RELATIVE BARGAINING POWER

Relative Bargaining Power

Relative Bargaining Power

Introduction

Oil and gas discovery results in the creation of excitement among people, companies, and the government. This discovery forces the government to effort for developing or outsourcing the technical and commercial expertise. In fact, however, the first challenges for governments are negotiation challenges. This essay attempts to identify the key areas related to contractual agreement between the host country and the oil company. In addition to this, the paper attempts to discuss the bargaining model of the host and oil company, by exploring the key areas such as information asymmetry, concession agreement, royalty payment, and the other key characteristics. Finally, the conclusion is made after reviewing the existing literature critically.

Discussion

The discovery of natural and mineral resource in any country promotes the economics up thrust in terms of attractive foreign direct investment in the country. This FDI result in the better economic performance of the company, since this boosts the confidence of the local and international investors. Whenever a country is known to have found a particular oil or gas field, it has boosted the dreams and hopes of the nation. Countries for instance, Mexico, Bolivia, Kazakhstan, and other developing nations consider oil and gas reserves the national assets and had strong hold on the opinion that these reserves only belong to the government and not any other private entity. Whereas, other developing countries including Azerbaijan and few others consider natural resources as basis for the fast track development into the country. However, various countries do lack the technical and managerial skills to go for exploration and processing of the valuable resource. This is why, these counties face the challenge of technical and managerial expertise to deal with the oil and gas reserves accordingly.

Technical and |Commercial expertise

The figure below illustrates the importance of dealing with the situation regarding the pre contract agreement. The figures shows that negotiation in the particular context of bargaining power can be divided into type of categories, one include technical and commercial , and the other include social, environmental, political and environmental. The first category which includes technical and commercial skills is the prime category of concern when negotiating and barraging for a contract. The other category is usually ignored during negotiations, the factor mostly ignored are PEST excluding T from the abbreviation.

Hence, the confliction zone is of serious concerns as most of major decision regarding the future contract is to be considered into this category. For instance, if a pre-contractual agreement has to be signed between the host government and the other company, both emphasis on their aims and objective regarding the profit maximization, thus demanding the control of the prospective company regarding the recruitment. This recruitment plays major role as maximum effort as much as 90-95% is spent here in this category of negotiation and bargaining (Pongsiri, 2004; Weaver and Asmus, 2006).

In the USA, oil and gas extraction is mostly regulated by the states with the application of common laws and ...