Comparison of Development Options Proposed by the Host Government


Comparison of development options proposed 

There were two development options proposed by the host government and they include special service contract and concession contract. Concession contract is considered to be an agreement negotiated between the operator and a given government (Yemen for our case).In this respect, the company of the operator is given the right of operating the business which is development of the sour gas field for this case. The operation is required to be within the jurisdictions of the host government (Yemen) and as such, this is only subject to a given conditions. Unlike the concession contract, a special service contract has limited ownership where the company has no full control in terms of payments and its operations as it is paid by the host government after delivering and thus, it is like the company is hired to execute the task on condition that the pay will be fixed based on the amount of gas generated.  Unlike the special service contract, concession contract is an agreement between the concession and the facility owner (the Yemen government). Thus the company is granted rights to execute the task based upon the underlying conditions. Thus the company contracted has full ownership of the products generated (sour gas) and it is able to sell it at any price (Jennings, 2008). Therefore, the host government is only paid the royalties based on the agreement or negotiations reached. This is seen to be different from the special service contract where the product generated is transferred to the host government where the company does not own the generated product. The government of Yemen for instance, may attract the companies with intend to enter into the concession agreement to develop the sour gas field by offering inducements that are significant and they could be such as lower rate of royalties as well as tax breaks.

 The company will have to pay the Yemen government the amount of money as stipulated in the contract regardless of the concession type.  Both types of contract can be similar where the an agreement signed between the operator and the government might consist of the rights of using a given infrastructure like railway and in this case, an individual company can be given this right and thus leading to rights that are exclusive (Barrows, 1999). The government could have certain expectations (based on the agreement) in terms of railways construction and maintenance and operational standards as well.  For the concession, the Yemen government will as well grant a land to the operator to undertake the development of the sour gas field. In the fiscal year, the government will use royalty that is tax system based. On the other hand, special service contract won’t grant concessions. Despite the fact that both of these contracts can differ in terms of details, there are two key issues that they share in common and they include the manner in which costs are handled and the manner in which profits are shared between the given government (Meuers, 2000). 

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  1. Barrows, G. H. (1999). “Worldwide Concession contracts and petroleum legislation”, PennWell Books 
  2. Jennings, A., (2008). “Oil and Gas Exploration Contracts”, Sweet & Maxwell
  3. Meuers, P. (2000). Financial and fiscal arrangements for petroleum development on economic analysis
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