance and Revenue) (together, the Income Tax Legislation)The Income Tax Law contains a confidentiality provision which restricts the disclosure of information relating to proceedings brought under the law, except where a Government authority agrees to summon such information (section 49(a) of the Income Tax Law). Public servants are prohibited from disclosing such information (except in matters relating to the Union Government) and face prosecution or imprisonment for any contravention (Section 49(b)-(c) of the Income Tax Law). In the context of EITI implementation, this disclosure restriction is fairly narrow and applies only to information relating to enforcement proceedings brought under the Income Tax Legislation. It does not directly restrict the disclosure of information as part of the EITI reporting regime in the ordinary course. Further, prosecutions for contravention of this confidentiality provision can only be brought against the public servants with the sanction of the Ministry of Finance (Section 50 of the Income Tax Law). The Ministry of Finance is one of the key ministries involved in the EITI implementation in Myanmar and would need to ensure that disclosure for EITI purposes does not result in enforcement action under the law.

3.4.4 Myanmar Companies Legislation

The Myanmar Companies Act 1914 and subsidiary legislation (Myanmar Companies Rules 1940 and Myanmar Companies Regulations 1957) (together, the Companies Legislation) govern the conduct of companies and company affairs in Myanmar today. The Companies Legislation contains annual reporting requirements for companies registered in Myanmar, including the preparation of statutory reports setting out the share capital and details of the receipts and payment of a company (Section 77 of the Companies Act) and financial reports containing balance sheets and profit and loss statements (Section 131 of the

Detailed Report17

Companies Act). Such reports are required to be audited and sent to the Companies Registrar as well as members of the companies. The Companies Legislation also imposes certain auditing requirements for companies in which the Government holds shares (Section 145A of the Companies Act). In practice, however, the financial reporting and auditing provisions of the Companies Legislation are not comprehensively or consistently applied and there is limited transparency on the financial affairs of companies in Myanmar today. However, the Companies Legislation does not contain any confidentiality or disclosure restrictions on company information and does not pose a barrier to disclosure for EITI reporting purposes. The Companies Legislation is expected to be reformed in the near future. There may be scope to include transparency or disclosure provisions in the law, although given that it would govern all companies in Myanmar, EITI specific matters are more effectively addressed in sectoral legislation such as the Mining Legislation or laws which can earmark companies in the extractive industries such as the Foreign Investment Legislation.

3.4.5 State-owned Economic Enterprises Law 1989

The State-owned Economic Enterprises Law 1989 (SOEE Law) grants the Government the sole right to carry out certain economic activities as state-owned enterprises (as set out in section 3 of the SOEE Law), including:(a) the exploration, extraction, production and sale of

petroleum and natural gas ;(b) the exploration and extraction of pearl, jade and precious

stones and export of the same; and(c) the exploration and extraction of metals and export of the

same.

This law also permits the Government to carry out state-owned enterprises through joint ventures with other parties (Section 4 of

the SOEE Law) and gives wide powers to the Government to prescribe conditions regarding the products used or produced by state-owned enterprises (Section 5 of the SOEE Law). Although this law remains in effect, it no longer reflects the current economic policies of the country and is inconsistent with newer laws such as the Foreign Investment Legislation. In practice, the Government no longer exercises the sole right to carry out the listed economic enterprises. As part of the country's transition , many state-owned operations, including in the mining industry, have been privatised (in spite of the SOEE Law). The SOEE Law does not seek to regulate the conduct of the state-owned enterprises and imposes no substantive obligations on state-owned enterprises, such as reporting or disclosures requirements relevant for EITI implementation. On the other hand, it also does not contain any disclosure restrictions that would impact upon the Government's ability to comply with EITI disclosure requirements.

3.4.6 Myanmar Official Secrets Act 1923

Traditionally, laws relating to the protection of state secrets can pose a barrier to disclosure of information for EITI purposes. The Myanmar Official Secrets Act 1923 (Secrets Act) still applies today and is primarily targeted at prohibiting actions, including disclosure of information, which are "prejudicial to the safety or interest of the State". It contains a provision which makes it an offence for a person to communicate to any unauthorised person, any information (including contracts) which is obtained in the course of holding a government office or a government contract (Section 5(1) of the Secrets Act). The Secrets Act also provides that no Court may try an offence under the Act unless authorised by the President (Section 13(1) of the Secrets Act).

