ANNEX II. COMMISSION ON THE LIMITS
OF THE CONTINENTAL SHELF
Article 1
In accordance with the provisions of article 76, a Commission on the Limits
of the Continental Shelf beyond 200 nautical miles shall be established in
conformity with the following articles.
Article 2
1. The Commission shall consist of 21 members who shall be experts in the
field of geology, geophysics or hydrography, elected by States Parties to
this Convention from among their nationals, having due regard to the need
to ensure equitable geographical representation, who shall serve in their
personal capacities.
2. The initial election shall be held as soon as possible but in any case
within 18 months after the date of entry into force of this Convention. At
least three months before the date of each election, the Secretary-General
of the United Nations shall address a letter to the States Parties,
inviting the submission of nominations, after appropriate regional
consultations, within three months. The Secretary-General shall prepare a
list in alphabetical order of all persons thus nominated and shall submit
it to all the States Parties.
3. Elections of the members of the Commission shall be held at a meeting of
States Parties convened by the Secretary-General at United Nations
Headquarters. At that meeting, for which two thirds of the States Parties
shall constitute a quorum, the persons elected to the Commission shall be
those nominees who obtain a two-thirds majority of the votes of the
representatives of States Parties present and voting. Not less than three
members shall be elected from each geographical region.
4. The members of the Commission shall be elected for a term of five years.
They shall be eligible for re-election.
5. The State Party which submitted the nomination of a member of the
Commission shall defray the expenses of that member while in performance of
Commission duties. The coastal State concerned shall defray the expenses
incurred in respect of the advice referred to in article 3, paragraph 1
(b), of this Annex. The secretariat of the Commission shall be provided by
the Secretary-General of the United Nations.
Article 3
1. The functions of the Commission shall be:
(a) to consider the data and other material submitted by coastal States
concerning the outer limits of the continental shelf in areas where
those limits extend beyond 200 nautical miles, and to make
recommendations in accordance with article 76 and the Statement of
Understanding adopted on 29 August 1980 by the Third United Nations
Conference on the Law of the Sea;
(b) to provide scientific and technical advice, if requested by the
coastal State concerned during the preparation of the data referred
to in subparagraph (a).
2. The Commission may co-operate, to the extent considered necessary and
useful, with the Intergovernmental Oceanographic Commission of UNESCO, the
International Hydrographic Organization and other competent international
organizations with a view to exchanging scientific and technical
information which might be of assistance in discharging the Commission's
responsibilities.
Article 4
Where a coastal State intends to establish, in accordance with article 76,
the outer limits of its continental shelf beyond 200 nautical miles, it
shall submit particulars of such limits to the Commission along with
supporting scientific and technical data as soon as possible but in any
case within 10 years of the entry into force of this Convention for that
State. The coastal State shall at the same time give the names of any
Commission members who have provided it with scientific and technical
advice.
Article 5
Unless the Commission decides otherwise, the Commission shall function by
way of sub-commissions composed of seven members, appointed in a balanced
manner taking into account the specific elements of each submission by a
coastal State. Nationals of the coastal State making the submission who are
members of the Commission and any Commission member who has assisted a
coastal State by providing scientific and technical advice with respect to
the delineation shall not be a member of the sub-commission dealing with
that submission but has the right to participate as a member in the
proceedings of the Commission concerning the said submission. The coastal
State which has made a submission to the Commission may send its
representatives to participate in the relevant proceedings without the
right to vote.
Article 6
1. The sub-commission shall submit its recommendations to the Commission .
2. Approval by the Commission of the recommendations of the subcommission
shall be by a majority of two thirds of Commission members present and
voting.
3. The recommendations of the Commission shall be submitted in writing to
the coastal State which made the submission and to the Secretary-General of
the United Nations.
Article 7
Coastal States shall establish the outer limits of the continental shelf in
conformity with the provisions of article 76, paragraph 8, and in
accordance with the appropriate national procedures.
Article 8
In the case of disagreement by the coastal State with the recommendations
of the Commission, the coastal State shall, within a reasonable time, make
a revised or new submission to the Commission.
Article 9
The actions of the Commission shall not prejudice matters relating to
delimitation of boundaries between States with opposite or adjacent coasts.
ANNEX III. BASIC CONDITIONS OF PROSPECTING,
EXPLORATION AND EXPLOITATION
Article 1
Title to minerals
Title to minerals shall pass upon recovery in accordance with this
Convention.
Article 2
Prospecting
1. (a) The Authority shall encourage prospecting in the Area.
(b) Prospecting shall be conducted only after the Authority has received
a satisfactory written undertaking that the proposed prospector will
comply with this Convention and the relevant rules, regulations and
procedures of the Authority concerning co-operation in the training
programmes referred to in articles 143 and 144 and the protection of
the marine environment, and will accept verification by the Authority
of compliance therewith. The proposed prospector shall, at the same
time, notify the Authority of the approximate area or areas in which
prospecting is to be conducted.
(c) Prospecting may be conducted simultaneously by more than one
prospector in the same area or areas.
2. Prospecting shall not confer on the prospector any rights with respect
to resources. A prospector may, however, recover a reasonable quantity of
minerals to be used for testing.
Article 3
Exploration and exploitation
1. The Enterprise, States Parties, and the other entities referred to in
article 153, paragraph 2(b), may apply to the Authority for approval of
plans of work for activities in the Area.
2. The Enterprise may apply with respect to any part of the Area, but
applications by others with respect to reserved areas are subject to the
additional requirements of article 9 of this Annex.
3. Exploration and exploitation shall be carried out only in areas
specified in plans of work referred to in article 153, paragraph 3, and
approved by the Authority in accordance with this Convention and the
relevant rules, regulations and procedures of the Authority.
