Lines of Differences between Economic, Financial, Fiscal & Commercial Elements of TEFCEL Model

The lines of distinction and differences between “Economic”, “Financial”, and “Fiscal” and “Commercial” elements of the TEFCEL model, All Members

First, it is not easy to define exactly with clear boundary lines of differences between interchangeable terms of Economic, Financial, Fiscal and Commercial elements. These terms could be defined differently from one domestic system to other system, from one industry to other industry, from one project to other project, from one company to other company, from one contract to another contract.

Secondly, however it is understood that those terms and expressions are defined and classified in the context of the TEFCEL models as in below:

  1. “Economic” generally deals with the trade, industry, development of wealth, and generation of revenues and returns. It mostly concentrates on the production, distribution, and use of income, wealth, and commodities. The project will be economically feasible where it generates enough revenues or rate of returns which make the performance of the project viable and worthwhile. Examples of the “Economic” element in the TEFCEL Model in oil and gas contracts refer to the quantifying the return on investment; securing fee/ROR/IRR; optimization of the costs, bank charges, CAPEX, Non-CAPEX and OPEX; optimization of the revenues/RF; R factors; economic incentive packages, as well as the reserve booking.
  2. “Financial” generally deals, in one meaning, with the money, monetary receipts and expenditures and anything related to the money matters, receipts and expenditures. This term, in the other meaning, deals with a situation that provides funds and resources into the project in order to run to requirements of the project. Examples of the “Financial” element in the TEFCEL Model in oil and gas contracts refer to the costs of the project; costs recovery; amortization period; categories, classification and reclassification of the costs; recovery/repayment terms; project books, records & accounts; accounting and auditing; financial progress report; and accounting procedure.
  3. “Fiscal” generally pertains to the public treasury or revenues in general. It refers to the government’s policies on spending and borrowing as well as its rules and regulations on taxation, SSO, custom duties, levies and charges. It is a type of economical intervention where the government injects its policies into an economy in order to either expand the economy’s growth or to contract it. Examples of the “Fiscal” element in the TEFCEL Model in oil and gas contracts refer to the lawful levies, fees, charges, taxes, SSO; customs duties; currency exchange & transfer regulations; corporate income tax; hydrocarbon tax; royalty & bonuses; profit sharing; oil & gas pipeline tariff; special petroleum tax; ring fence corporation tax (RFCT); environment fees; CSR/LC fees; and government take;
  4.  “Commercial” generally deals with, pertaining to, or characteristic of commerce, e.g. buying and selling of goods and services, making a transaction, business and salability, profit, or success. Accordingly, under a commercial deal one would be able to yield or make a profit from the business. Examples of the “Commercial” element in the TEFCEL Model in oil and gas contracts refer to the exportation & importation of goods/materials; LTCOSA/GSPA; carriage of goods by sea, air, land or truck; Lex petrolea on petroleum transactions; customs clearance for permanent/temporary goods and materials; insurance contracts and coverage (e.g. CAR, TPL, pollution)