In the context of EITI implementation, this law would apply to unauthorised disclosure of information by government employees or counterparties to state contracts, although an offence can only

Detailed Report18

be tried with the authority of the President. Any disclosures made in compliance with EITI requirements must be authorised by the Government in order to fall outside the scope of prohibition under this law. It would be important for companies that are party to contracts with the Government to have clear regulatory authority to disclose information for EITI purposes. Such authority can be evidenced by contract waivers, law, regulations and executive orders which permit disclosure for EITI purposes. It would be important to ensure that the Myanmar EITI institutions are established formally with the Government's executive authority so that disclosure to such institutions for EITI purposes would be authorised disclosure for the purposes of the Secrets Act. Please also refer to Section 3.6 below for a discussion of the legal and regulatory measures to support EITI implementation.

3.4.7 Contract Act 1872

The Contract Act 1872 (Contract Act) is a colonial-era legislation which applies to contracts under Myanmar law. It sets out basic contract law principles which applies to contracts under Myanmar law and was included in the Legal Review to determine whether it contains provisions which may impact on EITI disclosure requirements.The Contract Act does not contain any confidentiality requirements which would constitute a barrier to EITI reporting. It contains a provision which permits confidentiality restrictions in contracts (governed by Myanmar law) to be overwritten. Section 37 of the Contract Act provides that a party is not required to perform its obligations under a contract if such performance is excused under a law. Therefore, if a law is enacted with a provision waiving confidentiality obligations in contracts for EITI reporting purposes, parties to contracts would be excused from complying with confidentiality provisions without any consequences under the contract. This overcomes the need to seek individual waivers of

confidentiality provisions in contracts and the Government should keep this in mind when preparing laws for EITI implementation.

3.5 Review of draft Law relating to the Registration of Associations

3.5.1 Draft Law for the Registration of Associations

The Legal Review included a review of the draft Law for the Registration of Associations (dated 14 October 2013) (Draft Associations Law) which is reportedly being discussed in the Union Parliament and likely to be passed in the near future. As at the date of the final report, it has been reported that this law will undergo further revision although the proposed amendments have not been published. As such, it is likely that the final version of the law passed by the Union Parliament will differ from the version reviewed for this report. This law is relevant to the EITI process as it governs the registration of civil society organisations (CSOs) in Myanmar. The participation of CSOs is one of the central component of the EITI process and the EITI Standard mandates the "full, independent, active and effective participation" of CSOs in the process (EITI Requirement 1). The objectives of the Draft Associations Law are (as set out in section 3 of the law): to enable local and international non-governmental

associations to be registered in accordance with the law; to enable associations to form and operate systematically and

freely; to ensure the activities of associations support the

development of the country and its citizens; to ensure that CSOs are able to seek necessary assistance

from relevant Government ministries in accordance with the law in implementing their activities; and

Detailed Report19

to strengthen CSOs.

It should be noted that this draft law does not apply to organisations that pursue religious and economic activities only or political parties registered under a separate law. The draft law contains many administrative provisions, mostly relating to the formation of "registration committees" to consider CSO registrations, the registration process (including timelines and fees), information required for applications and the renewal process. The registration process can be undertaken at different levels of government, from Union level to township level, based on the area of operation of the CSOs. It is understood that the multi-level registration process is intended to allow CSOs operating in specific areas of the country to register only in their areas of operation, rather than registering at the national Government level. Importantly, the draft law does not specify the criteria upon which the registration committees must consider applications. The registration committees therefore have wide discretion in deciding applications. The law does, however, requires the committees to provide written reasons for rejecting an application and allow CSOs to appeal decisions.

