FISCAL ARRANGEMENTS

Service Contract Agreement

Example: Revenue = $100

Cost = $ 40
Cost
Recovery
$40
Ceiling @50%
= $40 Tax
$6 $4 @40%
Contractor
Take Government
= $6 Take = $54

Govt.
$50 Profit
Share

Cost = $40
*Net Govt. Take
Government Take = $54
= 90%
Contractor Take =$ 6

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 FISCAL ARRANGEMENTS

Service Contract Agreement

Project Contractor’s State/Government

Cash Flow Cash Flow Cash Flow

Revenue
(less) (equals)

Cost Recovery
Cost State/Govt.
Ceiling Profit Share
Remuneration

(less) (less)
Opex

(less)
Tax
(less) (less)
Capex

(equals) (equals) (equals)

Net Cash Net Cash Net Cash

Flow Flow Flow
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 FISCAL ARRANGEMENTS

Service Contract Agreement

Example: Iran Service Contract

• Cost Oil Ceiling: 60%

Capital to be amortised over 6-year period for recovery

• Remuneration for contractors = remaining unused cost oil

• Petroleum Income Tax rate: 15% of taxable income

• Training bonus (non-cost recoverable, non-tax deductable):

$1.5 MM per year (from 1st production)

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 FISCAL ARRANGEMENTS

Comparisons of Average Government Take (Net Cost)

Cameroon 11%
Ireland 20%
Canada 35%
New Zealand 38%
Netherlands 42%
USA 42%
China 43%
United Kingdom 44%
Pakistan 45%
Australia 45%
Philippines 46%
Denmark 47%
Venezuela 50%
Thailand 51%
Papua New Guinea 52%
Myanmar 54%
Ivory Coast 55%
M'sia-R/C 56%
Equatorial Guinea 60%
Brazil 60%
Bangladesh 61%
Tunisia 63%
India 65%
Turkmenistan 65%
Vietnam 69%
Algeria 72%
Egypt 73%
Gabon 73%
Angola 74%
Norway 75%
Yemen 75%
Libya 79%
Indonesia 81%
Malaysia-1985 85%
Nigeria 87%
Iran 93%
0% 20% 40% 60% 80% 100%
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 FISCAL ARRANGEMENTS

• An efficient fiscal regime would be one which leaves untaxed or taxes only
lightly on less profitable project whereas taxes more severely those
projects are very profitable
Less
Efficient
+ R/C PSC
1985 PSC
NPV After Stake Take

Less
Efficient

1976 PSC

- +

-
NPV Before Stake Take