Petroleum Fiscal Regimes

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.

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.