Nairobi: The Cabinet Secretary 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.
According to Kenya News Agency, Mbadi appeared before the National Assembly Departmental Committee on Energy and the Senate Standing Committee on Energy to outline 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.
Mbadi emphasized that the FDP does not impose any public debt on the Government, noting that the financing of exploration, development, and production remains solely the contractor’s responsibility under the Production Sharing Contract (PSC) framework. The Treasury projects that Kenya could earn between USD 1.05 billion at $60 per barrel and USD 2.9 billion at $70 per barrel over the life of the project.
Direct revenues will be sourced from profit oil splits and government participation, while indirect revenues are expected to benefit key State agencies. The Kenya Pipeline Refinery Limited is projected to earn Sh42.3 billion in storage and handling fees, and the Kenya Ports Authority is expected to generate Sh41.9 billion from the New Kipevu Oil Jetty.
Additionally, the project is estimated to create over 3,000 direct, indirect, and induced jobs, boosting PAYE collections and social security contributions. Mbadi noted that oil revenues are anticipated to contribute positively to GDP growth through upstream, midstream, and associated economic activities.
Contractors have sought fiscal concessions totaling USD 1.331 billion under Project Specific Fiscal Terms. At a base oil price of $60 per barrel, Mbadi highlighted that government net cash flow would decrease from USD 3.485 billion under existing PSC terms to USD 1.047 billion if all tax asks and harmonization adjustments were granted. Conversely, the contractor’s net free cash flow would shift from negative territory to a projected USD 497 million, enhancing project bankability. However, any tax waivers or exemptions must adhere to constitutional limits.
Under Kenya’s PSC regime, contractors recover petroleum costs subject to ceilings and regulatory oversight, with Mbadi defending the framework as consistent with international practice. He explained that exploration and development operations are high-risk and capital-intensive, and the contractor bears all associated risks and costs. The government begins earning revenue from the first oil, with returns increasing as recoverable costs decline, and the FDP does not automatically increase Kenya’s public debt.
According to Mbadi, exploration and development financing remains the contractor’s responsibility. Should the Government exercise its 20 percent back-in rights, it would contribute approximately USD 1.228 billion through the normal approval process. Government-funded enablers such as land, power, water, roads, and crude oil handling infrastructure are estimated at USD 433.4 million, with these costs either already budgeted or undergoing planning and feasibility stages.
Services such as power, water, and crude handling infrastructure will be offered to the project at commercial tariffs determined by regulators. Mbadi acknowledged that revenues are highly sensitive to global oil prices, with government revenue ranging from USD 411 million at $50 per barrel to USD 2.856 billion at $70 per barrel. Mitigation measures include conservative price assumptions and continuous market monitoring.
On crude transportation, Mbadi advocated for a phased approach, starting with trucking as an interim measure to minimize upfront capital costs and transitioning to rail transport for greater efficiency and cost control. The projected decommissioning cost of USD 331.8 million, plus associated interest, will be managed through a Decommissioning Fund, with contractors providing financial guarantees to prevent liabilities from reverting to the State.
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. He emphasized the importance of a strong monitoring and oversight framework for future projects.
Oil revenues accruing to the State will be treated as non-tax revenue and paid into a dedicated petroleum fund, managed under the Public Finance Management Act. Mbadi called for the continued strengthening of Kenya’s legal and policy framework to ensure accountability, transparency, and prudent management of oil revenues.
