400
A. R. Tom
of extracting it. Therefore, it is theoretically possible to impose a fiscal
cost with a purpose of taxing the entire economic rent generated without
distortion to the investment activity. Identification of the source and level
of rent in practice may be difficult; thus the fiscal regimes are designed to
suit the preference of the resource owners (Gaudet and Lasserre 2015).
Fiscal instruments that progressively increase the fiscal cost due with
the increase in the economic rent generated have been cited to be the
ideal fiscal instruments (Garnaut and Clunies Ross 1983; Boadway and
Keen 2010). However, they have been noted to be distortionary in
the presence of uncertainty because they discourage investment in risky
projects over safer ones. Furthermore the difficulty of their administration and the high amount of information required for the determination
of the level of rent questions the practicability of their application
(Garnaut and Clunies Ross 1983; Boadway and Keen 2010).
In practice, numerous fiscal systems that insensitive to all the critical
project metrics; such as project costs, production volumes and resources
prices; linked to the generation of economic rent are utilized (Boadway
and Keen 2010). Therefore under these systems, the fiscal cost imposed
remains relatively constant and on average increases at lower levels of
project profitability. The majority of these arrangements were designed
for periods of relatively long and stable resource prices (Stroebel and Van
Benthem 2013).
13.2.2 What Is the Impact of Different Levels
of Fiscal Costs?
Petroleum resources are site-specific and homogenous, implying that the
various fields, even within the same geological location, will possess
different costs of extraction. Fields with lower marginal and development costs will typically yield higher profits (Garnaut and Clunies 1975,
1983; Nakhle 2008). The profits generated from the production of the
resources is, however, subject to the fiscal regime established between the
parties as it imposes a cost on the projects. The level and nature of this
cost could yield unintended consequences on current and future projects.
A. R. Tom
of extracting it. Therefore, it is theoretically possible to impose a fiscal
cost with a purpose of taxing the entire economic rent generated without
distortion to the investment activity. Identification of the source and level
of rent in practice may be difficult; thus the fiscal regimes are designed to
suit the preference of the resource owners (Gaudet and Lasserre 2015).
Fiscal instruments that progressively increase the fiscal cost due with
the increase in the economic rent generated have been cited to be the
ideal fiscal instruments (Garnaut and Clunies Ross 1983; Boadway and
Keen 2010). However, they have been noted to be distortionary in
the presence of uncertainty because they discourage investment in risky
projects over safer ones. Furthermore the difficulty of their administration and the high amount of information required for the determination
of the level of rent questions the practicability of their application
(Garnaut and Clunies Ross 1983; Boadway and Keen 2010).
In practice, numerous fiscal systems that insensitive to all the critical
project metrics; such as project costs, production volumes and resources
prices; linked to the generation of economic rent are utilized (Boadway
and Keen 2010). Therefore under these systems, the fiscal cost imposed
remains relatively constant and on average increases at lower levels of
project profitability. The majority of these arrangements were designed
for periods of relatively long and stable resource prices (Stroebel and Van
Benthem 2013).
13.2.2 What Is the Impact of Different Levels
of Fiscal Costs?
Petroleum resources are site-specific and homogenous, implying that the
various fields, even within the same geological location, will possess
different costs of extraction. Fields with lower marginal and development costs will typically yield higher profits (Garnaut and Clunies 1975,
1983; Nakhle 2008). The profits generated from the production of the
resources is, however, subject to the fiscal regime established between the
parties as it imposes a cost on the projects. The level and nature of this
cost could yield unintended consequences on current and future projects.