Iranian Energy Economics

Comparing Distortionary Effects of Iran Petroleum Contracts (IPC) and Production Sharing Contracts (PSC) Using Stochastic Dynamic Programming Model: The Case of South Azadegan field

Document Type : Research Paper

Authors

Hamed Sahebhonar 1
Mahdi Feizi 2
Mohammadreza Lotfalipour 3
Mahmood Hooshmand 4

1 Ph.D Candidate of Economics at Ferdowsi University of Mashhad

2 Assistant Professor of Faculty of Economics and Administrative Sciences at Ferdowsi University of Mashhad

3 Professor of Faculty of Economics and Administrative Sciences at Ferdowsi University of Mashhad

4 Professor of Economics at Ferdowsi University of Mashhad

https://doi.org/10.22054/jiee.2017.8027
Abstract
This paper analyzes and compares the behavioral responses of the operator to the fiscal regime of the two types of contracts, Iran Petroleum Contract (IPC) and Production Sharing Contracts (PSC) with using the dynamic optimization approach (dynamic programming method). This paper aims to numerically compute the amount of distortions caused by the petroleum contracts, which creates some distortion in the investor's decision regarding to the neutral case that means there is no contractual restrictions including government share of resource rent, tax, extraction timing, cost recovery limit and so on. The focal point of this paper is the application of the stochastic dynamic programming for a real oil field in order to achieve the numerical results and using the deadweight loss (DWL) as an actual measure for assessment of the distortion of the contract regarding the first best case (neutral path). Accordingly, with using the information of the South Azadegan field, the results show that both fiscal terms of IPC and PSC have distortionary effects and the DWL of the IPC is more than that of PSC. For instance, in the reference scenario and reference oil prices the DWL of IPC and PSC are 22/22% and 21/14% respectively.
 

Keywords

Iran Petroleum Contracts (IPC)
Stochastic Dynamic Programming Model
Deadweight Loss
Distortionary Effects of Petroleum Contracts

  • Receive Date 15 August 2017
  • Accept Date 24 October 2017
  • First Publish Date 24 October 2017
  • Publish Date 22 June 2017

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