For any given oil and gas field, the entire infrastructure associated with it in terms of exploitation, production, transmission and supply oil and gas to the consumers is virtually set with respect to value. This is the concept of economic rent.
The economic rent is provided by the difference between the totalities of the production, transmission and the supply costs on one hand, and the cash inflows from sales on the other hand. The nonrenewable nature of oil and gas resources, make the timing of its exploitation and usage very important and important to consider the concept of economic rent.
One important issue is whether we utilize it when levels of other energy-related resources are low or high, and at what rate do we consume the resource? Both are pertinent questions that may arise and may need to be taken into account, prior to the appropriation of the two resources. Also, it is necessary to take note of the specific points in the value chain from where the economic rent is derived; keeping proper records on those who benefit from the rent.
An exciting development is the fondness of financiers, when it comes to deciding on which section of the value chain to invest their money. The use of various economic instruments such as taxes, royalty payment, excise duties, the extraction of profits, and the perceived or real value of prices that are paid by end-users provides the motivation for the consumption of the economic rent by stakeholders of a project.
In conclusion, the concept of economic rent is very vital in the assessment of the viability and profitability of Ghana’s oil and gas production. Government has to put the necessary measures in place to prevent transfer pricing and earn enough revenue from the oil find in the country.
By: David Aduhene Tanoh-www.reportingoilandgas.com