The Draft Associations Law grants the following rights to CSOs registered under the law: acts of registered CSOs carried out in accordance with the law

shall receive the assistance and protection of relevant government ministries which must cooperate in accordance with the law;

registered CSOs have the right to receive assistance from the State;

registered CSOs have the right to receive assistance from any international non-governmental organisations, national organisation or other individuals in accordance with the law;

registered CSOs can sue and be sued, raise funds, receive donations, open bank accounts and own properties and assets; and

registered CSOs have the right to own logos, trademarks and uniform.

Under the Draft Associations Law, CSOs are required to submit an annual report to the relevant registration committee. This report is then used as evidence of continuing operations in order for a CSO's registration to be renewed every five years. Other obligations of CSOs under the draft law include: informing the relevant registration committee if the objectives

or work plans of the CSO are altered;

applying for registration with additional registration committees if the CSO's area of activity changes or increases; or

informing the relevant registration committee if the CSO is disbanded, or changes its names or address.

Unlike previous iterations of the Draft Associations Law, this law no longer contains provisions for penalties or offences arising from non-compliance. As noted above, it is expected that this draft law will be further amended before being approved by Parliament.

3.6 Legal and regulatory measures for EITI implementation

3.6.1 Approaches to EITI implementation

The EITI Standard does not prescribe any specific legal or regulatory means to implement EITI, acknowledging that different approaches would be required in different countries depending on the existing legal and institutional frameworks. The two main objectives of EITI implementation measures adopted in other countries are:

Detailed Report20

(a) removal of barriers to disclosure: ensuring that companies and government agencies can legally disclose information required for EITI reporting, by removing barriers to disclosure; and

(b) ensuring compliance with EITI requirements: ensuring that companies and government agencies comply with the EITI reporting requirements, by imposing obligations in legal, regulatory or other consensual mechanisms.

Most countries have sought to achieve these two objectives through one of the following approaches: implementing EITI as a voluntary (non-binding) and

participatory process carried out with the agreement of all stakeholders;

making ad hoc changes to laws or regulations to remove barriers to EITI and using administrative or regulatory mechanisms to compel/encourage compliance with EITI requirements; or

adopting an EITI-specific law to provide a legal basis for the EITI process.

3.6.2 Measures for EITI implementation in Myanmar

The measures for EITI implementation in Myanmar should be considered in light of matters such as pre-existing legal and regulatory frameworks, the political will and resources of the Government and the commitment and experience of companies involved in the EITI process. Implementing EITI on a purely voluntary basis without any legal or regulatory basis to compel disclosure would be challenging as stakeholders in the country have limited experience with transparency initiatives. There is a strong culture of compliance with executive authority which can be used to drive the EITI process given the political will in the Government. In addition, some legal and regulatory measures should be employed to

provide a stable and sustainable basis for the EITI process in Myanmar. Although it may be time consuming to enact legal and regulatory changes to compel EITI reporting, doing so would provide clear guidance to stakeholders and ensure sustainability of the reporting process. As noted in the World Bank's report titled "Implementing EITI for Impact" (2012, page 125):

Those countries that have invested time in providing a regulatory or legislative basis and/or requisite waivers for EITI have often been able to implement the standard more rapidly because regulations or legislation clarify the roles of all parties involved in the process. […]

Some countries without such a legal basis have suffered delays in implementation (for example, due to an inability to ensure that all companies will report data or to assure that the appointed Reconciler or auditor will have access to payments and revenue data.

In light of the legal barriers to EITI implementation identified in this Legal Review and the current timeframe for implementation, a mixture of voluntary mechanisms (e.g. contract waivers), legal and regulatory mechanisms (e.g. the mining law and regulations) and executive instruments (e.g. Presidential notifications) should be used to sustain the EITI process in Myanmar.

Recommendations

For the purposes of EITI implementation in Myanmar, it is recommended that:

(a) contract waivers and amendments be sought to remove barriers to disclosure (refer to Section 3.23.2.3);

(b) minor changes to laws and/or regulations be made to compel compliance with EITI reporting requirements by companies (refer to Sections 3.33.3.7 and 3.43.4.2);

Detailed Report21

(c) the MSG be established by an executive notice issued by Leading Authority (refer to Section 3.6.3);

(d) an executive order (i.e. Presidential Notification) be passed after Myanmar achieves EITI candidacy status to institutionalise EITI in Myanmar and to ensure compliance by Government agencies (refer to Section 3.6.4); and

(e) following the publication of the first EITI report or the validation process, Myanmar considers passing an EITI law to entrench the EITI in the country's legal framework and to address any issues identified in preparing the initial EITI report (refer to Section 3.63.6.5).

