Fiscal System Design and Economic Evaluation for Petroleum Resource Development in Ghana

Abstract

Petroleum fiscal regime defines the extent to which the host government and the prospective investor can apportion risks and share project rewards. Ghana’s petroleum industry has become an attractive place for most investors because the current fiscal regime governing the industry is based on old petroleum tax laws and systems. In this study the petroleum fiscal regime currently used in Ghana was modelled, reviewed and evaluated. A proposed progressive fiscal regime was then put forward which has a sliding scale royalty tied to production to increased the government share (GTake). The models incorporated successfully monte carlo simulation using @risk software to account for risk and uncertainties in decision making. This study addresses the petroleum industry structure and performance of the modelled fiscal regimes of Ghana. An optimum fiscal regime should be efficient, effective and equitable. The fiscal regime optimality were evaluated by testing the IRR which accounts for the efficiency, FLI which accounts for effectiveness and GTake which accounts for equity in order to achieve pareto optimality. Other range of profitability indicators were also tested in the economic evaluation and they are contractor’s take (CTake), Net present value (NPV), Profitability index (PI), Present value ratio (PVR). The deterministic result of the analysis shows that, the government take (GTake) increased when the proposed fiscal regime was put forward from 30.15% to 69.85%. The Internal rate of return (IRR) for the fixed royalty is 21% and the sliding scale royalty is 16%. Both values are positive which means there is value for every dollar invested. This study will help both investors and Government in decision making.