On Tuesday, May 4, 2021, French daily newspaper Le Monde published an article mentioning Total’s operations in Myanmar, including the production of the Yadana gas field off the country’s coast. In the interests of transparency, the answers that we gave to the paper before the article was published are provided in full below.
How many cubic meters of gas are exported each year (at least until 2019) from the Yadana field?
Since 2006, there has been a contractual production plateau of 16 million cubic meters per day (100%) for exports from the Yadana field to Thailand, with Total holding a 31.2% interest.
Why do the Yadana gas field and the Yadana-Thailand pipeline belong to two different companies, when these companies have the same shareholders with the same participating interests?
This situation is not specific to Myanmar. It is very frequent in the North Sea and in other countries for gas projects that require investment in transportation infrastructure. A legal entity is created to enter into the production license agreement (in Myanmar, this would be the production sharing agreement for Blocks M5 and M6, which include the Yadana field). This upstream agreement does not cover transportation operations, because in general, gas transportation is governed by a different fiscal regime, most often under common law. That’s why the transportation portion is held by a separate legal entity.
Why was Moattama Gas Transportation Company Limited (MGTC) incorporated in Bermuda in 1994? Where do MGTC’s revenues in Bermuda come from and what is their amount?
MGTC does not generate any revenue in Bermuda. Its revenues are recorded by its local branch registered in Myanmar, which is subject to Myanmar's tax laws.
The decision to incorporate MGTC in Bermuda was made in 1994 based on the shareholders’ different nationalities and the policies in place at that time. In 1994, Total was treated as a consolidated tax group in France, which meant that the revenues from all its foreign affiliates and branches – including those located in Bermuda (of which MGTC) – were declared and taxed in France in accordance with French tax rules and the income tax rate set out by French law.
MGTC’s incorporation in Bermuda has been publicly disclosed in Total’s annual reports for many years (and most recently in the Universal Registration Document 2020, page 401). In 2012, the Group made a public pledge not to create affiliates in countries generally acknowledged as tax havens and to repatriate existing affiliates from them, where feasible. This was not possible for MGTC as Total does not hold a controlling interest and cannot decide to transfer the company’s head office.
The audit of Moattama Gas Transportation Company Limited (MGTC)’s accounts shows very high pre-tax income. Why are the revenues from gas transportation (invoiced by MGTC) up to 40 times higher than the real cost of transporting the gas?
Profits close to end-of-life for gas transportation are often high because the investments have already been fully depreciated. That's the case for MGTC, which has been operating since 1998. Conversely, as you continue to produce from an end-of-life field, production profits will tend to decline.
The investors in the Yadana project, who hold the same stakes in upstream and downstream activities, as is the case on this integrated development, will look at its results and profitability holistically — upstream and pipeline integrated across the entire life of the project.
What is the amount of the royalties paid each year for operating the Yadana gas field (in U.S. dollars and as a percent of exports)?
The royalty rate is 10%. In all, we paid $28.1 million in taxes with regard to the operation of Blocks M5 and M6 (Yadana) in 2020 for Total's share, as disclosed in our Universal Registration Document 2020 (page 458).
Justice for Myanmar affirms that Total’s extraordinary profit margin on the pipeline (97% over three years) stems from an arrangement that allows Total to avoid paying royalties on operating the Yadana field by shifting profits to the pipeline. Especially since royalties (10%) are paid on production, not on transportation. Justice for Myanmar accuses Total of either not paying what it owes to Myanmar or of having created this arrangement in agreement with the military officials in power at the time. How do you respond to this accusation?
In addition, several people have confirmed that the profit margin on the pipeline is unusually high and could fuel suspicion about a shady financial arrangement. The World Bank noted in a recent report on Myanmar that this was an unusual model. Can you give any other examples where this type of arrangement is used?
There is no extraordinary profit here. Profit is linked to the price of export gas that Thailand accepts to pay. It is divided between gas transportation and production. This is a classic arrangement that was approved by Myanmar’s authorities at the time and has continued with successive governments until today. It is used for the Zawtika development operated by PTTEP and the Yetagun development operated by Petronas. It was also approved by the government headed by the NLD in 2019 for the A6 offshore gas project (for which Total has announced the suspension of operations). The Yadana project’s profitability (for the upstream and downstream portions combined) falls within the industry average.
Why aren't transport activities taxed in the same way as exploration (whether in Myanmar or elsewhere)?
As a general rule, transportation activities are taxed in the standard way (corporate income tax) whereas production activities are subject to specific taxation rules like those applicable to Production-Sharing Contracts and concessions with royalties, because this is a means for governments to capture through specific taxation part of the value generated by the upstream. If the project requires the development of transport infrastructure requiring major investment, the question of how to share the sales price between production and transport is discussed. Investors who have equal stakes in production and transport, as is the case with Yadana, will be interested in the profitability of the investment as a whole, regardless of the profitability of the separate parts, because there won't be any transport revenues if there is no production, but conversely there won't be any production revenues without transport infrastructure.
Is consolidated income tax treatment only applicable to affiliates that are at least 50% owned by the parent company with a registered office in France? (Which was not the case with the affiliate domiciled in Bermuda).
The 50% threshold was the general rule under the old Consolidated Global Profit Tax System. Paragraph 3 of Article 114 of Appendix II to the General Tax Code stipulated that "by way of exception to the rule […] a percentage lower than 50% can apply in cases where the holding of an interest equal to or greater than 50% is forbidden under the law of the State in which the Controlled Company is established, where it is the result of agreements between France and said State or where it is imposed by the very nature of the activity of the group of Controlled Companies". The last case particularly concerned companies practicing activities in oil and gas, like MGTC, whose threshold was set at 10%.
Why was MGTC domiciled in Bermuda, even though, as a company with shareholders of different nationalities, it could be domiciled anywhere, including Myanmar? Can you give us the earnings/revenues of the company domiciled in Bermuda in the last three years?
We don't know exactly why the decision was taken to domicile MGTC in Bermuda thirty years ago. Given Total's policy since 2012, which is not to domicile any more affiliates in tax havens and which has reduced to around ten the affiliates that are still subject to this kind of legislation, we wouldn't be able to do it today. Whatever the case, MGTC's financial accounts are registered and accessible in Myanmar. The organization Justice for Myanmar refers to pre-tax revenues of $1,225 million for the three years 2017 to 2019. This figure will be subject to corporate income tax at 25%. As previously explained, profits close to end-of-life for gas transport activities are often high because the investments have already been fully depreciated. That's the case for MGTC, which has been operating since 1998. Conversely, as you continue to produce from an end-of-life field, production profits will tend to decline. The investors in the Yadana project, who hold the same stakes in upstream and downstream activities, as is the case on this integrated development, will look at its results and profitability holistically — upstream and pipeline integrated across the entire life of the project. These results show that the selling price for gas from Myanmar to Thailand is relatively high.
You talk about the field as being in decline. When will production be discontinued?
In around 2025.