*6.2. Policy Recommendations*

The main motivation for this study came from the necessity to assess the attractiveness rank of Myanmar upstream petroleum fiscal regimes in the E&P investment climate, since Myanmar needs to develop its oil and gas resources to fulfil increasing domestic demand without harming its existing natural gas exports20. As the Myanmar upstream oil and gas investment climate is not favorable, this study suggests some fiscal regime policy recommendations.

First, analysis of findings in GTi by DCF, considering the time value of money, suggests that, in order to encourage investors in the development of Myanmar's oil and gas E&P industry, the lower the royalty and tax are dropped, the more attractive it will be for the investor. Similarly, the finding for the qualitative analysis of the effects of Myanmar fiscal regimes shows that the Myanmar royalty rate (12.5%), as a non-neutral regime, impacts on the investment decision. To reduce the distortions caused by the imposition of royalty, a sliding scale royalty may be applied. Such a royalty is based on charging different rates of tax, depending on the level of production or oil price. Therefore, the existing royalty regime of Myanmar should be a sliding scale depending on production level or oil price or water depth in offshore oil and gas blocks.

Second, the finding in the analysis of GT, without time consideration, by NDCF suggests that the higher cost recovery incentives are, the more favorable the investment climate. Currently, Myanmar's cost recovery regime (50%) is the lowest among its competing countries. Although it is between the typical cost recovery range 30–60%, its attractiveness level is low compared to competing countries

<sup>19</sup> Cost recovery regime is used only in PSC fiscal system.

<sup>20</sup> 25% of foreign earnings comes from natural gas export in Myanmar.

in this study. All competing countries' cost recovery regimes are higher than Myanmar's21. Such a low-cost recovery regime will hinder the attractiveness of its petroleum fiscal regimes. The FLI indicator shows that the countries with the highest attractiveness rank (Indonesia, Cambodia, and Vietnam) adopt the PSC fiscal contractual system. Hence, it suggests that the PSC contractual system, which is currently used in Myanmar, will provide a more favorable investment climate than another system.

Third, the design of an efficient fiscal system must consider the political and geological risks as well as the potential rewards. Even though some countries have the toughest petroleum fiscal regimes, they are still attractive to the investors due to high geological prosperity which significantly reduces exploration costs. Thus, it is recommended that 92% of such factors as geological condition, location, political stability, and investment opportunity should be taken into account before changing Myanmar's existing petroleum fiscal regimes22. Moreover, Myanmar should consider improving its fiscal regimes that are not neutral—royalty, tax, profit split, and cost recovery—for a favorable investment climate from the Korean investors' perspective. This is because the current Myanmar fiscal regimes package, composed of four non-neutral regimes, can create high uncertainty for investors.

Finally, the indicator CS for the decisions of investors shows that Myanmar is in the position of sixth attractiveness rank, while Cambodia, Indonesia, and Australia hold the first three ranks23. Hence, in terms of upstream petroleum fiscal regimes, this research suggests that Cambodia, Indonesia, and Australia will be the most attractive countries among eight competing nations where Korean investors want to invest in the oil and gas E&P industry. Selecting the most attractive countries for E&P investment will help them achieve greater operational efficiency, as well as securing and increasing the value of assets by adjusting their business strategy according to their own conditions.
