Petroleum Fiscal Regimes

This research is considered to be an important matter as fiscal regime has an important role in the oil and gas industry in every country in this world. The fiscal regime applied in each country will affect the investment decisions of the investors.
The fiscal systems discussed in this research were the Production Sharing Contract, pioneered by Indonesia and Concessionary system adopted by Norway. This research aims to compare the practice of Indonesian PSC, Malaysian PSC and Norwegian R/T system to get a deeper understanding of petroleum fiscal system application in different countries, for the purpose of further developing the  Indonesian economy. There are three main objectives in this research, to analyse
and review the practice of petroleum fiscal system in Indonesia, Malaysia, and Norway; to review the impact on the economy of the petroleum fiscal system applied in the countries; and to recommend an enhancement of petroleum fiscal system in Indonesia to develop the Indonesian petroleum industries.
This research used both primary and secondary data. The primary data was obtained by interviewed some participants from three different views participants (contractor view, government view and consultant view from Indonesia and international). Numerical data was obtained internally from one of the oil and gas company in Indonesia. These data was qualitatively analysed by analysing the primary data and combined with critical review on the literature reviews. These data was also quantitatively analysed by calculating the government take and
contractor take using the petroleum fiscal applied in the countries. Triangulation research methodology has been applied in this research.
It was found that current issues in the petroleum industry in Indonesia
mainly related to legal certainty in the country. Indonesian PSC is a good system but what matters was the implementation of the regulations enacted by many government institutions. Libyan EPSA was found interesting to be discussed in this research as it used gross PSC for the fiscal system.
It was concluded that even though Indonesian PSC is good enough, but it might be good for Indonesia to look at the Malaysian PSC with the R/C PSC concept rather than to Norwegian R/T system. Indonesia might also learn from Libyan EPSA III as it was found attractive for investors in terms of shares. In this case, it is recommended that Indonesia does not only improve the stability of the system, but also improve the system itself to improve the attractiveness of the PSC.
This will improve the Indonesian economy as this sector has significant role in the economic growth of Indonesia.

Ghana became an oil producing country in December 2010. This development renewed
the expectation of the citizenry as to the revenue that will accrue to the state and its direct effect on
standard of living. The purpose of this study was to evaluate the Ghanaian upstream petroleum fiscal
regime, including state and investor shares, and to compare it with petroleum fiscal regimes of some
six other oil producing African countries. The qualitative assessment compared the regime on general  taxation and petroleum taxation in particular. The traditional Discounted Cash Flow (DCF) method  was used in the quantitative assessment of the regimes. Out of the seven regimes used in the
quantitative analysis, the Ghanaian regime ranks sixth in terms of government take. It also ranks  second with 31 months investor payback period based on post-tax discounted cash flow. Though the  Ghanaian fiscal regime appears to be progressive; thin capitalisation, royalty rate, and cost recovery  limits withholding taxes on interest. Therefore tying of additional oil entitlements to profits are  recommended in future reviews of the Ghanaian fiscal regime. It appears from the study that the  Ghanaian regime is not optimal and the recommendation provided would help improve upon it.

Doubts have been raised and criticisms continue to be made about Lebanon’s choice of upstream petroleum fiscal terms and strategies to award oil and gas licenses. This is not surprising given the fact that it is a completely new experience for Lebanon, a country often stuck in stalemates stemming from political disagreements. Despite this, there are some internationally recognized guiding principles that Lebanese policymakers can follow. In terms of the allocation strategy, Lebanon selected competitive bidding, which is a positive step since this method is increasingly popular and supported by the international community. The key concern in Lebanon, however, is the choice of biddable parameters, which should be reviewed further. In terms of block delineation, Lebanon’s offshore block sizes do not fall outside the reasonable range, especially when the exploration risk and the relinquishment rule are taken into consideration. With respect to petroleum regulations, Lebanon seems to offer a middle ground between Cyprus and Israel. Some question whether the choice of petroleum fiscal regime Lebanon made is the correct one. In reality, the type of regime is less relevant. Fiscal regimes can be made equivalent in terms of both control and overall economic impact, for given oil and gas prices. The design of the regime, the interactions of different fiscal and quasi fiscal instruments, the details related to the imposition of different instruments, among others, are by far more important. The government should not focus on a specific instrument and instead take into account the net impact on the fiscal regime and the investment climate.

State participation in petroleum exploration usually results in contractual agreements between the governments and International Oil Companies (IOCs). The bargaining powers between these are not of equal because the host states reserve the right over their natural resources even in the presence of any contractual provisions. This is recognized and endorsed international law under prescribed conditions put the states at the higher of the bargaining powers and the exercise of state sovereignty. Based on the imbalance of bargaining powers between the contracting parties. The IOCs normally anticipate possibility of unilateral change or untimely termination of investments contracts by the host state through the use of its legislative powers. As an antidote to such unilateral actions of the host governments, foreign investors and for that matter IOCs employ stabilization clauses to indemnify their investments. This paper seeks to explain petroleum agreements, indemnify stabilization clause, the types, limitations and legal implications of a breach of the stabilization clauses.