Stage 2 models – Project Fiscal Models

The objective of this stage is to expand a project cashflow model (Stage 1 model) by building in the calculations necessary to model the main mechanisms that comprise the fiscal regime, but without addressing the complexities that arise with how the project is financed (which we address in Stage 3).

The “fiscal regime” is the main set of mechanisms by which the government captures a direct share of the benefits of the project: royalties, taxes, production shares, customs duties, etc.

Deciding which mechanisms are material enough to model and how we should tackle each, constitutes a key initial step. For example, we don’t usually include taxes paid by employees in these models, though it might be relevant for a particular analysis. We do usually include state participation in the project if this is mandatory or on concessional fiscal terms (meaning terms that grant the government investor any preferential treatment). For key fiscal mechanisms like income taxes we will model a detailed calculation, while we might model other mechanisms, such as import duties, as entered values from a feasibility study. Early in the process we will agree a plan addressing how this will be done.

Please note: this stage is skills and time intensive, and depends on the availability of fiscal regime data, which can be hard in cases where contracts are not published. Our own experience has been that a Stage 2 model can take anywhere between 3­6 days of experienced modeler time after Stage 1, so you should time budget accordingly.

Documentation of project fiscal models

Projects that progress to this stage will deliver:

  1. A spreadsheet model developed in Excel and audited by other participants of this program and the Open Oil team.
  2. A narrative report highlighting the features of each project, i.e. “telling the story” ­ See the work of Open Oil on the project of Oyu Tolgoi.
  3. A document summarizing and referencing all sources used for modeling the fiscal regime. This document contains citations of fiscal regime terms and inputs, the relevance of each document and the assumptions made where data does not exist.
  4. A one­page summary of the fiscal regime for inclusion in a report and to facilitate the review.
  5. An information gap analysis answering what specific data sets would improve the accuracy of the model.
  6. A narrative report including: key conclusions and messages, controversies, which scenarios and sensitivities were included and the analysis of the lifetime project cashflow, and sharing of these between investors and government.

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