The Cabinet Secretary (CS) for the National Treasury and Economic Planning, John Mbadi, has defended the fiscal and macroeconomic underpinnings of the proposed Field Development Plan (FDP) for Blocks T6 and T7, assuring Parliament that the project will not create any explicit or implicit public debt obligations for Kenya.
Appearing before the National Assembly Departmental Committee on Energy and the Senate Standing Committee on Energy, Mbadi outlined the fiscal projections, tax implications, cost recovery framework and risk mitigation measures tied to the oil development plan spearheaded by the Ministry of Energy and Petroleum.
“The FDP does not create any explicit or implicit public debt obligation for the Government. The financing of exploration, development and production remains solely the responsibility of the contractor under the PSC framework,” Mbadi told lawmakers.
The Treasury projects that Kenya could earn between USD 1.05 billion (Sh136 billion) at $60 per barrel and USD 2.9 billion (Sh371 billion) at $70 per barrel over the life of the project.
Further, direct revenues will flow from profit oil splits and government participation, while indirect revenues are expected to benefit key State agencies.
Equally, the CS announced that Kenya Pipeline Refinery Limited (KPRL) is projected to earn Sh42.3 billion in storage and handling fees, while the Kenya Ports Authority (KPA) is expected to generate Sh41.9 billion from the New Kipevu Oil Jetty.
In addition, Treasury estimates the project will generate over 3,000 direct, indirect and induced jobs, boosting PAYE collections and social security contributions.
“Oil revenues are expected to positively contribute to GDP growth through upstream, midstream and associated economic activities,” he stated.
The CS also disclosed that contractors have sought fiscal concessions amounting to USD 1.331 billion (Sh173 billion) under Project Specific Fiscal Terms (PSFTs).
At a base oil price of $60 per barrel, Mbadi pointed out that Government net cash flow would decline from USD 3.485 billion under existing PSC terms to USD 1.047 billion if all tax asks and harmonization adjustments were granted.
Conversely, he mentioned that the contractor’s net free cash flow would shift from negative territory to a projected USD 497 million, enhancing project bankability.
However, Mbadi emphasized that tax waivers or exemptions can only be granted within constitutional limits.
“Article 210 of the Constitution provides that no tax or licensing fee may be waived, varied or exempted except as provided by legislation,” he noted.
Under Kenya’s Production Sharing Contract (PSC) regime, contractors recover petroleum costs subject to ceilings and regulatory oversight as Mbadi defended the framework as consistent with international practice.
“Exploration and development operations are high-risk and capital-intensive. The contractor bears all the risks and costs associated with operations,” Mbadi explained, adding that robust safeguards are in place, including approval of annual work programs and budgets, audit rights, ring-fencing of costs and phased development tied to commercial viability.
He said the Government begins earning revenue from first oil, with returns increasing as recoverable costs decline while further clarifying that the FDP does not automatically increase Kenya’s public debt.
According to the CS, exploration and development financing remains the contractor’s responsibility. However, should the Government exercise its 20 percent back-in rights, it would contribute approximately USD 1.228 billion through the normal approval process.
Additionally, Government-funded enablers — including land, power, water, roads and crude oil handling infrastructure — are estimated at USD 433.4 million (Sh56.3 billion) with Mbadi highlighting that these are either already budgeted or undergoing planning and feasibility stages.
Importantly, services such as power, water and crude handling infrastructure will be offered to the project at commercial tariffs determined by regulators as the CS acknowledged that revenues remain highly sensitive to global oil prices.
“At US$50 per barrel, Government revenue would stand at USD 411 million, rising sharply to USD 2.856 billion at US$70 per barrel,” he illustrated, adding that mitigation measures include conservative price assumptions and continuous market monitoring.
On crude transportation, Mbadi maintained that the Treasury backed a phased approach including; Phase I: Trucking as an interim measure to minimize upfront capital costs and Phase II: Transition to rail transport for greater efficiency and cost control.
“This phased approach ensures logistics arrangements are matched to production levels while protecting Kenya’s share of oil revenue from excessive transportation costs,” affirmed the CS.
He pronounced that the projected decommissioning cost of USD 331.8 million, plus associated interest, will be managed through a Decommissioning Fund as provided under the Petroleum Act insisting that contractors will progressively provide financial guarantees to prevent liabilities reverting to the State.
“This approach aligns with international best practice and ensures that adequate resources are set aside to meet end-of-life obligations,” Mbadi assured
Reflecting on the Early Oil Pilot Scheme (EOPS), which generated USD 28.3 million in revenue against USD 62.7 million in expenditure, Mbadi argued that the pilot was not intended as a commercial venture.
“EOPS was not a commercial project. The key lesson learnt is that the Government should have a strong monitoring and oversight framework,” the CS reiterated.
He also proclaimed that oil revenues accruing to the State will be treated as non-tax revenue and paid into a dedicated petroleum fund in line with Section 57(2) of the Petroleum Act and managed under the Public Finance Management Act.
Meanwhile, Mbadi ultimately called for continued strengthening of Kenya’s legal and policy framework to ensure accountability, transparency and prudent management of oil revenues.
By Michael Omondi
