Rigid benefit sharing could deter oil firms, academics warn

With the government having postponed the opening of a new round of petroleum exploration and production bidding for three months as it considers amendments to the contentious petroleum fiscal system with representatives from the state and an energy activists’ group, the faculty held a press conference and a seminar yesterday to educate the public on the fiscal-regime options.
“They can amend whatever they like in a bid to create interest [from oil and gas companies]. But because the oil price has fallen so much, adding a strict taxation regime will have a double [negative] effect,” said Thitisak Boonpramote, head of the mining and petroleum department of Chula Engineering.
Petroleum exploration is a special type of business, which requires a high investment budget and “interpretation of the unseen”, he said.
“There is no way to know the results [of exploration] for two or three years. It comes with high risk and high uncertainty. Therefore, a good system should have some certain degree of flexibility that will allow the development of marginal fields, and in the case of large discoveries, be one in which the government is able to collect a higher share,” Thitisak said.
In economic terms, he said, production-sharing or concessionary regimes amount to much the same thing, since both systems can be designed to give the same benefits to the state.
Nevertheless, it will be a challenge for Thailand to adopt the production-sharing system (PSC) considering the issue of governance and transparency, he added.
“PSC is interesting because all of our neighbouring countries have used it. The problem is who will be appointed as the body to take care of our resources. Will we face the same problem as we faced with PTT, which was later privatised?” said the academic.
Thitisak said the average return of 60-70 per cent that Thailand had taken from petroleum exploration and production companies’ profits during the past decades under the concessionary system was “not a bad” rate.
“We have already delayed [the petroleum bidding] for seven years. How long will it be postponed further? In the future we will face an [energy] crisis, which might not be so obvious at present,” he said.
The dean of Chula Engineering, Professor Bundhit Eua-arporn, compared petroleum fiscal regimes to other business operations, including Chulalongkorn University’s, where the institution has chosen to grant concessions to private companies like the MBK centre to develop properties on its land, instead of applying a profit-sharing system.
“If we were using PSC, MBK would have to share its income while not having to pay a concessionaire fee. And Chula would have to set up an agency to check the sales and profits of MBK. Hence [under such a scenario] the transparency of this agency must be exact and if Chula did not negotiate well, it might receive less income,” he said.
Thitisak said the government could amend the petroleum laws to tax oil and gas firms on their profits, rather than on their production volumes, which is what the current petroleum royalty fees are levied on.
It should also consider benefit-sharing with local communities in exploration areas, he suggested.
Jirawat Chewaroungroaj, lecturer in petroleum engineering at Chula Engineering, said that in regard to a proposal from the energy activists’ group that the government should take a role as an oil and gas explorer, the government had no expertise, resources or administrative flexibility to pursue petroleum exploration activities, which were high-risk, high-investment businesses.