Gold plating definition
Gold plating means that an incremental investment would result in a lowering of the payments to Government with an amount that is higher than the amount of the incremental investment. For example, an incremental investment of $100 million in a set of further development wells would result in a reduction of $200 million in payments to Government. This would make the investment in the wells profitable regardless of the merits of this investment. In other words, it is an invitation to squander money.
Gold plating means that if the investor manages to save a dollar, that there is no benefit to the investor. In other words, the entire benefit goes to government and sometimes even more than a dollar goes to government, which seriously discourages efficient operations. The gold plating can be measured with the Cost Savings Index. If the government gains $ 0.60 for a $ 1 saving, the Cost Savings Index is 40% because the investor keeps 40% of the saving. If the government retains $ 1.20, the Cost Savings Index is -20%. A negative Cost Savings Index indicates gold plating.
Gold plating means that consumers were provided with a level of security and quality of supply (§3.1.2) higher than that which they would be willing-to-pay for, had they faced the true costs of supply, and is usually considered to arise because firms are given a guaranteed return on investments, efficient or otherwise (e.g., Williamson and Mumssen, 2000, p. 14).