4. Every approved plan of work shall:
(a) be in conformity with this Convention and the rules, regulations and
procedures of the Authority;
(b) provide for control by the Authority of activities in the Area in
accordance with article 153, paragraph 4;
(c) confer on the operator, in accordance with the rules, regulations and
procedures of the Authority, the exclusive right to explore for and
exploit the specified categories of resources in the area covered by
the plan of work. If, however, the applicant presents for approval a
plan of work covering only the stage of exploration or the stage of
exploitation, the approved plan of work shall confer such exclusive
right with respect to that stage only.
5. Upon its approval by the Authority, every plan of work, except those
presented by the Enterprise, shall be in the form of a contract concluded
between the Authority and the applicant or applicants.
Article 4
Qualifications of applicants
1. Applicants, other than the Enterprise, shall be qualified if they have
the nationality or control and sponsorship required by article 153,
paragraph 2(b), and if they follow the procedures and meet the
qualification standards set forth in the rules, regulations and procedures
of the Authority.
2. Except as provided in paragraph 6, such qualification standards shall
relate to the financial and technical capabilities of the applicant and his
performance under any previous contracts with the Authority.
3. Each applicant shall be sponsored by the State Party of which it is a
national unless the applicant has more than one nationality, as in the case
of a partnership or consortium of entities from several States, in which
event all States Parties involved shall sponsor the application, or unless
the applicant is effectively controlled by another State Party or its
nationals, in which event both States Parties shall sponsor the
application. The criteria and procedures for implementation of the
sponsorship requirements shall be set forth in the rules, regulations and
procedures of the Authority.
4. The sponsoring State or States shall, pursuant to article 139, have the
responsibility to ensure, within their legal systems, that a contractor so
sponsored shall carry out activities in the Area in conformity with the
terms of its contract and its obligations under this Convention. A
sponsoring State shall not, however, be liable for damage caused by any
failure of a contractor sponsored by it to comply with its obligations if
that State Party has adopted laws and regulations and taken administrative
measures which are, within the framework of its legal system, reasonably
appropriate for securing compliance by persons under its jurisdiction.
5. The procedures for assessing the qualifications of States Parties which
are applicants shall take into account their character as States.
6. The qualification standards shall require that every applicant, without
exception, shall as part of his application undertake:
(a) to accept as enforceable and comply with the applicable obligations
created by the provisions of Part XI, the rules, regulations and
procedures of the Authority, the decisions of the organs of the
Authority and terms of his contracts with the Authority;
(b) to accept control by the Authority of activities in the Area, as
authorized by this Convention;
(c) to provide the Authority with a written assurance that his
obligations under the contract will be fulfilled in good faith;
(d) to comply with the provisions on the transfer of technology set forth
in article 5 of this Annex.
Article 5
Transfer of technology
1. When submitting a plan of work, every applicant shall make available to
the Authority a general description of the equipment and methods to be used
in carrying out activities in the Area, and other relevant non-proprietary
information about the characteristics of such technology and information as
to where such technology is available.
2. Every operator shall inform the Authority of revisions in the
description and information made available pursuant to paragraph 1 whenever
a substantial technological change or innovation is introduced.
3. Every contract for carrying out activities in the Area shall contain the
following undertakings by the contractor:
(a) to make available to the Enterprise on fair and reasonable commercial
terms and conditions, whenever the Authority so requests, the
technology which he uses in carrying out activities in the Area under
the contract, which the contractor is legally entitled to transfer.
This shall be done by means of licences or other appropriate
arrangements which the contractor shall negotiate with the Enterprise
and which shall be set forth in a specific agreement supplementary to
the contract. This undertaking may be invoked only if the Enterprise
finds that it is unable to obtain the same or equally efficient and
useful technology on the open market on fair and reasonable
commercial terms and conditions;
(b) to obtain a written assurance from the owner of any technology used
in carrying out activities in the Area under the contract, which is
not generally available on the open market and which is not covered
by subparagraph (a), that the owner will, whenever the Authority so
requests, make that technology available to the Enterprise under
licence or other appropriate arrangements and on fair and reasonable
commercial terms and conditions, to the same extent as made available
to the contractor. If this assurance is not obtained, the technology
in question shall not be used by the contractor in carrying out
activities in the Area;
(c) to acquire from the owner by means of an enforceable contract, upon
the request of the Enterprise and if it is possible to do so without
substantial cost to the contractor, the legal right to transfer to
the Enterprise any technology used by the contractor, in carrying out
activities in the Area under the contract, which the contractor is
otherwise not legally entitled to transfer and which is not generally
available on the open market. In cases where there is a substantial
corporate relationship between the contractor and the owner of the
technology, the closeness of this relationship and the degree of
control or influence shall be relevant to the determination whether
all feasible measures have been taken to acquire such a right. In
cases where the contractor exercises effective control over the
owner, failure to acquire from the owner the legal right shall be
considered relevant to the contractor's qualification for any
subsequent application for approval of a plan of work;
(d) to facilitate, upon the request of the Enterprise, the acquisition by
the Enterprise of any technology covered by subparagraph (b), under
licence or other appropriate arrangements and on fair and reasonable
commercial terms and conditions, if the Enterprise decides to
negotiate directly with the owner of the technology;
(e) to take the same measures as are prescribed in subparagraphs (a),
(b), (c) and (d) for the benefit of a developing State or group of
developing States which has applied for a contract under article 9 of
this Annex, provided that these measures shall be limited to the
exploitation of the part of the area proposed by the contractor which
has been reserved pursuant to article 8 of this Annex and provided
that activities under the contract sought by the developing State or
group of developing States would not involve transfer of technology
to a third State or the nationals of a third State. The obligation
under this provision shall only apply with respect to any given
contractor where technology has not been requested by the Enterprise
or transferred by that contractor to the Enterprise.
