Members of Parliament have questioned the government’s plan to grant extensive tax breaks to Gulf Energy as the company accelerates development of the Turkana oil fields, aiming to begin early exports by December this year.
The joint Energy committees of the National Assembly and the Senate said the government appears to have conceded too much in negotiations with Gulf Energy E&P B.V. (GEBV), which intends to invest Sh1.1 trillion ($8.23 billion) in developing and producing oil in the South Lokichar field.
During public participation on the proposed Production Sharing Agreement (PSA) between the government and GEBV, the committees expressed concern over a proposed increase in cost recovery from 65 per cent to 85 per cent.
They argued this would give Gulf Energy an unusually high share of revenue before the government can collect taxes.
In an addendum to the PSA relating to Block 7 (formerly 13T), the Ministry of Petroleum agreed to several exemptions requested by Gulf Energy. The company and its subcontractors would be exempt from Value Added Tax (VAT), the Railway Development Levy (RDL), the Import Declaration Fee (IDF), Withholding Tax, and interest charges linked to petroleum operations.
If the agreement is approved, the Treasury stands to forgo millions of shillings in tax revenue from oil produced in South Lokichar starting December 2026.
“The contractor and subcontractors shall be exempt from value added tax on goods and services for direct and exclusive use in petroleum exploration, development, production, processing and distribution, or in relation to petroleum operations,” the addendum, tabled by Energy and Petroleum Cabinet Secretary Opiyo Wandayi, states.
It adds: “The contractor and subcontractors shall be exempt from the railway development levy and import declaration fee on goods imported for direct and exclusive use in the construction of petroleum operations.”
Senate Energy committee chair William Kisang said the joint committee is uneasy about the wide tax exemptions being extended to Gulf Energy under the agreement.
David Gikaria, chair of the National Assembly’s Energy Committee, called in oil and gas experts to assess the impact of the 85 per cent cost recovery proposal on government tax revenue. “Do we stand to lose out on the tax waivers and the 85 per cent of recovery costs incurred in relation to operations from cost recovery crude oil?” Gikaria asked.
Tana River senator Danson Mungatana also raised concerns during the debate over the tax exemptions granted to Gulf Energy, highlighting the potential revenue losses to the government.
