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Payments made to the host government to compensate it for the right to extract (and purchase) a non-renewable natural resource. Most royalties are either ad valorem (based on a percentage of the value of output, e.g., 10% of the value of the minerals produced) or per unit (based on a fixed amount, e.g., $10 per ton).

Royalties should be assessed, not only on the basis of their percentage or per-unit value, but also on the basis of the market price and value of the resource.

Source: Natural Resource Governance Institute Oil, gas & mining fiscal terms

Related terms