4. Disputes concerning undertakings required by paragraph 3, like other
provisions of the contracts, shall be subject to compulsory settlement in
accordance with Part XI and, in cases of violation of these undertakings,
suspension or termination of the contract or monetary penalties may be
ordered in accordance with article 18 of this Annex. Disputes as to whether
offers made by the contractor are within the range of fair and reasonable
commercial terms and conditions may be submitted by either party to binding
commercial arbitration in accordance with the UNCITRAL Arbitration Rules or
such other arbitration rules as may be prescribed in the rules, regulations
and procedures of the Authority. If the finding is that the offer made by
the contractor is not within the range of fair and reasonable commercial
terms and conditions, the contractor shall be given 45 days to revise his
offer to bring it within that range before the Authority takes any action
in accordance with article 18 of this Annex.
5. If the Enterprise is unable to obtain on fair and reasonable commercial
terms and conditions appropriate technology to enable it to commence in a
timely manner the recovery and processing of minerals from the Area, either
the Council or the Assembly may convene a group of States Parties composed
of those which are engaged in activities in the Area, those which have
sponsored entities which are engaged in activities in the Area and other
States Parties having access to such technology. This group shall consult
together and shall take effective measures to ensure that such technology
is made available to the Enterprise on fair and reasonable commercial terms
and conditions. Each such State Party shall take all feasible measures to
this end within its own legal system .
6. In the case of joint ventures with the Enterprise, transfer of
technology will be in accordance with the terms of the joint venture
agreement.
7. The undertakings required by paragraph 3 shall be included in each
contract for the carrying out of activities in the Area until 10 years
after the commencement of commercial production by the Enterprise, and may
be invoked during that period.
8. For the purposes of this article, "technology" means the specialized
equipment and technical know-how, including manuals, designs, operating
instructions, training and technical advice and assistance, necessary to
assemble, maintain and operate a viable system and the legal right to use
these items for that purpose on a non-exclusive basis.
Article 6
Approval of plans of work
1. Six months after the entry into force of this Convention, and thereafter
each fourth month, the Authority shall take up for consideration proposed
plans of work.
2. When considering an application for approval of a plan of work in the
form of a contract, the Authority shall first ascertain whether:
(a) the applicant has complied with the procedures established for
applications in accordance with article 4 of this Annex and has given
the Authority the undertakings and assurances required by that
article. In cases of non-compliance with these procedures or in the
absence of any of these undertakings and assurances, the applicant
shall be given 45 days to remedy these defects;
(b) the applicant possesses the requisite qualifications provided for in
article 4 of this Annex.
3. All proposed plans of work shall be taken up in the order in which they
are received. The proposed plans of work shall comply with and be governed
by the relevant provisions of this Convention and the rules, regulations
and procedures of the Authority, including those on operational
requirements, financial contributions and the undertakings concerning the
transfer of technology. If the proposed plans of work conform to these
requirements, the Authority shall approve them provided that they are in
accordance with the uniform and nondiscriminatory requirements set forth in
the rules, regulations and procedures of the Authority, unless:
(a) part or all of the area covered by the proposed plan of work is
included in an approved plan of work or a previously submitted
proposed plan of work which has not yet been finally acted on by the
Authority;
(b) part or all of the area covered by the proposed plan of work is
disapproved by the Authority pursuant to article 162, paragraph 2
(x); or
(c) the proposed plan of work has been submitted or sponsored by a State
Party which already holds:
(i) plans of work for exploration and exploitation of polymetallic
nodules in non-reserved areas that, together with either part of the
area covered by the application for a plan of work, exceed in size 30
per cent of a circular area of 400,000 square kilometres surrounding
the centre of either part of the area covered by the proposed plan of
work;
(ii) plans of work for the exploration and exploitation of
polymetallic nodules in non-reserved areas which, taken together,
constitute 2 per cent of the total sea-bed area which is not reserved
or disapproved for exploitation pursuant to article 162, paragraph
(2) (x).
4. For the purpose of the standard set forth in paragraph 3(c), a plan of
work submitted by a partnership or consortium shall be counted on a pro
rata basis among the sponsoring States Parties involved in accordance with
article 4, paragraph 3, of this Annex. The Authority may approve plans of
work covered by paragraph 3 (c) if it determines that such approval would
not permit a State Party or entities sponsored by it to monopolize the
conduct of activities in the Area or to preclude other States Parties from
activities in the Area.
5. Notwithstanding paragraph 3(a), after the end of the interim period
specified in article 151, paragraph 3, the Authority may adopt by means of
rules regulations and procedures other procedures and criteria consistent
with this Convention for deciding which applicants shall have plans of work
approved in cases of selection among applicants for a proposed area. These
procedures and criteria shall ensure approval of plans of work on an
equitable and nondiscriminatory basis.
Article 7
Selection among applicants for production authorizations
1. Six months after the entry into force of this Convention and thereafter
each fourth month, the Authority shall take up for consideration
applications for production authorizations submitted during the immediately
preceding period. The Authority shall issue the authorizations applied for
if all such applications can be approved without exceeding the production
limitation or contravening the obligations of the Authority under a
commodity agreement or arrangement to which it has become a party, as
provided in article 151.
2. When a selection must be made among applicants for production
authorizations because of the production limitation set forth in article
151, paragraphs 2 to 7, or because of the obligations of the Authority
under a commodity agreement or arrangement to which it has become a party,
as provided for in article 151, paragraph 1, the Authority shall make the
selection on the basis of objective and non-discriminatory standards set
forth in its rules, regulations and procedures.
3. In the application of paragraph 2, the Authority shall give priority to
those applicants which:
(a) give better assurance of performance, taking into account their
financial and technical qualifications and their performance, if any,
under previously approved plans of work;
(b) provide earlier prospective financial benefits to the Authority,
taking into account when commercial production is scheduled to begin;
(c) have already invested the most resources and effort in prospecting or
exploration.
