Advantages and disadvantages to host governments

Info icon This preview shows pages 52–54. Sign up to view the full content.

Advantages and Disadvantages to Host Governments Surface fees are easy to calculate, collect and monitor. They have the advantage of providing a source of revenue, albeit limited, during each phase of a project life. When a government upstream agency exists, surface fees are often collected by the agency that uses the revenue flow to cover its administrative costs. Effect on Investment Decisions Given their limited amount, surface fees do not present any particular disadvantage to investors. Table 15. Bonuses How do they work? Bonuses are commonly paid by the investing company upon signature of an exploration and production agreement. In some cases, bonuses may be paid upon discovery, declaration of commerciality, commissioning of facilities, start of production, and/or reaching target production levels (daily or cumulative). Bonuses affect the project risk by increasing the exploration and development economic thresholds. To compensate for the risk, higher bonuses are balanced by lower royalties, taxes, production sharing, and/or government shares. Advantages and Disadvantages to Host Governments Bonuses are easy to administer and provide an early form of revenue. The maximum level of a bonus is very much dependent on the overall fiscal terms, the characteristics of the asset, the country political risk, and the risk profile of the targeted investors. Effect on Investment Decisions High signature bonuses may discourage risk-adverse investors, especially when the political risk is perceived to be high, or when there is a high level of geological uncertainty. Commerciality bonuses are also sensitive, as they increase the economic cut-off rate of a project.
Image of page 52

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Fiscal Systems for Hydrocarbons 43 Table 16. Government Participation How do they work? Many PSCs provide an option for the host government (or the NOC) to participate in develop- ment projects. The government’s participation can take several forms. Participation may be acquired as “working interest”, that is, on the same terms as might be available to other joint ventures partners. 82 This may occur from the outset of a project (very rare); more often, the government may reserve the right to back into the project at some stage (normally at field development or production). 83 The right may be acquired on concessional terms or on favorable terms. 84 The most common way consists of acquiring a carried interest: the government pays for its share out of future earnings of the project. In some countries, the government backs in without repaying the investor for the expenses borne and/or the risk taken during the exploration phase. The government may exercise its rights to participate in a project directly or through a state owned enterprise.
Image of page 53
Image of page 54
This is the end of the preview. Sign up to access the rest of the document.
  • Winter '14
  • Bijay K Behra
  • host government, fiscal systems, world bank working

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern