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Alert on Licensing Requirements Activities in the Petroleum Industry
Pursuant to the Law of the Republic of Azerbaijan On Licenses and Permits No. 176-VQ dated 15 March 2016 (the “Law”), certain oilfield activities performed at potentially dangerous and hazardous premises require a statutory permission (a permit or/and license). The state control over the oil and gas sector is aimed to ensure that companies are technically capable and qualified to perform oilfield services up to the required standards.
Obtaining a statutory license is key for any company interested in doing oilfield business in Azerbaijan. There are several common misconceptions about statutory licensing:
1. Existing Production Sharing and Host Government Agreements provide full relief from the obligation to obtain license/permit.
Oilfield sub-contractors working under PSA and HGAs are not exempt from the statutory licensing requirements. The Law applies to all sub-contractors carrying out licensable activities, regardless of their operating regime.
2. A contractor’s license/permit covers its subcontractor’s activities as well.
Statutory licenses are non-transferable. The holder of a license/permit is authorized to use it only in its name and solely for its own operations.
3. The responsibility to ensure licensing compliance rests with the Legal Department only.
When defining the licensing requirements, the Law operates such terms as “potentially dangerous”, “hazardous substances”, “production activity”, “technical facilities”, “exploitation”, etc. It takes technical and operational expertise to determine whether a company’s operations are subject to licensing.
4. A company may apply for licenses at any stage of project implementation.
The company must apply for the relevant license or permit before starting a licensable activity. For public procurement contracts, a license/permit must be available at the bidding stage. [1]
5. Compliance with licensing requirements is audited by the Ministry of Emergency Situations.
According to Presidential Decree No. 454 dated 29 March 2001, it is an absolute authority of the State Tax Service to inspect the taxpayers for compliance with the requirements to obtain and hold statutory licenses (which it does during tax audits).
6. If a company has not been audited for licensing compliance for a certain period, no liability will arise for non-compliance in that period.
Carrying out licensable business activities without a relevant license is a criminal offense (illegal entrepreneurship) and may entail a penalty of two to four times the company’s profit from such activities during the audited period (up to 3 years).
7. A commercial license issued by various institutions is sufficient to perform licensable activities in Azerbaijan
Although licenses obtained outside Azerbaijan can be essential and helpful for the successful conduct of business in Azerbaijan, they cannot replace the local statutory licenses. The business will still be required to obtain a license stipulated by law of the country it operates in.
The list of activities falling under the licensing and permission requirements is set by Law of the Republic of Azerbaijan No.176-VQ On Licenses and Permits dated 15 March 2016 and the list of potentially hazardous activities – by Decree No. 94 of the Cabinet of Ministers of Azerbaijan “On approval of the list of potentially hazardous fields” dated 10 May 2001.
We are monitoring the legislative developments in the country for you and would be glad to answer your questions or provide additional information at your convenience.
[1] Law of the Republic of Azerbaijan No. 245-IIQ On Public Procurement dated 28 December 2018
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