Fiscal regime design elements and relative regime ranking for concessions

Abstract

AbstractThe 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.