*3.6. Front Loading Index (FLI)*

The FLI of IOCs are applied in this study to reflect the impact of time sequence differences of the host nation on the project and IOC's profit, with the intention of making up the weakness of the gap between GT and GTi indicators. FLI can reflect the combination level of a contract's fiscal term. In the international oil and gas E&P industry, the time sequence of incomes gained by the host country is a crucial issue that an IOC should consider. This is because the IOC can recover costs as soon as possible for a higher return for an E&P project by delaying paymen<sup>t</sup> to the host country. Consider a case where the host resource country maximizes its governmen<sup>t</sup> take (GT) based on the profit gained by the IOC. There would be no front-loading for the IOC and discounted GTi, while non-discounted GT would be the same.

However, most of the host nations do not receive income, depending on profit from the project. There are some factors contributing to the difference of host nation's proportion with discounted GTi and non-discounted GT. The fiscal regimes in the early project life are signature bonus and production bonus. In addition to these early fiscal terms, other fiscal regimes<sup>4</sup> in the construction period and regimes in the production phase<sup>5</sup> may cause revenue of the host governmen<sup>t</sup> to grow faster than the projected profit. This can cause front-loading to the IOC. The definition of FLI of an IOC is the ratio of the difference between non-discounted GT and the discounted GTi to GT. The interpretation by Luo and Yan (2010) for the FLI relating to attractiveness is that the smaller the FLI is, the less risk the IOC will face in the earlier stage of the project life. Also, the less risk in the earlier phase of the project, the more attractive the petroleum fiscal regimes used in the E&P project.