In terms of timing, the Government should consider taking steps to implement the recommendations set out in paragraphs (a) and (b) prior to achieving EITI candidacy status as those steps may take time and would need to be in place for EITI reporting. The Leading Authority notice recommended in paragraph (c) should be issued at the time MSG is formed. The executive order recommended in paragraph (d) should be issued after Myanmar obtains candidacy status and an EITI law can be considered at a later stage to take into account on the country's experience in preparing its first EITI report.

3.6.3 Establishment of the MSG by the Leading Authority

The current institutional framework for EITI in Myanmar was first established by a notification of the President's Office (Notification No. 99/2012) on 14 December 2012 (Presidential Notification). The Presidential Notification created the Leading Authority for the purposes of, amongst other things, improving resource governance and investment climate, promoting greater transparency and cooperation between the private sector and civil society groups and leading the EITI implementation in Myanmar. The Leading Authority was given specific responsibilities under the

Presidential Notification including implementing tasks necessary for Myanmar to apply for and become a candidate country of the EITI. Subsequently in April 2013, the Leading Authority (as part of its mandate under the Presidential Notification) established the Working Committee to carry out steps necessary for EITI implementation. The Working Committee comprises 11 Government officials and its terms of reference are set out in a notification of the Leading Authority. Please refer to Schedule A of this report for a table setting out in detail the composition and mandate of each of the Leading Authority and the Working Committee.As an integral part of the EITI process, the Government is required to form an MSG to oversee the implementation of the EITI in Myanmar (EITI Requirement 1.3). The establishment of the MSG is within the mandate of the Leading Authority (set out under the Presidential Notification), as it is a task necessary for Myanmar to achieve EITI candidacy status in accordance with the sign-up requirements in the EITI Standard. The MSG can be formally established by the Leading Authority with an executive notice (similar to the notice issued by the Leading Authority to form the Working Committee). This would provide an institutional basis for the MSG, backed by the executive authority of the Leading Authority. The executive notice establishing the MSG should set out key matters such as the composition of the MSG and the mandate of the MSG to carry out tasks in accordance with the EITI Standard. A template form of the notice that the Leading Authority could use as a basis for this notice has been provided to the MEITI office, solely for discussion purposes. The final form of notice issued by the Leading Authority to establish the MSG should be based on consultations with stakeholders and issued by a decision of the Leading Authority.

Detailed Report22

Establishing the MSG with an executive instrument has the advantage of being administratively simple but does not provide the MSG with the status of a separate legal entity, which can only be granted under a law enacted by the Parliament. Under the doctrine of separation of powers under the Constitution (Article 11(a)), the Government may only exercise executive (i.e. administrative) power and does not have any legislative (i.e. law-making) power (Article 216). Hence, as an institution established by the Government, MSG can carry out its functions with the backing of the executive authority of the Government but would not have legal or regulatory authority. Most of the work of the MSG (determining reporting templates or reporting thresholds) will need to be incorporated by reference in the laws, regulations or contracts to compel compliance with EITI requirements. However, any enforcement action would have to be carried out by a Government agency (in accordance with applicable laws or regulations). An executive notice issued by the Leading Authority to form the MSG are: an executive order issued by the President can take a longer

time to prepare and approve (up to 2-3 months). Given that the MSG is likely to be formed in the very near future, a notice of the Leading Authority would be administratively simpler and quicker to obtain for the purposes of establishing the MSG; and

a notice issued by the Leading Authority would be easier to amend to accommodate any changes to MSG, e.g. to the MSG composition and structure. It is preferable to retain this flexibility in the period before the submission of the EITI candidacy application as changes are possible while the MSG finalises its terms of reference, workplan and composition.

