Unlike economic measures which are generally well

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Unlike economic measures, which are generally well-established, general confusion sur- rounds the application and interpretation of take. 33 In this paper, the government take is defined as the government’s percentage of pre-tax project net cash flow adjusted to take into account any form of government participation. The government take can be calculated in discounted or undiscounted value. 34 The take statistics for a given country offer a first frame of reference to assess whether or not the fiscal terms applicable to a contract under negotiation are in line with those that already exist in that country (Johnston 2003), or as benchmark to determine the competitiveness of a country’s fiscal terms. 35 However, comparing the take of different projects and/or different countries is a very difficult and often misleading exercise because: Calculating the take at project level requires: (i) ex-ante, the ability to forecast the expected cash flow for the project. As noted above, estimating the cash flow of a prospective project is highly uncertain, and even under the best conditions, is based on incomplete and often unobservable information; (ii) ex-post, the availability of information that is normally proprietary and not publicly known; The same limitations apply to the calculation of the take at country level. In addition, in a given country numerous vintages of contracts are normally in force at any one Fiscal Systems for Hydrocarbons 19 33. For more details see Johnston, Van Meurs and Seck, Smith, Wood, Allen and Seba, Barrows, and Kemp. 34. Like companies, each host government has a unique risk-reward profile/discount rate. The host government does value money in the same way as companies do. However, the host government’s expected benefits should be discounted using the social discount rate. This reflects society’s preferences for allocating the use of resources over time. A higher rate will attribute more weight to benefits to the current generation than to future generations. The calculation of the parameters that are necessary to determine the social discount rate involves a certain degree of value judgment. In addition, countries may have considerably different social discount rates. See Evans (2006) for a brief analysis of social discounts rates in the European Union. 35. Sector literature conventionally compares countries’ fiscal systems on the basis of the government take. One use of take statistics is to calculate the possible range of the “take” for various countries using common sets of assumptions and use the result as general indicators of the relative attractiveness/ efficiency of those country’s fiscal systems (see for example Johnston and van Meurs). Alternatively, an attempt could me made to adjust the values that determine the take to local conditions (see the take sta- tistics of WoodMackenzie). Before the oil shocks of 1974 and 1979, a 50 percent government take was considered a fair value but after the creation of OPEC, companies began to accept some erosion of their share of profits (Rutledge and Wright 1998). A study carried out by Petroconsultants in 1995 showed that
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  • Winter '14
  • Bijay K Behra
  • host government, fiscal systems, world bank working

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