4. Applicants which are not selected in any period shall have priority in
subsequent periods until they receive a production authorization.
5. Selection shall be made taking into account the need to enhance
opportunities for all States Parties, irrespective of their social and
economic systems or geographical locations so as to avoid discrimination
against any State or system, to participate in activities in the Area and
to prevent monopolization of those activities.
6. Whenever fewer reserved areas than non-reserved areas are under
exploitation, applications for production authorizations with respect to
reserved areas shall have priority.
7. The decisions referred to in this article shall be taken as soon as
possible after the close of each period.
Article 8
Reservation of areas
Each application, other than those submitted by the Enterprise or by any
other entities for reserved areas, shall cover a total area, which need not
be a single continuous area, sufficiently large and of sufficient estimated
commercial value to allow two mining operations. The applicant shall
indicate the coordinates dividing the area into two parts of equal
estimated commercial value and submit all the data obtained by him with
respect to both parts. Without prejudice to the powers of the Authority
pursuant to article 17 of this Annex, the data to be submitted concerning
polymetallic nodules shall relate to mapping, sampling, the abundance of
nodules, and their metal content. Within 45 days of receiving such data,
the Authority shall designate which part is to be reserved solely for the
conduct of activities by the Authority through the Enterprise or in
association with developing States. This designation may be deferred for a
further period of 45 days if the Authority requests an independent expert
to assess whether all data required by this article has been submitted. The
area designated shall become a reserved area as soon as the plan of work
for the non-reserved area is approved and the contract is signed.
Article 9
Activities in reserved areas
1. The Enterprise shall be given an opportunity to decide whether it
intends to carry out activities in each reserved area. This decision may be
taken at any time, unless a notification pursuant to paragraph 4 is
received by the Authority, in which event the Enterprise shall take its
decision within a reasonable time. The Enterprise may decide to exploit
such areas in joint ventures with the interested State or entity.
2. The Enterprise may conclude contracts for the execution of part of its
activities in accordance with Annex IV, article 12. It may also enter into
joint ventures for the conduct of such activities with any entities which
are eligible to carry out activities in the Area pursuant to article 153,
paragraph 2(b). When considering such joint ventures, the Enterprise shall
offer to States Parties which are developing States and their nationals the
opportunity of effective participation.
3. The Authority may prescribe, in its rules, regulations and procedures,
substantive and procedural requirements and conditions with respect to such
contracts and joint ventures.
4. Any State Party which is a developing State or any natural or juridical
person sponsored by it and effectively controlled by it or by other
developing State which is a qualified applicant, or any group of the
foregoing, may notify the Authority that it wishes to submit a plan of work
pursuant to article 6 of this Annex with respect to a reserved area. The
plan of work shall be considered if the Enterprise decides, pursuant to
paragraph 1, that it does not intend to carry out activities in that area.
Article 10
Preference and priority among applicants
An operator who has an approved plan of work for exploration only, as
provided in article 3, paragraph 4(c), of this Annex shall have a
preference and a priority among applicants for a plan of work covering
exploitation of the same area and resources. However, such preference or
priority may be withdrawn if the operator's performance has not been
satisfactory.
Article 11
Joint arrangements
1. Contracts may provide for joint arrangements between the contractor and
the Authority through the Enterprise, in the form of joint ventures or
production sharing, as well as any other form of joint arrangement, which
shall have the same protection against revision, suspension or termination
as contracts with the Authority.
2. Contractors entering into such joint arrangements with the Enterprise
may receive financial incentives as provided for in article 13 of this
Annex.
3. Partners in joint ventures with the Enterprise shall be liable for the
payments required by article 13 of this Annex to the extent of their share
in the joint ventures, subject to financial incentives as provided for in
that article.
Article 12
Activities carried out by the Enterprise
1. Activities in the Area carried out by the Enterprise pursuant to article
153, paragraph 2(a), shall be governed by Part XI, the rules, regulations
and procedures of the Authority and its relevant decisions.
2. Any plan of work submitted by the Enterprise shall be accompanied by
evidence supporting its financial and technical capabilities.
Article 13
Financial terms of contracts
1. In adopting rules, regulations and procedures concerning the financial
terms of a contract between the Authority and the entities referred to in
article 153, paragraph 2 (b), and in negotiating those financial terms in
accordance with Part XI and those rules, regulations and procedures, the
Authority shall be guided by the following objectives:
(a) to ensure optimum revenues for the Authority from the proceeds of
commercial production;
(b) to attract investments and technology to the exploration and
exploitation of the Area;
(c) to ensure equality of financial treatment and comparable financial
obligations for contractors;
(d) to provide incentives on a uniform and non-discriminatory basis for
contractors to undertake joint arrangements with the Enterprise and
developing States or their nationals, to stimulate the transfer of
technology thereto, and to train the personnel of the Authority and
of developing States;
(e) to enable the Enterprise to engage in sea-bed mining effectively at
the same time as the entities referred to in article 153, paragraph
2(b); and
(f) to ensure that, as a result of the financial incentives provided to
contractors under paragraph 14, under the terms of contracts reviewed
in accordance with article 19 of this Annex or under the provisions
of article 11 of this Annex with respect to joint ventures,
contractors are not subsidized so as to be given an artificial
competitive advantage with respect to land-based miners.
2. A fee shall be levied for the administrative cost of processing an
application for approval of a plan of work in the form of a contract and
shall be fixed at an amount of $US 500,000 per application. The amount of
the fee shall be reviewed from time to time by the Council in order to
ensure that it covers the administrative cost incurred. If such
administrative cost incurred by the Authority in processing an application
is less than the fixed amount, the Authority shall refund the difference to
the applicant.