3.6.4 Creation of the Myanmar EITI (MEITI) by an executive order of the President

After Myanmar has achieved EITI candidacy status, the institutional framework for EITI implementation in Myanmar, including the roles and mandates of the MSG, MEITI Secretariat and any Government authorities and technical workings groups, should be set out in an executive instrument issued by the President. This can take the form of a notification of the President's Office which is published in the Government Gazette and takes effect as an executive order of the President. The President has authority under the Constitution to exercise executive power of the state which includes issuing rules on matters to be performed by the Union Government and allocating responsibilities to ministries and other persons (Sections 217 and 218 of the Constitution). An executive order issued by the President's Office for the EITI process (EITI Notification) would be binding on the executive branch of Government, including the ministries and state-owned enterprises. Accordingly, it can ensure compliance with the EITI regime by all relevant Government bodies and provide a strong foundation for implementation of the EITI process by the Government going forward. The EITI Notification can be passed when the MSG has commenced implementation of its work plan and determined the institutional structure it wishes to implement (e.g. agreed the MSG’s terms of reference and formation of any sub-bodies). That way, the EITI Notification can cover a more comprehensive set of matters for EITI implementation and institutionalisation in Myanmar going forward. The EITI Notification can institutionalise the EITI in Myanmar by:(a) establishing MEITI as an institutional framework with

objectives related to the broader transparency and resource governance goals of the Government;

Detailed Report23

(b) clearly setting out the roles and mandate of the EITI institutions in Myanmar, including the MSG, the MEITI Secretariat, the Leading Authority, the Working Committee and if deemed appropriate, any other technical or supporting groups in the EITI institutional framework;

(c) mandating compliance with EITI requirements by relevant Government ministries and agencies and enabling them to take any measures necessary for the Government to comply with the requirements under the EITI Standard;

(d) anchoring the work of the MEITI to the reform agenda of the Government (including the Framework for Economic and Social Reform) and providing for the work of the MSG to be supported by Government resources; and

(e) waiving any disclosure restrictions that may prohibit EITI reporting under regulatory or administrative instruments to the extent of the President's authority under law.

An executive order which provides a strong institutional basis for EITI and mandates Government participation in EITI implementation would be an important tool in facilitating the EITI process in Myanmar. The EITI Notification should be issued after the country gains EITI candidacy status to formally institutionalise EITI and clearly indicate its priority in the Government's agenda. The content of the EITI Notification should be guided by the agenda for EITI implementation agreed by the MSG and informed by the experiences of the MSG in preparing for the EITI candidacy application. The process for preparing and issuing EITI Notification should be driven by the Leading Authority as the main government body established to promote the EITI in Myanmar.3.6.5 Enacting an EITI law for Myanmar

Enacting a law specifically for EITI implementation is generally considered to be a best practice standard. Internationally, only

Liberia and Nigeria have adopted EITI laws, although other countries such as Mongolia are now preparing to adopt EITI laws. The key advantages of adopting an EITI Law in Myanmar are: the ability to embed the EITI in the legal framework of a

country, making it less vulnerable to changes in political will for EITI implementation;

imposing legal obligations on companies and the Government to comply with EITI disclosure requirements with enforcement mechanisms and penalties for non-compliance; and

giving legal status to the MSG and legal backing for the work of the MSG, including adequate resourcing and administrative support for its work.

Enacting an EITI law is not strictly required for implementation, given that the current barriers to implementation can be removed by other means. Drawing on international experience, the World Bank noted in its report "Implementing EITI for Impact":

[P]roviding the correct regulatory or legislative basis for EITI implementation has been a time-consuming process in some cases, but has helped address issues such as process sustainability (that is, providing the resources to ensure that EITI reports are produced regularly) and ensuring that all companies work on a “level playing field” on EITI matters. (2012, page 125)

At a minimum an EITI law in Myanmar could: (a) establish the EITI as a institution, separate from the

executive government;(b) set out the role and mandate of a national EITI

organisation (MSG) and provide for its resourcing and support by a government ministry or authority;

(c) impose disclosure and reporting obligations on stakeholders and impose liability for breach of law; and

Detailed Report24

(d) set out key disclosure and reporting standards that companies and the Government must comply with including auditing requirements.

