The MRRT could mean the renegotiation of long-term supply
contracts, or an automatic increase in price.
Much has been written lately concerning the potential form that
Mineral Resources Rent Tax (MRRT) may take, if it is passed.
Significant focus has also been given to potential transitional
arrangements for introducing the MRRT and how it may affect
differing resource companies' financials.
However, an issue that has received little, if any, publicity is
how the MRRT may trigger "change in law" provisions in
existing contracts, especially long-term supply contracts.
Long-term supply contracts common to the energy and resources
industry, will generally have clauses that cater for a change in
law. The very nature and duration of long-term supply contracts
inflate the risk of certain matters, such as the possible
introduction of a new tax. As a consequence, clauses such as change
in law provisions are often inserted to cater for or mitigate these
Change in law provisions will generally operate in one of two
to pass-through the increased costs resulting (whether directly
or indirectly) from the "change in law"; or
to allow for the amendment of the agreement (effectively
requiring the parties to re-negotiate the terms, including
Definitions of "change in law" will generally be
drafted to be as wide as possible to include "any law,
regulation, rules, code, or sub-code being introduced, amended or
repealed in whole or in part" and "the imposition of any
Impost (meaning any royalty, tax, excise, levy, fee, rate, charge
or cost levied or charged or imposed) which was not in force as at
the date of the agreement". The use of such broad definitions
is intended to capture as many unforeseen circumstances as
Resource companies need to be aware that the introduction of the
MRRT (including the possible establishment of a Carbon Pollution
Reduction Scheme) may bring about requests for a re-negotiation of
contractual terms or an automatic increase in price (depending on
the terms of the change in law provision). Companies need to be
aware of whether and if so, to what extent, their contracts may
change and should review their contracts accordingly.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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