Kenya's Model PSAs

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In order to conduct exploration for hydrocarbons, potential investors have to enter into an agreement with the Kenyan government.[1] In Kenya's case, this is a Production Sharing Contract (PSC), by which the oil company and the government share the profits of the oil and gas produced.[2] The general terms of the PSC are set out within Kenya's model PSC while the specificities of each agreement are set out within the individual contracts. Prior to the Kenyan Petroleum Act of 1982, explorations were carried out under a Royalty/Tax based system.[3]

Legal Framework

The legal framework of Kenya's model PSA is set out in the Petroleum Act, the Petroleum Regulations, the Income Tax Act and the Environmental Management and Coordination Act (EMCA) of 1999.[4] However, the Petroleum Act will be revised with the new Energy Bill, due to be submitted to the Kenyan parliament in November 2013. Therefore, the terms of the model PSCs could also change. [5][6]

Fiscal terms

According to Barrow (cited in a paper by Karembu Antony Njeru), Kenya is considered to have one of the toughest fiscal regimes in Africa because of its high government take, even when discoveries do not reach commercial viability.[7]

The division of profits is based on a daily production-based sliding scale system, which assumes the first tranche at 20 000 bbl/day and the last tranche at 100 000 bbl/day.[8] The division of profits is negotiable for each tranche.

The cost recovery limit is negotiable under Kenya's model PSC.[9] Some of the PSCs, however, have agreed a cost recovery limit of 75 percent.[10]

A research paper by Karembu Antony Njeru analyses Kenya's fiscal regime under low and high oil price and cost scenarios, and concludes that with the Undiscounted Government Take, the Net Present Value of project cash flows, the Internal Rate of Return, the Saving Index, the Access to Gross Revenues and the Effective Royalty Rate, the system is regressive. [11]

External links

EISourcebook: Model Production Sharing Contract

References

  1. Petroleum Blocks and companies”. Ministry of Energy and Petroleum, retrieved 8 November 2013.
  2. Petroleum Blocks and companies”. Ministry of Energy and Petroleum, retrieved 8 November 2013.
  3. Kenya Oil and Gas Fiscal Regime: An Economic Analysis on Attainment of the Government Objectives”. Karembu Antony Njeru, retrieved November 2013.
  4. http://www.imf.org/external/pubs/ft/scr/2013/cr13107.pdf IMF Country Report No. 13/107]”. International Monetary Fund , April 2013.
  5. Kenya’s Energy Bill Delays Oil Licensing Round”, E&P Energy, 18 October 2013.
  6. Kenya Developing New Oil & Gas Regulation”. The East African Energy Blog, 29 September 2013.
  7. Kenya Oil and Gas Fiscal Regime: An Economic Analysis on Attainment of the Government Objectives”. Karembu Antony Njeru, retrieved November 2013.
  8. Sessional Paper NO. 4 on Energy”. Ministry of Energy, May 2004.
  9. Kenya Oil and Gas Fiscal Regime: An Economic Analysis on Attainment of the Government Objectives”. Karembu Antony Njeru, retrieved November 2013.
  10. Kenya Oil and Gas Fiscal Regime: An Economic Analysis on Attainment of the Government Objectives”. Karembu Antony Njeru, retrieved November 2013.
  11. Kenya Oil and Gas Fiscal Regime: An Economic Analysis on Attainment of the Government Objectives”. Karembu Antony Njeru, retrieved November 2013.