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agreement, and the term “Neutral Zone” refers both to the Neutral
Zone and the Divided Zone.)
The concession agreement authorized Aminoil, at its own
expense, to construct and operate power stations, refineries,
pipelines, and other facilities necessary to the conduct of its
activities in the Neutral Zone and gave Aminoil exclusive
ownership of all petroleum and natural gas that it extracted. In
consideration of its rights under the concession agreement,
Aminoil agreed to make a lump-sum payment to Kuwait and to pay
annual royalties.
The concession agreement was to remain in effect until
June 28, 2008, unless earlier terminated for cause. Upon
termination, all of Aminoil’s real and personal property in
Kuwait and the Neutral Zone would pass to Kuwait free of charge.
On various occasions, Aminoil’s financial obligations to
Kuwait under the concession agreement were renegotiated (to
include the imposition of an obligation to pay Kuwait income
taxes). In late 1975, Kuwait announced that it intended to apply
to Aminoil a 1974 Organization of Petroleum Exporting Countries
(OPEC) resolution known as the “Abu Dhabi Formula” (Abu Dhabi
Formula). The Abu Dhabi Formula would have substantially raised
Aminoil’s royalty and tax obligations to Kuwait. Aminoil
objected to the imposition of the Abu Dhabi Formula, and
negotiations between Aminoil and Kuwait followed, which lasted
until some time in 1977.
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