Kenya's Model PSAs

In order to conduct any exploration activity, potential investors have to enter into a contract with the Kenyan government. In Kenya's case, this contract is a Production Sharing Contract (PSC) where the oil company and the government share profit oil and gas produced. 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.

=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. However, the Petroleum Act will be revised with the new Energy Bill which is to be handed over to the parliament in November 2013. Therefore, the terms of the model PSCs would also change.

=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 despite the absence of commercial discoveries as of Novemver 2013.

The division of profits is based on a daily production-based sliding scale system which assumes the first tranche at 20000 bbl/day and the last tranche at 100,000 bbl/day. The profit splits are negotiable at each tranche.

The cost recovery limit is negotiable under Kenya's model PSC. Some of the PSCs, however, have been signed at a cost recovery limit of 75 percent.

A research paper by Karembu Antony Njeru analyses Kenya's fiscal regime under low and high oil price and cost scenarios and concludes that the system is regressive based on 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.

=External links=

EISourcebook: Model Production Sharing Contract

=References=