Fiscal regime design elements and relative regime ranking for concessions

• Published date: 01 March 2017
• DOI: http://doi.org/10.1111/opec.12093
• Author: Amit Singh Rao
• Date: 01 March 2017

Fiscal regime design elements and relative

regime ranking for concessions

Amit Singh Rao

IFP School. Email: amitrao99@gmail.com

Abstract

The technological breakthrough in the oil and gas sector has made it possible for the companies to

diversify their investment portfolio but it is quite challenging to select a balanced and stable regime

to mitigate the country risks associated with investments especially in a volatile price environment.

The project economics calculation to evaluate fiscal regime sometimes proves out to be a difficult

task for corporate planners to model and make conclusions for investments. It is also a challenge

for the government to maximize the revenue from their resources and for the contractor to choose a

suitable investment destination. There is a scope in current fiscal analysis literature for a single

indicator which can contribute towards the overall comparison of fiscal regimes. This paper will

evaluate the design aspects of fiscal terms of a concession regime and will address the generic

concern of fiscal regime evaluation through a Relative Fiscal Ranking (The Relative Fiscal

Ranking is the evaluation of two or more fiscal regimes benchmarked against the most attractive

fiscal regime with desired fiscal terms set/calculated by the investors.) methodology applied on a

set of concession regimes. This method will directly establish a unique functionality between the

fiscal terms and their attractiveness which will ultimately expose the relative risk associated with

fiscal regimes when they are compared against each other. It generates key insights for investment

decisions and can help the policy makers and corporate planners to take informed decisions.

The fiscalregimes differ from countryto country and differentfiscal terms are associatedwith

concession,PSC or a Service Contract.The fiscal terms play a crucial role in decisionmaking

for investmen ts. The fiscal policiesassociated with the hydrocarbonsector have evolvedover

time and the policy makershave experimented

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with the fiscal terms to improve investment

sentiments or in order to address volatile crude oil price. The current low crude oil price

environment can lead to reforms in the fiscal design of regimes in many countries.

The objective of the host government and the investor is profit maximization.

Therefore, there is always a concerned gap of reinventing the regimes in favour of

Government/Investors.

The decision of the government to design a fiscal regime which may have a high or

low government take depends mainly on the historic developments in the Oil and Gas

sector and resource availability.

©2017 Organization of the Petroleum Exporting Countries. Published by John Wiley & Sons Ltd, 9600 Garsington

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