3. A contractor shall pay an annual fixed fee of $US 1 million from the
date of entry into force of the contract. If the approved date of
commencement of commercial production is postponed because of a delay in
issuing the production authorization, in accordance with article 151, the
annual fixed fee shall be waived for the period of postponement. From the
date of commencement of commercial production, the contractor shall pay
either the production charge or the annual fixed fee, whichever is greater.
4 Within a year of the date of commencement of commercial production, in
conformity with paragraph 3, a contractor shall choose to make his
financial contribution to the Authority by either:
(a) paying a production charge only; or
(b) paying a combination of a production charge and a share of net
proceeds.
5. (a) If a contractor chooses to make his financial contribution to the
Authority by paying a production charge only, it shall be fixed at a
percentage of the market value of the processed metals produced from
the polymetallic nodules recovered from the area covered by the
contract. This percentage shall be fixed as follows:
(i) years 1-10 of commercial production 5 per cent
(ii) years 11 to the end of commercial production 12 per cent
(b) The said market value shall be the product of the quantity of the
processed metals produced from the polymetallic nodules extracted
from the area covered by the contract and the average price for those
metals during the relevant accounting year, as defined in paragraphs
7 and 8.
6. If a contractor chooses to make his financial contribution to the
Authority by paying a combination of a production charge and a share of net
proceeds, such payments shall be determined as follows:
(a) The production charge shall be fixed at a percentage of the market
value, determined in accordance with subparagraph (b), of the
processed metals produced from the polymetallic nodules recovered
from the area covered by the contract. This percentage shall be fixed
as follows:
(i) first period of commercial production 2 per cent
(ii) second period of commercial production 4 per cent
If, in the second period of commercial production, as defined in
subparagraph (d), the return on investment in any accounting year as
defined in subparagraph (m) falls below 15 per cent as a result of
the payment of the production charge at 4 per cent, the production
charge shall be 2 per cent instead of 4 per cent in that accounting
year.
(b) The said market value shall be the product of the quantity of the
processed metals produced from the polymetallic nodules recovered
from the area covered by the contract and the average price for those
metals during the relevant accounting year as defined in paragraphs 7
and 8.
(c) (i) The Authority's share of net proceeds shall be taken out of that
portion of the contractor's net proceeds which is attributable to the
mining of the resources of the area covered by the contract, referred
to hereinafter as attributable net proceeds.
(ii) The Authority's share of attributable net proceeds shall be
determined in accordance with the following incremental schedule:
Portion of attributable Share of the Authority
net proceeds
First period of Second period of
commercial production commercial production
That portion representing a 35 per cent 40 per cent
return on investment which
is greater than 0 per cent, but
less than 10 per cent
That portion representing a 42.5 per cent 50 per cent
return on investment which
is 10 per cent or greater, but
less than 20 per cent
That portion representing a 50 per cent 70 per cent
return on investment which
is 20 per cent or greater
(d) (i) The first period of commercial production referred to in
subparagraphs (a) and (c) shall commence in the first accounting year
of commercial production and terminate in the accounting year in
which the contractor's development costs with interest on the
unrecovered portion thereof are fully recovered by his cash surplus,
as follows:
In the first accounting year during which development costs are
incurred, unrecovered development costs shall equal the development
costs less cash surplus in that year. In each subsequent accounting
year, unrecovered development costs shall equal the unrecovered
development costs at the end of the preceding accounting year, plus
interest thereon at the rate of 10 per cent per annum, plus
development costs incurred in the current accounting year and less
contractor's cash surplus in the current accounting year. The
accounting year in which unrecovered development costs become zero
for the first time shall be the accounting year in which the
contractor's development costs with interest on the unrecovered
portion thereof are fully recovered by his cash surplus. The
contractor's cash surplus in any accounting year shall be his gross
proceeds less his operating costs and less his payments to the
Authority under subparagraph (c).
(ii) The second period of commercial production shall commence in the
accounting year following the termination of the first period of
commercial production and shall continue until the end of the
contract.
(e) "Attributable net proceeds" means the product of the contractor's net
proceeds and the ratio of the development costs in the mining sector
to the contractor's development costs. If the contractor engages in
mining, transporting polymetallic nodules and production primarily of
three processed metals, namely, cobalt, copper and nickel, the amount
of attributable net proceeds shall not be less than 25 per cent of
the contractor's net proceeds. Subject to subparagraph (n), in all
other cases, including those where the contractor engages in mining,
transporting polymetallic nodules, and production primarily of four
processed metals, namely, cobalt, copper, manganese and nickel, the
Authority may, in its rules, regulations and procedures, prescribe
appropriate floors which shall bear the same relationship to each
case as the 25 per cent floor does to the three-metal case.
(f) "Contractor's net proceeds" means the contractor's gross proceeds
less his operating costs and less the recovery of his development
costs as set out in subparagraph (j).
(g) (i) If the contractor engages in mining, transporting polymetallic
nodules and production of processed metals, "contractor's gross
proceeds" means the gross revenues from the sale of the processed
metals and any other monies deemed reasonably attributable to
operations under the contract in accordance with the financial rules,
regulations and procedures of the Authority.
(ii) In all cases other than those specified in subparagraphs (g)(i)
and (n)(iii), "contractor's gross proceeds" means the gross revenues
from the sale of the semi-processed metals from the polymetallic
nodules recovered from the area covered by the contract, and any
other monies deemed reasonably attributable to operations under the
contract in accordance with the financial rules, regulations and
procedures of the Authority.
