2 nd India-Africa Hydrocarbons Conference Regulatory considerations

© 2009 Deloitte Touche Tohmatsu Contents Investments into India - Inbound Investment -Regulatory framework -Tax considerations Investments from India - Outbound Investment -Regulatory framework -Investment structure -Tax considerations 2

© 2009 Deloitte Touche Tohmatsu Inbound Investment – Regulatory framework Foreign Direct Investment (FDI) Policy 3 SectorFDI capConditions Other than Refining and including market study and formulation; investment/ financing; setting up infrastructure for marketing in Petroleum & Natural Gas sector 100% under automatic route Subject to sectoral Regulations issued by Ministry of Petroleum & Natural Gas (MoPNG) Refining49% in case of PSUs with FIPB approval, 100% in case of Private Companies under automatic route Subject to Sectoral policy and no divestment or dilution of domestic equity in the existing PSUs.

© 2009 Deloitte Touche Tohmatsu Inbound Investment – Regulatory framework (contd..) Automatic Route not available if existing Joint Venture (JV) or technology transfer/ trademark agreement in 'same' field Exceptions: ‒ Investments by Venture Capital Funds registered with the Security and Exchange Board of India (SEBI), ‒ investment by either of the parties is less than 3%, and ‒ existing venture/collaboration is defunct or sick. ‘Conflict of interest‘ clause may be provided for in JV agreements to safeguard the interests if the foreign partner decides to set up another JV or a Wholly Owned Subsidiary (WOS) in the same field. 4

© 2009 Deloitte Touche Tohmatsu Inbound Investment - Tax considerations Direct Tax Regime Special tax regime under Production Sharing Contracts (PSCs) signed with the Government of India -Each member to be assessed in respect of its own share of income in the same status in which it has entered into the agreement with the Central Government Special provisions for determination of taxable income for business of extraction, prospecting of mineral oil, 7 (consecutive) years tax holiday for "undertakings" engaged in production of “mineral oils” starting from the year in which it commences commercial production, Site Restoration deduction allowable, Foreign service providers given an option to be taxed on deemed income basis at the rate of 10 per cent of their total receipts 5

© 2009 Deloitte Touche Tohmatsu Inbound Investment - Tax considerations (contd..) Other direct tax considerations: Treatment of E&D costs incurred Taxability of royalties / other expenses paid in terms of the PSC Ringfencing in the case of multiple blocks For services / facilities – taxability to be governed by nature and type of set up in India, ‒ Withholding tax issues in the case of specified payments, ‒ Profit repatriations issues – Transfer pricing regulations, ‒ Availability of tax credit in home country 6

© 2009 Deloitte Touche Tohmatsu Inbound Investment - Tax considerations (contd..) Indirect Tax Regime Customs –Import of “Petroleum and Gas well drilling machinery” generally attracts a Basic Customs Duty (BCD) of 7.5%; –10% BCD under the project import scheme on import of inputs required for “exploration for oil or other minerals”; –Exemption from BCD and Additional Duty of Customs (CVD) available on import of goods specified in List 12* required for petroleum operations undertaken under specified contracts under the New Explorations Licensing Policy (NELP). Excise Duty –Exemption from Excise Duty is not applicable on goods supplied to oil and gas and petroleum projects, crude petroleum refineries; –No Excise Duty is leviable on crude oil. 7

© 2009 Deloitte Touche Tohmatsu Applicability of Service tax on the following –Survey and Exploration of Mineral, Oil and Gas Services; –Site Formation and Clearance, Excavation and Earthmoving and Demolition Services; –Mining of Mineral, Oil or Gas Service; –Erection, Commissioning or Installation Service; –Supply of Tangible Goods for Use Service; –Consulting Engineer’s Services; –Works Contract Service. Indirect Tax Issues –Ambiguity on applicability of Value Added Tax (VAT) /Central Sales Tax (CST) on goods supplied to offshore oil and gas projects situated in economic islands beyond 12 nautical miles. 8 Inbound Investment - Tax considerations (contd..)

© 2009 Deloitte Touche Tohmatsu Inbound Investment - Tax considerations (contd..) Proposed Goods and Service Tax (GST) regime : –The Indian government proposes to introduce the GST scheme with effect from April 1, –GST is to be levied on a dual basis – Central GST (Central levy) and State GST (State levy). –GST would subsume most of the indirect taxes such as Excise Duty, Service Tax, CST, VAT and Entry Tax. –It has been proposed to keep the basket of petroleum products such as crude, motor spirit and HSD to keep outside the purview of GST. –A final view as to whether Natural Gas would be covered under GST is yet to formulated and is subject to further deliberations. 9

© 2009 Deloitte Touche Tohmatsu 10 Outbound Investment – Regulatory framework

© 2009 Deloitte Touche Tohmatsu 11 Outbound Investments – Regulatory framework (contd..)

© 2009 Deloitte Touche Tohmatsu Outbound Investment – Investment structure Forms of investment –Acquisition / Merger –Marketing presence Investment vehicle –Resident holding company –International holding company –Company, Branch or representative office –Direct investment Mode of acquisition –Share purchase –Asset purchase 12

© 2009 Deloitte Touche Tohmatsu Outbound Investment – Investment structure (contd..) Holding structure – In India or outside India Operational structuring - Integrating supply chains Integration of newly acquired subsidiaries with the existing operations Location of IPR Repatriation Mode 13

© 2009 Deloitte Touche Tohmatsu Outbound Investment - Tax considerations Manage ETR –Tax efficiency of funding –Access to debt and equity capital from both domestic and international capital market Fiscal regime of investee country –Type of taxes payable in investee country –Whether any special tax regime for investing entity, –Whether any special provision for allowability of expenses, –Whether any tax holiday on production –Whether treaty provides for special treatment of capital gains and dividends 14

© 2009 Deloitte Touche Tohmatsu Outbound Investment - Tax considerations (contd..) India currently has Double Taxation Avoidance Agreements (DTAA) with more than 70 countries out of which it has entered into tax treaties with 12 countries in African Continent. 15 CountryDividendInterestFTS / RoyaltyCapital gain on sale of Indian Co. share South Africa10% Taxable per domestic law Uganda10% Taxable per domestic law Zambia5 / 15 a 10% Taxable per domestic law Kenya15% 20%Taxable per domestic law India (domestic law) NIL21.115%10.557%Taxable per domestic law Notes: a - The 5% rate applies where beneficial ownership is in excess of 25% b - Since dividends are free of Indian tax in the hands of shareholder, India would not impose the withholding tax as prescribed under the treaty

© 2009 Deloitte Touche Tohmatsu Outbound Investment - Tax considerations (contd..) Investment in overseas blocks require analysis of various factors –Taxability of exploration/development costs incurred –Taxability of expenses not considered as part of ‘cost oil’ (signature bonus, royalty), etc Issues regarding investment –Tax burden on investments/ technology –Tax efficiency of funding –Tax depreciation for goodwill and other intellectual property acquired –Access to debt and equity capital from both domestic and international capital market –Double taxation 16