Ultimately, the need for an EITI law would depend on an assessment of the specific issues that the country may encounter in preparing its first EITI report and the validation process.

Detailed Report25

4. DefinitionsFor the purposes of this report:

Baker & McKenzie means Baker & McKenzie, Bangkok a member firm of Baker & McKenzie International, a Swiss Verein;Constitution means the constitution of the Republic of the Union of Myanmar (2008);Consultant means Melinda Tun, a Senior Associate of Baker & McKenzie, who conducted the Legal Review; EITI Standard means the document dated 22 May 2013 containing the EITI requirements prepared by the EITI International Secretariat; Foreign Investment Legislation has the meaning given in section 3.43.4.2;Gemstone Law means the Myanmar Gemstone Law 1995 (The State Law and Order Restoration Council Law No. 8/95);Government means the Government of the Republic of the Union of Myanmar;Income Tax Legislation has the meaning given in section 3.43.4.3;Legal Review means the legal review conducted for the implementation of EITI in Myanmar in accordance with the Terms of Reference and as specified in this report;Leading Authority means the Government authority established by the President Office's Notification No. 99/2012 issued on 14 December 2012 whose members are set out in Schedule A;MIC means the Myanmar Investment Commission;Mines Law means Myanmar Mines Law 1994 (The State Law and Order Restoration Council Law No. 8/94);

Mines Rules means the Myanmar Mines Rules 1996 (Ministry of Mines Notification No. 125/96);Mining Legislation has the meaning given in section 3.3;MOE means the Ministry of Energy;MOGE means the Myanmar Oil and Gas Enterprise; MOM means the Ministry of Mines; MOU means a Memorandum or Understanding;MSG means the multi-stakeholder group which is required to be established under the EITI Standard;Oil-Fields Act means the Burma Oil-Fields Act 1918 (as amended); O&G means oil and gas; O&G Legislation has the meaning given section 3.2; PSC means Production Sharing Contract;Reviewed Documents means the documents set out in Schedule B.1;Terms of Reference means the terms of reference for the consultancy dated 25 September 2013; andWorking Committee means the Government working committee established by the Leading Authority to carry out tasks for EITI implementation in Myanmar whose members are set out in Schedule A.

Definitions26

5. Scope of Work5.1 Scope of this reportThis report:

(a) is strictly limited to the matters set out in the Terms of Reference; and

(b) is subject to the matters, qualifications and assumptions set out in this Section 5.

5.2 Sources of informationThe Legal Review has consisted solely of a review of the following information, and this report has been prepared solely on the basis of information contained in these documents:

(a) the Reviewed Documents; and(b) the responses provided in consultations with

stakeholders as listed in Section B.2 of Schedule B.

This may not comprise all of the information that may be relevant to the Legal Review. Accordingly, we cannot conclusively confirm that all of the information and consultation responses received identifies all legal issues that may be relevant to the Legal Review.

5.3 QualificationsThis report is subject to the following qualifications:

(a) the Legal Review is based on the laws and regulations of Myanmar that are publicly available and in force as at the date of this report. There may be laws and regulations (and amendments to such instruments) which exist but are not published or made available to the public, and the existence of the same may affect the matters set out in this report;

(b) interpretation or implementation of the laws of Myanmar is not always consistent or clear, and governmental practices may change without notice, and can affect the application of particular laws and regulations from time to time;

(c) the policies, practices and customs of the Government and administrative bodies may be implemented despite the absence of authority in existing laws. Such policies, practices and customs may not be publicly communicated and may affect the matters set out in this report;

(d) the Consultant has not made any independent investigations, enquiries or searches other than the consultations specifically referred to in this report;

(e) the Consultant is unable to confirm that the information reviewed comprises all the information which may be relevant to a legal review of the extractive industries in Myanmar and we have relied on the Reviewed Documents in preparing this report; and

(f) the Consultant expresses no opinion concerning issues with respect to accounting, financial, actuarial, fiscal, technical and operational matters.