(h) "Contractor's development costs" means:
(i) all expenditures incurred prior to the commencement of commercial
production which are directly related to the development of the
productive capacity of the area covered by the contract and the
activities related thereto for operations under the contract in all
cases other than that specified in subparagraph (n), in conformity
with generally recognized accounting principles, including, inter
alia, costs of machinery, equipment, ships, processing plant,
construction, buildings, land, roads, prospecting and exploration of
the area covered by the contract, research and development, interest,
required leases, licences and fees; and
(ii) expenditures similar to those set forth in (i) above incurred
subsequent to the commencement of commercial production and necessary
to carry out the plan of work, except those chargeable to operating
costs.
(i) The proceeds from the disposal of capital assets and the market value
of those capital assets which are no longer required for operations
under the contract and which are not sold shall be deducted from the
contractor's development costs during the relevant accounting year.
When these deductions exceed the contractor's development costs the
excess shall be added to the contractor's gross proceeds.
(j) The contractor's development costs incurred prior to the commencement
of commercial production referred to in subparagraphs (h) (i) and (n)
(iv) shall be recovered in 10 equal annual instalments from the date
of commencement of commercial production. The contractor's
development costs incurred subsequent to the commencement of
commercial production referred to in subparagraphs (h)(ii) and
(n)(iv) shall be recovered in 10 or fewer equal annual instalments so
as to ensure their complete recovery by the end of the contract.
(k) "Contractor's operating costs" means all expenditures incurred after
the commencement of commercial production in the operation of the
productive capacity of the area covered by the contract and the
activities related thereto for operations under the contract, in
conformity with generally recognized accounting principles,
including, inter alia, the annual fixed fee or the production charge,
whichever is greater, expenditures for wages, salaries, employee
benefits, materials, services, transporting, processing and marketing
costs, interest, utilities, preservation of the marine environment,
overhead and administrative costs specifically related to operations
under the contract, and any net operating losses carried forward or
backward as specified herein. Net operating losses may be carried
forward for two consecutive years except in the last two years of the
contract in which case they may be carried backward to the two
preceding years.
(l) If the contractor engages in mining, transporting of polymetallic
nodules, and production of processed and semi-processed metals,
"development costs of the mining sector" means the portion of the
contractor's development costs which is directly related to the
mining of the resources of the area covered by the contract, in
conformity with generally recognized accounting principles, and the
financial rules, regulations and procedures of the Authority,
including, inter alia, application fee, annual fixed fee and, where
applicable, costs of prospecting and exploration of the area covered
by the contract, and a portion of research and development costs.
(m) "Return on investment" in any accounting year means the ratio of
attributable net proceeds in that year to the development costs of
the mining sector. For the purpose of computing this ratio the
development costs of the mining sector shall include expenditures on
new or replacement equipment in the mining sector less the original
cost of the equipment replaced.
(n) If the contractor engages in mining only:
(i) "attributable net proceeds" means the whole of the contractor's
net proceeds;
(ii) "contractor's net proceeds" shall be as defined in subparagraph
(f);
(iii) "contractor's gross proceeds" means the gross revenues from the
sale of the polymetallic nodules, and any other monies deemed
reasonably attributable to operations under the contract in
accordance with the financial rules, regulations and procedures of
the Authority;
(iv) "contractor's development costs" means all expenditures incurred
prior to the commencement of commercial production as set forth in
subparagraph (h) (i), and all expenditures incurred subsequent to the
commencement of commercial production as set forth in subparagraph
(h) (ii), which are directly related to the mining of the resources
of the area covered by the contract, in conformity with generally
recognized accounting principles;
(v) "contractor's operating costs" means the contractor's operating
costs as in subparagraph (k) which are directly related to the mining
of the resources of the area covered by the contract in conformity
with generally recognized accounting principles;
(vi) "return on investment" in any accounting year means the ratio of
the contractor's net proceeds in that year to the contractor's
development costs. For the purpose of computing this ratio, the
contractor's development costs shall include expenditures on new or
replacement equipment less the original cost of the equipment
replaced.
(o) The costs referred to in subparagraphs (h), (k), (l) and (n) in
respect of interest paid by the contractor shall be allowed to the
extent that, in all the circumstances, the Authority approves,
pursuant to article 4, paragraph 1, of this Annex, the debt-equity
ratio and the rates of interest as reasonable, having regard to
existing commercial practice.
(p) The costs referred to in this paragraph shall not be interpreted as
including payments of corporate income taxes or similar charges
levied by States in respect of the operations of the contractor.
7. (a) "Processed metals", referred to in paragraphs 5 and 6, means the
metals in the most basic form in which they are customarily traded on
international terminal markets. For this purpose, the Authority shall
specify, in its financial rules, regulations and procedures, the
relevant international terminal market. For the metals which are not
traded on such markets, "processed metals" means the metals in the
most basic form in which they are customarily traded in
representative arm's length transactions.
(b) If the Authority cannot otherwise determine the quantity of the
processed metals produced from the polymetallic nodules recovered
from the area covered by the contract referred to in paragraphs 5 (b)
and 6 (b), the quantity shall be determined on the basis of the metal
content of the nodules, processing recovery efficiency and other
relevant factors, in accordance with the rules, regulations and
procedures of the Authority and in conformity with generally
recognized accounting principles.
8. If an international terminal market provides a representative pricing
mechanism for processed metals, polymetallic nodules and semi-processed
metals from the nodules, the average price on that market shall be used. In
all other cases, the Authority shall, after consulting the contractor,
determine a fair price for the said products in accordance with paragraph
9.
9. (a) All costs, expenditures, proceeds and revenues and all
determinations of price and value referred to in this article shall
be the result of free market or arm's length transactions. In the
absence thereof, they shall be determined by the Authority, after
consulting the contractor, as though they were the result of free
market or arm's length transactions, taking into account relevant
transactions in other markets.
