Oxfam Kenya recommends effective government audits of petroleum costs.
Nairobi, Kenya 25th September- Oxfam in Kenya has launched the Kenya Case Study on Petroleum Cost Auditing. The case study is part of an Oxfam report - 'Examining The Crude Details: Government Audits of Oil and Gas Project Costs to Maximize Revenues'. The report comes at a time when Kenya is ramping up efforts to fully commercialize its oil resources. The country recently sold more than 200,000 barrels of oil under its Early Oil Pilot Scheme.
The report notes that Kenya's oil could potentially contribute significant revenues to alleviate poverty and address inequality. These revenues are, however, far from guaranteed. The government must monitor the costs that the oil companies incur in getting the oil from the ground as these costs have to be recouped by the companies before profits from the oil are shared.
Companies may seek to reduce their tax obligations by deducting ineligible or exaggerating costs. Cost auditing is a tool available to governments to ensure that only eligible and verified costs are claimed by the companies. Governments should pay attention to revenues well before the first barrel of oil is sold as costs can potentially undermine revenue-raising efforts.
“The capital and operating costs for the development of oil projects can make up to 45% of oil revenue, this impacts the profit oil to be shared by the national government, county government and the community. Profit oil is divided between company and government only after “cost oil” is regained. -Viola Tarus, Extractives Strategist Oxfam Kenya.
Kenya began its first cost audit of the Turkana oil project in 2018 and Oxfam proposes recommendations to address some common challenges in petroleum cost auditing to ensure that the Kenyan government gets full value from its finite resources. Some of the recommendations include; the need for timely cost audits, effective coordination among institutions such as the Ministry of Petroleum and Mining and the Kenya Revenue Authority; building up the technical capacity within these institutions to conduct effective audits and publicly disclosing cost audit reports.
“To ensure secure oil revenue, the government must conduct petroleum cost auditing from the onset of oil projects and there must be on-going inter-agency coordination among the relevant government institutions in charge of auditing.”-Viola Tarus, Extractives Strategist Oxfam Kenya.
Kenya is the newest oil producer out of the three case study countries (Peru, Ghana, and Kenya). The first commercially viable oil discovery was made in the Lokichar subbasin by Tullow Oil in 2012. To date, over 86 wells have been drilled, most within the Tertiary Rift. Tullow Oil estimates that the Lokichar subbasin contains more than 4 billion barrels of crude oil reserves and an estimated 750 million barrels of recoverable oil. Early oil production began in June 2018, and “first oil” is expected in 2021–2022.
The report was officially launched last year in November 2018 by Oxfam International. For more information on the main report click here.