We often hear 'it's in their DNA'. This perceived behaviour results in elongated cost audits and disputes, budgets failing to gain approval and projects being delayed. It's another 'lose-lose' situation.
Some governments such as Indonesia have become so fed up, they want to change fiscal policy to a pure revenue-sharing system to avoid the process altogether. But such systems are generally regressive and more likely either to deter investment or fail to provide the government with a 'fair share' – and, therefore, less likely to be sustainable.
How can industry and government move beyond this trust impasse?
Graham Kellas, Head of Global Fiscal Research, sums up a way forward, predicated on increasing collaboration, transparency and communications:
- Joint 'competitiveness' review boards where representatives from both industry and government to discuss areas of concern and best practice globally around fiscal terms, as well as geological prospectivity, local content and political risks
- Digitise cost reporting so that all transactions can be traced and verified; only costs validated by electronic invoices/receipts will be acceptable (although still subject to scrutiny)
- Benchmark local costs against global indices and evidence from comparable projects
- Encourage governments to reduce risks (e.g. improve data availability, indirect taxation)
- Develop fiscal systems that are flexible to changes in the economic environment and different types of investment; reduce/remove special allowances
- If possible, 'let the market decide' fiscal rates in transparent auctions
There are many routes to a more harmonious relationship between industry and government. But the first step is to embrace transparency and collaboration. The current challenging environment for both sides provides the stimulus. Will they respond?