5.3.1 Entire report

This report does not list, summarize or incorporate every document provided to or obtained by the Consultant for the Legal Review. While Section 2 (Key Issues and Recommendations ) highlights significant areas of concern, there are other matters identified in this report which will be of importance. Therefore, the entire report should be read in its entirety and in conjunction with

Scope of Work27

other reports and memoranda prepared by other advisors to the Donor Organisations.

5.3.2 Report not legal audit

This report is of a different nature to a legal audit. It is based on a review of the information referred to in Section 5.2. Except where otherwise indicated in this report, the Consultant has not sought to verify the data or information provided or obtained for the Legal Review. Owing to the limited nature of the Legal Review, access to information regarding regulatory or policy practices and time constraints, this report has not revealed all matters which would have been identified by an unrestricted legal investigation or audit.

5.3.3 Limitation

In addition to any other applicable limitation of liability, Baker & McKenzie shall not be liable for any matters arising out of or in connection with this report or the reader's reliance on the report.

5.4 AssumptionsIn conducting our legal review and preparing this report, we have assumed:

(a) the authenticity of all signatures, seals and dates on any documents reviewed;

(b) the completeness of, and conformity with originals, of all copies of documents provided to us and that any document submitted to us continues unamended and in full force and effect;

(c) that the original documents still exist and have not been varied, cancelled or superseded by some other document or agreement or action of which we are not aware;

(d) that all documents inspected by us are genuine, complete, up-to-date and accurate and no material

documents have been withheld from the Consultant, whether deliberately or inadvertently;

(e) that all facts stated in the documents which were relied in preparing this report are and continue to be correct and no relevant matter was withheld, whether deliberately or inadvertently;

(f) the accuracy and correctness of all information, including responses to questions in consultations, which was provided to the Consultant on all matters of fact (both in writing and orally) and that no relevant information was withheld, whether deliberately or inadvertently.

That these assumptions have been made does not imply that any enquiries were made to verify them.

Scope of Work28

Schedule ACurrent institutional framework for EITI in Myanmar

A.1 Leading Authority

Instrument Members Mandate (Official translation)

President's Office Notification No. 99/2012 (14 December 2013)

U Soe Thein

Union Minister, President's Office Ministry (3)

To form a working committee committed to EITI tasks between a private sector and public-based societies which will join hands with the State in EITI tasks.

To formulate the draft for tasks to implement the extractive industry transparency initiative

To take necessary measures for applying for a member of the international Extractive Industry Transparency Initiative and for reaching the status of a candidate member

To assign the Centre for Economic and Social Development of the Myanmar Development Resource Institute as Coordinator

To lay down and take the reform processes of the extractive industry so that it can bring about the sustainable development of the country and economic development and give guarantee the sustainable development for the future generation.

U Win Tun

Union Minister, Ministry of Environmental Conservation

U Zeya Aung (*Replaced U Than Htay)

Union Minister, Ministry of Energy

Dr Myint Aung

Union Minister, Ministry of Mines

U Win Shein

Union Minister, Ministry of Finance

A.2 Working Committee

Instrument Members Mandate (Unofficial translation)

Leading Authority Chairman: Deputy Minister, To carry out reforms of the extractive industries in

Schedule A - Current institutional framework for EITI in Myanmar29

Instrument Members Mandate (Unofficial translation)

Notice No. 02/2013 (5 April 2013)

Ministry of Finance (Chairman) order to promote sustainable development of the country, economic development and for the benefit of future generations

To cooperate with private sector stakeholders and civil society organisations in relation to EITI-related matters

To coordinate with the Myanmar EITI National Coordinator (MDRI-CESD) in relation to EITI related matters

To study the political, social, economic and other impacts of the extractive industries and to effectively carry out the reform policies, laws and procedures relating to such matters

To participate in meetings and seminars to increase awareness and knowledge of EITI amongst the government and citizens; to increase the capacity of stakeholders by studying international expertise and international experience as required

To cooperate with international experts and international organisations as necessary

