chapter  7
7 Evaluating fiscal regimes for resource projects: an example from oil development
Pages 54

We outline, first, criteria that can be used to evaluate minerals taxation systems and, second, indicators that can be used in a practical project modeling framework to assess the regime against the criteria. Although much of the approach draws from standard procedures used by practitioners in the evaluation of petroleum projects and fiscal regimes for resources,4 this chapter tries to relate these to concepts employed in wider analysis of tax systems and their incentive effects. The task is different from, but a variant of, the process of project evaluation for investment decision-making by companies.5 In particular, a government will typically have objectives for the efficiency of revenue-raising, preferences concerning the risk profile of outcomes, and about timing or delay in revenues, as well as objectives that it may hold in common with investors for a regime that maximizes investment and output over time. In this chapter, the core building block for decision-making is analyzed – the profile of a petroleum project during development and production – from which a probability distribution of differing outcomes can be constructed to guide exploration decisions. The decision process itself works in the opposite direction (from exploration to development and production), with the higher risks usually at the earlier points, but each stage requires an assessment of the end and intermediate points.6