Kenya has to offer a more stable fiscal framework if the country is to harness its potential as a budding oil exporting economy, according to UK-listed independent Tullow Oil.
Tullow made the comment in response to the Kenyan government’s recent decision to start charging 14pc VAT on goods imported or purchased locally by the firm. Previously, under an existing special operating framework agreement, Tullow was exempt from these charges provided the goods were for direct and exclusive use in the implementation of its oil project in the South Lokichar basin in northern Kenya.
"We had a special operating framework that made the project economic. These changes to the law undo the framework and we need to understand the government’s point of view," Tullow said.
Last month, Tullow and its partners, Total and Canada’s Africa Oil, declared force majeure on their South Lokichar Basin scheme because of the adverse impact of the tax changes on the project’s economics as well as the effect of Covid-19 restrictions.
"We called force majeure because internal restrictions within Kenya relating to the virus have made it very difficult for certain workstreams to continue. Separately, the changes to tax legislation relating to the government’s response to Covid-19 have changed the project’s economics," Tullow said.
Talks between the firm and the Kenyan government about the fiscal changes "are ongoing", Tullow said. The company would not say if the government agreed with the declaration of force majeure or whether the matter is likely to be referred for arbitration. For the force majeure declaration to withstand a legal challenge, Tullow would have to prove that it has been prevented from performing its contractual obligations by an event that was beyond its reasonable control.
Meanwhile, Tullow is pressing ahead with plans to find a buyer for a 20pc stake in the South Lokichar project, but a final investment decision (FID) in the second half of 2020 remains "very challenging", it said.
Tullow and its parters plan to develop the Amosing, Ngamia and Twiga fields in the South Lokichar basin using a 60,000-80,000 b/d central processing facility and an export pipeline to the port of Lamu. A pilot scheme to test the market’s appetite for Kenyan crude — which involved trucking oil from South Lokichar by road to the Indian Ocean port of Mombasa — ended on 3 June. Just one 240,000 bl cargo was exported in August last year as part of the pilot scheme. Plans […]