<< Chapter < Page Chapter >> Page >

The companies (Exxon, Chevron etc.) strongly prefer to have at least some title, some property rights to any oil (or gas) that may be found.

But, this has been a very unpopular position in many emerging nations especially in Mexico, Brazil and most of Latin America. These countries have been very wary of opening up their hydrocarbon sectors to foreigners. However, this situation is changing in Mexico, which is expected to allow foreign involvement in oil as early as 2016

These conflicting objectives require arrangements that might be seen as a compromise.

One possibility, now widely used, is the Production Sharing Contracts of the type pioneered in Indonesia 50 years ago and which have worked fairly well ever since.

The basic form of production sharing is quite simple:

Under production sharing:

  1. The host government takes a fixed percentage (sometimes variable) of oil produced under the contract. This can be as low as 60% and as high as 85%, depending upon many factors.
  2. Governments allow the foreign contactor to take a fixed percentage of the oil produced.
    The host government also imposes income tax on the net income of the company operating in the host country. This rate is almost never less than 50%.

The foreign oil firms accept these arrangements, because they

  1. Provide some certainty for contract provisions
  2. Allow the foreign firm to time sales of their share of oil, so as to get the best pricesand, most importantly
  3. The firm gets to deduct all exploration and development costs in determining net income for the income tax they must pay. So the firm covers the very heavy costs involved.

Production sharing contracts can be fine-tuned to get secure about any return the government as host wants, utilizing alternative combinations of the production share split, royalty payments or income tax rates to get for the host nation 70% of the value of oil, 80%, or 85%. Companies can bid for the rights to exploit. A host government can however go too far in setting terms for production sharing.

An example is the 2013 bidding for rights to exploit Brazil’s apparently rich pre-salt deposits.

These are super deepwater deposits under salt formations that can be quite tricky. One project involves billions of dollars in cost.

In the 2013 round of bidding, the terms were so unattractive that only on bid was received, and that involving a consortium of Chinese, American and Latin American firms.

Thus, production sharing in no panacea, but no one has yet found a better way to set contract terms on a basis that allows countries and oil firms to reach mutually satisfying agreements on oil exploration and development.


One needs to be very careful about undertaking large-scale hydropower projects, anywhere. The main attraction is that Hydropower can be very cheap – as low as 7 cents per kilowatt in Quebec. Costs of hydro almost everywhere can be lower than gas, coal oil, nuclear, solar, or wind.

But, there is a need to consider all costs of hydro projects.

Consider the three gorges dam in China. Rising waters in reservoirs created by the dams has displaced millions of people. These costs were not counted as a cost of the project. Elsewhere, in Malaysia and Brazil costs of relocating families from reservoir areas have been large. Even so, hydo always should be considered where there are plentiful rivers and highlands.

Consider the huge river systems of tropical Africa, especially in Zambezi, Volta, Congo, Egypt, and Sudan. There is enough hydro potential there to light up 2/3 of Africa. But many new potential African hydropower projects tend to be infeasible because they are located well away from population centers. Losses in transportation of power over long distance, losses due to buildup of resistance can be as high as 11-13%.

Another region with substantial hydropower potential is that encompassing Nepal, Bhutan and North India. Rivers fed with Himalayan glacial melt in Nepal could furnish about 400 gigawatts (GW) of very clean electric power, or a sixth of installed power capacity in India. Morever, the total hydropower potential of Nepal, India, Bhutan and Pakistan approaches 120 GW. This would be the rough equivalent of 240 500 megawatt coal fired electric power plants – a very sizeable increase in energy availabilities involving near zero carbon emission. See the Economist, “Water in the Hills”, November 29, 2014.

Natural resource markets: volatility

The international market of oil has proven to be quite volatile. There have been bubbles (in 2012) and “busts” (2014) (see Figure 17-5 ). This high degree of volatility has notable consequences for all emerging nations, both oil exporting countries and those that must import their energy requirements. Volatility in energy markets will complicate emerging nation’s ability to maintain stable economic growth and avoid ruinous inflation.

For oil importing emerging nations managing deficits in trade and in the public budget management of both will become much more “taxing.” Why? Because, energy is such a large percentage of imports and government expenditure everywhere (except for oil exporters).

But oil exporters are vulnerable to volatility as well. For all emerging nations, large price swings in energy past and present greatly complicate efforts to control domestic inflation both in upswings in oil price cycles and downswings, as well. And we will see in Chapter___, this volatility will also make it more difficult to operate effective exchange rate policies. In sum, central bankers all over the world, but especially in nearby oil dependent Nigeria, Venezuela, Russia and Ecuador, will have a much tougher job in maintaining price stability in the 21 st century than in the 20 th , owing to this volatility.

