1340-(216)

II SÉRIE-A — NUMERO 69

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 principales, 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; /) 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 of 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:

/) «Attributable net proceeds» means the whole of the contractor's net proceeds;

ii) «Contractons net proceeds» shall be as

defined in subparagraph_/); /«) «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 subpa-

ragraph 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), I) 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 metais 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, 6), 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. o

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 or free market of 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