To coordinate with the Myanmar EITI National Coordinator in collecting, researching, planning, publicly publishing any necessary figures and data to implement the EITI

Director-General

Ministry of Environmental Conservation and Forestry

Director-General

Ministry of Electric Power

Director-General

Ministry of Energy

Director-General

Ministry of Mining

Director-General

Myanmar Investment Commission

Director

Ministry of Home Affairs

Director

Ministry of Finance

Director

Ministry of National Planning and Economic Development

Director

Attorney-General's office

Director

Auditor-General's office

Schedule A - Current institutional framework for EITI in Myanmar30

Instrument Members Mandate (Unofficial translation)

Member

National Economic and Social Advisory Council (Secretary)

Schedule A - Current institutional framework for EITI in Myanmar31

Schedule BSources of Information

B.1 Reviewed Documents

In preparing this report, the following documents were reviewed by the Consultant.

Document Date of document

Constitution of the Republic of the Union of Myanmar 2008

The EITI Standard 2013

Oil-Fields Act 1918 1918

Oil-Fields Rules 1918 1918

Notifications under the Oil-Fields Act 1918 1918

Petroleum Act 1934 1934

Petroleum Rules 1934 1934

Model Production Sharing Contract for the Exploration and Production of Petroleum (Deep water Offshore) 2013

Model Production Sharing Contract for the Exploration and Production of Petroleum (Offshore) 2013

Model Production Sharing Contract for the Exploration and Production of Petroleum (Onshore) 2013

Production Sharing Contract between MOGE and Total Myanmar Exploration and Production (Yadana Project) 9 January 1992

Standard Terms and Conditions for Production Sharing Contract for Deep Water Offshore Blocks Undated (provided on MOE's website in 2013)

Standard Terms and Conditions for Production Sharing Contract for Shallow Water Offshore Blocks Undated (provided on MOE's website in 2013)

0 - Sources of Information32

Document Date of document

Standard Terms and Conditions for Production Sharing Contract for Onshore Blocks Undated (provided on MOE's website in 2013)

Standard Terms and Conditions for Improved Petroleum Recovery Contract for Onshore Blocks Undated (provided on MOE's website in 2013)

Myanmar Mines Law 1994 1994

Myanmar Mines Rules 1996 1996

Myanmar Gemstone Law 1995 1995

Foreign Investment Law 2012 2012

Notification No. 11/2013 of the Ministry of National Planning and Economic Development and Notification No. 01/2013 of the Myanmar Investment Commission

2013

Myanmar Citizens Investment Law 2013 2013

Income Tax Law 1974 (as amended) 1974

Income Tax Regulations and Income Tax Rules issued under Notifications No. 102/2012 and 103/2012 of the Ministry of Finance and Revenue

2012

Myanmar Companies Act 1914 1914

Myanmar Companies Rules 1940 1940

Myanmar Companies Regulations 1957 1957

State-Owned Economic Enterprises Law 1989 1989

Myanmar Official Secrets Act 1923 1923

Contract Act 1872 1872

0 - Sources of Information33

Document Date of document

Draft Law for the Registration of Associations 14 October 2013

President's Office Notification No. 99/2012 14 December 2012

Leading Authority Notification No. 2/2013 5 April 2013

The Union of Burma (Adaptation of Laws) Order 1948

B.2 Consultations

In compiling this report, consultations were held with the following parties.

Stakeholders Consulted parties Date of consultation

Government MOM

MOE (MOGE)

7 October 2013

17 October 2013

Companies Petronas (PC Myanmar (Hong Kong) Limited)

MPRL E&P Pte Ltd

Daewoo International Corp. Myanmar E&P

PTTEP International Limited (Yangon Branch)

2 October 2013

21 October 2013

5 November 2013

25 November 2013

Industry and Professional Associations Myanmar Federation of Mining Associations

Myanmar Geology Society

22 October 2013

21 October 2013

Others Myanmar National EITI Coordination Office (Centre for Economic and Social Development - Myanmar Development Resource Institute)

Throughout assignment.

0 - Sources of Information34