Questions & Answers

can someone help me with some logarithmic and exponential equations.
Jeffrey Reply
sure. what is your question?
okay, so you have 6 raised to the power of 2. what is that part of your answer
I don't understand what the A with approx sign and the boxed x mean
it think it's written 20/(X-6)^2 so it's 20 divided by X-6 squared
I'm not sure why it wrote it the other way
I got X =-6
ok. so take the square root of both sides, now you have plus or minus the square root of 20= x-6
oops. ignore that.
so you not have an equal sign anywhere in the original equation?
Commplementary angles
Idrissa Reply
im all ears I need to learn
right! what he said ⤴⤴⤴
what is a good calculator for all algebra; would a Casio fx 260 work with all algebra equations? please name the cheapest, thanks.
Kevin Reply
a perfect square v²+2v+_
Dearan Reply
kkk nice
Abdirahman Reply
algebra 2 Inequalities:If equation 2 = 0 it is an open set?
Kim Reply
or infinite solutions?
The answer is neither. The function, 2 = 0 cannot exist. Hence, the function is undefined.
Embra Reply
if |A| not equal to 0 and order of A is n prove that adj (adj A = |A|
Nancy Reply
rolling four fair dice and getting an even number an all four dice
ramon Reply
Kristine 2*2*2=8
Bridget Reply
Differences Between Laspeyres and Paasche Indices
Emedobi Reply
No. 7x -4y is simplified from 4x + (3y + 3x) -7y
Mary Reply
is it 3×y ?
Joan Reply
J, combine like terms 7x-4y
Bridget Reply
im not good at math so would this help me
Rachael Reply
I'm not good at math so would you help me
what is the problem that i will help you to self with?
how do you translate this in Algebraic Expressions
linda Reply
Need to simplify the expresin. 3/7 (x+y)-1/7 (x-1)=
Crystal Reply
. After 3 months on a diet, Lisa had lost 12% of her original weight. She lost 21 pounds. What was Lisa's original weight?
Chris Reply
what's the easiest and fastest way to the synthesize AgNP?
Damian Reply
types of nano material
abeetha Reply
I start with an easy one. carbon nanotubes woven into a long filament like a string
many many of nanotubes
what is the k.e before it land
what is the function of carbon nanotubes?
what is nanomaterials​ and their applications of sensors.
Ramkumar Reply
what is nano technology
Sravani Reply
what is system testing?
preparation of nanomaterial
Victor Reply
Yes, Nanotechnology has a very fast field of applications and their is always something new to do with it...
Himanshu Reply
good afternoon madam
what is system testing
what is the application of nanotechnology?
In this morden time nanotechnology used in many field . 1-Electronics-manufacturad IC ,RAM,MRAM,solar panel etc 2-Helth and Medical-Nanomedicine,Drug Dilivery for cancer treatment etc 3- Atomobile -MEMS, Coating on car etc. and may other field for details you can check at Google
anybody can imagine what will be happen after 100 years from now in nano tech world
after 100 year this will be not nanotechnology maybe this technology name will be change . maybe aftet 100 year . we work on electron lable practically about its properties and behaviour by the different instruments
name doesn't matter , whatever it will be change... I'm taking about effect on circumstances of the microscopic world
how hard could it be to apply nanotechnology against viral infections such HIV or Ebola?
silver nanoparticles could handle the job?
not now but maybe in future only AgNP maybe any other nanomaterials
can nanotechnology change the direction of the face of the world
Prasenjit Reply
At high concentrations (>0.01 M), the relation between absorptivity coefficient and absorbance is no longer linear. This is due to the electrostatic interactions between the quantum dots in close proximity. If the concentration of the solution is high, another effect that is seen is the scattering of light from the large number of quantum dots. This assumption only works at low concentrations of the analyte. Presence of stray light.
Ali Reply
the Beer law works very well for dilute solutions but fails for very high concentrations. why?
bamidele Reply
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
Privacy Information Security Software Version 1.1a
Got questions? Join the online conversation and get instant answers!
QuizOver.com Reply

Get the best Algebra and trigonometry course in your pocket!

Source:  OpenStax, Economic development for the 21st century. OpenStax CNX. Jun 05, 2015 Download for free at http://legacy.cnx.org/content/col11747/1.12
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Economic development for the 21st century' conversation and receive update notifications?