Auditor-General Nancy Gathungu has raised serious concerns over legal, fiscal, and oversight gaps in the proposed development of oil Blocks T6 and T7 in Kenya’s South Lokichar Basin, warning that failure to address them could reduce the country’s share of petroleum revenues.
Appearing before a joint session of the National Assembly’s Energy Committee and the Senate Standing Committee on Energy on Wednesday, Gathungu said the Office of the Auditor-General (OAG) is committed to transparency and accountability in the petroleum sector but needs stronger legal backing and timely access to information.
The discussion focused on the Field Development Plan (FDP) and Production Sharing Contracts (PSCs) for Blocks T6 (formerly 10BB) and T7 (formerly 13T) in Turkana County. Gathungu noted that no approved recoverable cost statements for the two blocks have been submitted for audit, denying the government an opportunity to disallow ineligible costs, which could reduce revenue once production begins.
Under the Petroleum Act, 2019, the government may audit contractors’ books within seven years, but delayed audits risk accounts being deemed correct by default. Gathungu also highlighted that the Field Development Plan, submitted in October 2021, has not been approved for three years. Key institutions, such as the National Upstream Petroleum Advisory Committee, have also faced delays in establishment.
Past OAG audits have flagged weaknesses in petroleum oversight, including inconsistent cost recovery statements, inadequate review of work programmes and budgets, irregular reporting by contractors, and poor enforcement of local content requirements. A 2021 performance audit found that Tullow Kenya B.V. implemented work programmes and budgets before approval and underpaid training fees, leaving millions in the Petroleum Training Fund uncollected.
Gathungu expressed concern that Parliament has not debated most performance audit reports, saying earlier consideration could have closed policy and operational gaps. She cited Uganda and Indonesia as examples where audit institutions can directly audit oil companies’ recoverable costs, urging Kenya to strengthen its legal framework.
Turning to the South Lokichar FDP, the Auditor-General flagged several risks. She questioned the contractor’s request for unitization of the development area under harmonized fiscal terms, noting it may not meet legal requirements. She also warned that proposed fiscal revisions, including exemptions from VAT, withholding tax, railway development levy, and import fees, could lead to multi-billion-shilling revenue losses if approved without review by the Kenya Revenue Authority.
Gathungu further criticized the request to raise the cost recovery limit to 85 percent, above the 60 percent ceiling in the Petroleum Act, warning that it reduces immediate government revenue and requires careful monitoring to prevent cost inflation. She also noted the absence of a decommissioning plan, with contributions to the Decommissioning Fund only set to start in 2036 despite production beginning in 2026, contrary to international best practice.
The Auditor-General also raised broader legislative gaps, including unclear procedures for awarding petroleum contracts, missing reporting formats for recoverable costs, ambiguity on government participation in upstream projects, and Kenya’s non-membership in the Extractive Industries Transparency Initiative (EITI). She warned that non-membership could increase governance risk perceptions, potentially raising borrowing costs for energy projects.
To strengthen oversight, Gathungu said OAG plans to reconstitute a dedicated Petroleum Audit Unit and continue building staff capacity in oil and gas accounting, petroleum economics, and energy law, with specialized audits outsourced where necessary.
Concluding her presentation, the Auditor-General urged Parliament to carefully address these gaps before approving the South Lokichar Field Development Plan, emphasizing that petroleum resources can either boost national development or create economic distortions if poorly managed.
“The Office of the Auditor-General will continue to provide quality and timely audit reports to Parliament,” she said, calling on lawmakers to debate audit findings and implement recommendations to safeguard public interest.
The development of Blocks T6 and T7 is seen as a major step toward commercial oil production in Kenya, with significant implications for national revenue, local content, environmental management, and long-term economic growth.
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