Problems with the efficient construction of the Resources Rent Tax (RRT) and the R-Factor production sharing agreement

Technical Report · Sun Dec 31 04:00:00 EST 1995

OSTI ID:416358

Kemp, A G; Jones, P D.A.

In recent years there has been increased employment of the Resource Rent Tax (RRT) and R-Factor petroleum fiscal schemes, particularly in third world countries and in the former Soviet Union. Their attractiveness to governments is mainly due to their ability to take large slices of increasing economic rents. The two schemes provide well known advantages to both investors and host governments through being profit related and targeted on economic rents. It is however, the possible disadvantages and inefficiencies caused by these taxes that are discussed in this paper. The problem of providing incentives to {open_quote}gold plate{close_quote} investments is addressed in Section 2. Case studies of particular countries which have applied RRT schemes are examined to evaluate the presence of the problem in practice. The R-Factor scheme is also examined with hypothetical schemes to test for gold plating. The problem of Exploration risk under the RRT will be discussed in Section 3. Section 4 proposes the Advance RRT to give governments earlier tax revenue, the lack of which is a significant problem in practice. Section 5 draws conclusions. The main contribution of this paper is to fully investigate some of the problems faced with the efficiency and implementation of the RRT and R-factor tax schemes. The paper relies heavily on practical numerical analysis due to both tax systems not being continuous. Analytical solutions are thus not possible. From these simulations practical policy advice for decision makers implementing the schemes can be obtained.

• Research Organization: International Association for Energy Economics, Cleveland, OH (United States)
• OSTI ID: 416358
• Report Number(s): CONF-9507139--
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
29 ENERGY PLANNING, POLICY, AND ECONOMY
DECISION MAKING
EXPLORATION
IMPLEMENTATION
PETROLEUM DEPOSITS
PETROLEUM INDUSTRY
PROFITS
TAXES