(b) In order to ensure compliance with and enforcement of the provisions
of this paragraph, the Authority shall be guided by the principles
adopted for, and the interpretation given to, arm's length
transactions by the Commission on Transnational Corporations of the
United Nations, the Group of Experts on Tax Treaties between
Developing and Developed Countries and other international
organizations, and shall, in its rules, regulations and procedures,
specify uniform and internationally acceptable accounting rules and
procedures, and the means of selection by the contractor of certified
independent accountants acceptable to the Authority for the purpose
of carrying out auditing in compliance with those rules, regulations
and procedures.
10. The contractor shall make available to the accountants, in accordance
with the financial rules, regulations and procedures of the Authority, such
financial data as are required to determine compliance with this article.
11. All costs, expenditures, proceeds and revenues, and all prices and
values referred to in this article, shall be determined in accordance with
generally recognized accounting principles and the financial rules,
regulations and procedures of the Authority.
12. Payments to the Authority under paragraphs 5 and 6 shall be made in
freely usable currencies or currencies which are freely available and
effectively usable on the major foreign exchange markets or, at the
contractor's option, in the equivalents of processed metals at market
value. The market value shall be determined in accordance with paragraph
5(b). The freely usable currencies and currencies which are freely
available and effectively usable on the major foreign exchange markets
shall be defined in the rules, regulations and procedures of the Authority
in accordance with prevailing international monetary practice.
13. All financial obligations of the contractor to the Authority, as well
as all his fees, costs, expenditures, proceeds and revenues referred to in
this article, shall be adjusted by expressing them in constant terms
relative to a base year.
14. The Authority may, taking into account any recommendations of the
Economic Planning Commission and the Legal and Technical Commission, adopt
rules, regulations and procedures that provide for incentives, on a uniform
and non-discriminatory basis, to contractors to further the objectives set
out in paragraph 1.
15. In the event of a dispute between the Authority and a contractor over
the interpretation or application of the financial terms of a contract,
either party may submit the dispute to binding commercial arbitration,
unless both parties agree to settle the dispute by other means, in
accordance with article 188, paragraph 2.
Article 14
Transfer of data
1. The operator shall transfer to the Authority, in accordance with its
rules, regulations and procedures and the terms and conditions of the plan
of work, at time intervals determined by the Authority all data which are
both necessary for and relevant to the effective exercise of the powers and
functions of the principal organs of the Authority in respect of the area
covered by the plan of work.
2. Transferred data in respect of the area covered by the plan of work,
deemed proprietary, may only be used for the purposes set forth in this
article. Data necessary for the formulation by the Authority of rules,
regulations and procedures concerning protection of the marine environment
and safety, other than equipment design data, shall not be deemed
proprietary.
3. Data transferred to the Authority by prospectors, applicants for
contracts or contractors, deemed proprietary, shall not be disclosed by the
Authority to the Enterprise or to anyone external to the Authority, but
data on the reserved areas may be disclosed to the Enterprise. Such data
transferred by such persons to the Enterprise shall not be disclosed by the
Enterprise to the Authority or to anyone external to the Authority.
Article 15
Training programmes
The contractor shall draw up practical programmes for the training of
personnel of the Authority and developing States, including the
participation of such personnel in all activities in the Area which are
covered by the contract, in accordance with article 144, paragraph 2.
Article 16
Exclusive right to explore and exploit
The Authority shall, pursuant to Part XI and its rules, regulations and
procedures, accord the operator the exclusive right to explore and exploit
the area covered by the plan of work in respect of a specified category of
resources and shall ensure that no other entity operates in the same area
for a different category of resources in a manner which might interfere
with the operations of the operator. The operator shall have security of
tenure in accordance with article 153, paragraph 6.
Article 17
Rules, regulations and procedures of the Authority
1. The Authority shall adopt and uniformly apply rules, regulations and
procedures in accordance with article 160, paragraph 2(f)(ii), and article
162, paragraph 2(o)(ii), for the exercise of its functions as set forth in
Part XI on, inter alia, the following matters:
(a) administrative procedures relating to prospecting, exploration and
exploitation in the Area;
(b) operations:
(i) size of area;
(ii) duration of operations;
(iii) performance requirements including assurances pursuant to
article 4, paragraph 6(c), of this Annex;
(iv) categories of resources;
(v) renunciation of areas;
(vi) progress reports;
(vii) submission of data;
(viii) inspection and supervision of operations;
(ix) prevention of interference with other activities in the marine
environment;
(x) transfer of rights and obligations by a contractor;
(xi) procedures for transfer of technology to developing States in
accordance with article 144 and for their direct participation;
(xii) mining standards and practices, including those relating to
operational safety, conservation of the resources and the protection
of the marine environment;
(xiii) definition of commercial production;
(xiv) qualification standards for applicants;
(c) financial matters:
(i) establishment of uniform and non-discriminatory costing and
accounting rules and the method of selection of auditors;
(ii) apportionment of proceeds of operations;
(iii) the incentives referred to in article 13 of this Annex;
(d) implementation of decisions taken pursuant to article 151, paragraph
10, and article 164, paragraph 2(d).
2. Rules, regulations and procedures on the following items shall fully
reflect the objective criteria set out below:
(a) Size of areas:
The Authority shall determine the appropriate size of areas for
exploration which may be up to twice as large as those for
exploitation in order to permit intensive exploration operations. The
size of area shall be calculated to satisfy the requirements of
article 8 of this Annex on reservation of areas as well as stated
production requirements consistent with article 151 in accordance
with the terms of the contract taking into account the state of the
art of technology then available for sea-bed mining and the relevant
physical characteristics of the areas. Areas shall be neither smaller
nor larger than are necessary to satisfy this objective.
(b) Duration of operations:
(i) Prospecting shall be without time-limit;
(ii) Exploration should be of sufficient duration to permit a
thorough survey of the specific area, the design and construction of
mining equipment for the area and the design and construction of
small and medium-size processing plants for the purpose of testing
mining and processing systems;
(iii) The duration of exploitation should be related to the economic
life of the mining project, taking into consideration such factors as
the depletion of the ore, the useful life of mining equipment and
processing facilities and commercial viability. Exploitation should
be of sufficient duration to permit commercial extraction of minerals
of the area and should include a reasonable time period for
construction of commercial-scale mining and processing systems,
during which period commercial production should not be required. The
total duration of exploitation, however, should also be short enough
to give the Authority an opportunity to amend the terms and
conditions of the plan of work at the time it considers renewal in
accordance with rules, regulations and procedures which it has
adopted subsequent to approving the plan of work.
(c) Performance requirements:
The Authority shall require that during the exploration stage
periodic expenditures be made by the operator which are reasonably
related to the size of the area covered by the plan of work and the
expenditures which would be expected of a bona fide operator who
intended to bring the area into commercial production within the
time-limits established by the Authority. The required expenditures
should not be established at a level which would discourage
prospective operators with less costly technology than is prevalently
in use. The Authority shall establish a maximum time interval, after
the exploration stage is completed and the exploitation stage begins,
to achieve commercial production. To determine this interval, the
Authority should take into consideration that construction of
large-scale mining and processing systems cannot be initiated until
after the termination of the exploration stage and the commencement
of the exploitation stage. Accordingly, the interval to bring an area
into commercial production should take into account the time
necessary for this construction after the completion of the
exploration stage and reasonable allowance should be made for
unavoidable delays in the construction schedule. Once commercial
production is achieved, the Authority shall within reasonable limits
and taking into consideration all relevant factors require the
operator to maintain commercial production throughout the period of
the plan of work.
(d) Categories of resources:
In determining the category of resources in respect of which a plan
of work may be approved, the Authority shall give emphasis inter alia
to the following characteristics:
(i) that certain resources require the use of similar mining methods;
and
(ii) that some resources can be developed simultaneously without
undue interference between operators developing different resources
in the same area.
Nothing in this subparagraph shall preclude the Authority from
approving a plan of work with respect to more than one category of
resources in the same area to the same applicant.
(e) Renunciation of areas:
The operator shall have the right at any time to renounce without
penalty the whole or part of his rights in the area covered by a plan
of work.
(f) Protection of the marine environment:
Rules, regulations and procedures shall be drawn up in order to
secure effective protection of the marine environment from harmful
effects directly resulting from activities in the Area or from
shipboard processing immediately above a mine site of minerals
derived from that mine site, taking into account the extent to which
such harmful effects may directly result from drilling, dredging,
coring and excavation and from disposal, dumping and discharge into
the marine environment of sediment, wastes or other effluents.
(g) Commercial production:
Commercial production shall be deemed to have begun if an operator
engages in sustained large-scale recovery operations which yield a
quantity of materials sufficient to indicate clearly that the
principal purpose is large-scale production rather than production
intended for information gathering, analysis or the testing of
equipment or plant.
Article 18
Penalties
1. A contractor's rights under the contract may be suspended or terminated
only in the following cases:
(a) if, in spite of warnings by the Authority, the contractor has
conducted his activities in such a way as to result in serious,
persistent and wilful violations of the fundamental terms of the
contract, Part XI and the rules, regulations and procedures of the
Authority; or
(b) if the contractor has failed to comply with a final binding decision
of the dispute settlement body applicable to him.
2. In the case of any violation of the contract not covered by paragraph 1
(a) or in lieu of suspension or termination under paragraph l(a), the
Authority may impose upon the contractor monetary penalties proportionate
to the seriousness of the violation.
3. Except for emergency orders under article 162, paragraph 2(w), the
Authority may not execute a decision involving monetary penalties,
suspension or termination until the contractor has been accorded a
reasonable opportunity to exhaust the judicial remedies available to him
pursuant to Part XI, section 5.
Article 19
Revision of contract
1. When circumstances have arisen or are likely to arise which, in the
opinion of either party, would render the contract inequitable or make it
impracticable or impossible to achieve the objectives set out in the
contract or in Part XI, the parties shall enter into negotiations to revise
it accordingly.
2. Any contract entered into in accordance with article 153, paragraph 3,
may be revised only with the consent of the parties.
Article 20
Transfer of rights and obligations
The rights and obligations arising under a contract may be transferred only
with the consent of the Authority, and in accordance with its rules,
regulations and procedures. The Authority shall not unreasonably withhold
consent to the transfer if the proposed transferee is in all respects a
qualified applicant and assumes all of the obligations of the transferor
and if the transfer does not confer to the transferee a plan of work, the
approval of which would be forbidden by article 6, paragraph 3(c), of this
Annex.
Article 21
Applicable law
1. The contract shall be governed by the terms of the contract, the rules,
regulations and procedures of the Authority, Part XI and other rules of
international law not incompatible with this Convention.
2. Any final decision rendered by a court or tribunal having jurisdiction
under this Convention relating to the rights and obligations of the
Authority and of the contractor shall be enforceable in the territory of
each State Party.
3. No State Party may impose conditions on a contractor that are
inconsistent with Part XI. However, the application by a State Party to
contractors sponsored by it, or to ships flying its flag, of environmental
or other laws and regulations more stringent than those in the rules,
regulations and procedures of the Authority adopted pursuant to article 17,
paragraph 2(f), of this Annex shall not be deemed inconsistent with Part
XI.
Article 22
Responsibility
The contractor shall have responsibility or liability for any damage
arising out of wrongful acts in the conduct of its operations, account
being taken of contributory acts or omissions by the Authority. Similarly,
the Authority shall have responsibility or liability for any damage arising
out of wrongful acts in the exercise of its powers and functions, including
violations under article 168, paragraph 2, account being taken of
contributory acts or omissions by the contractor. Liability in every case
shall be for the actual amount of damage.
