Auditor-General Nancy Gathungu has raised concerns over legislative, fiscal and oversight gaps in the proposed development of oil Blocks T6 and T7 in the South Lokichar Basin, cautioning that failure to address them could significantly reduce Kenya’s share of future petroleum revenues.
Appearing before a joint sitting of the National Assembly Departmental Committee on Energy and the Senate Standing Committee on Energy, Gathungu said her office remains committed to ensuring transparency and accountability in the petroleum sector but requires stronger legal backing and timely access to information.
The engagement focused on stakeholder input into the Field Development Plan (FDP) and Production Sharing Contracts (PSCs) for Blocks T6, formerly known as 10BB, and T7, formerly 13T, located in Turkana County.
No approved recoverable costs submitted for audit
Gathungu told lawmakers that although the Constitution mandates the Office of the Auditor-General to audit public resources, including petroleum revenues, no approved recoverable cost statements for the two blocks have been submitted for audit to date.
She warned that the lack of audits on exploration-phase costs denies the government an opportunity to disallow ineligible expenditures before production begins. Under production sharing arrangements, recoverable costs are deducted before profit oil is shared between the contractor and the government. If such costs are not properly scrutinized, the government’s eventual revenue share could shrink.
The Petroleum Act, 2019 allows the government to audit contractors’ books within seven years. However, Gathungu cautioned that delays could result in contractor accounts being deemed correct by default once the audit window closes. She noted that earlier PSC frameworks had even shorter audit periods.
Delays in approving Field Development Plan
The Auditor-General also cited delays in reviewing the Field Development Plan, which was submitted in October 2021 but had not been approved for three years. She pointed to past delays in operationalizing key institutions such as the National Upstream Petroleum Advisory Committee as further evidence of systemic oversight weaknesses.
Previous financial and performance audits by her office have identified gaps including:
- Failure to monitor cost recovery effectively
- Irregular submission of progress reports by contractors
- Inadequate review of work programmes and budgets
- Weak enforcement of local content requirements
A 2021 performance audit found that Tullow Kenya B.V. implemented work programmes and budgets before approval, while cost recovery statements were submitted inconsistently and without detailed breakdowns. The audit also flagged unpaid training fees amounting to millions of dollars and irregular use of the Petroleum Training Fund.
Gathungu expressed concern that most performance audit reports submitted to Parliament have not been debated, arguing that earlier consideration could have closed policy and operational gaps.
Proposed fiscal revisions could reduce government take
Turning to the proposed South Lokichar FDP, the Auditor-General questioned several fiscal and legal elements.
She raised concerns over the contractor’s request for unitization of the development area under harmonized fiscal terms, noting that both blocks are held by the same contractor and may not meet the legal threshold for unitization under the Petroleum Act.
Gathungu also warned that proposed tax exemptions, including VAT, withholding tax, railway development levy and import declaration fees, could result in multi-billion-shilling revenue losses if approved without detailed review by the Kenya Revenue Authority.
Additionally, the contractor has requested to increase the cost recovery limit to 85 percent, up from 55 percent and 65 percent in the respective blocks. This would exceed the Petroleum Act’s 60 percent ceiling.
While acknowledging that fiscal incentives may attract investment, she cautioned that higher cost recovery limits reduce the government’s immediate share of oil revenues and require robust real-time monitoring to prevent cost inflation.
Decommissioning concerns flagged
The Auditor-General also highlighted the absence of a comprehensive decommissioning plan in the Field Development Plan, contrary to the Decommissioning, Site Abandonment and Restoration Guidelines, 2025.
Although development is scheduled to begin in 2026, the current proposal indicates that contributions to the Decommissioning Fund would only start in 2036.
Citing global practices in Nigeria, Brazil and Indonesia, Gathungu recommended that contractors begin contributing to decommissioning funds early in the production phase to ensure sufficient resources are available for environmental restoration.
Early Oil Pilot Scheme documentation gaps
On the Early Oil Pilot Scheme, which transported crude from Turkana to Mombasa between 2017 and 2020, Gathungu said her office had previously requested documentation to conduct an audit but did not receive the required information at the time.
A factual findings report was only shared recently, and the Office of the Auditor-General will review it before undertaking a full audit once approved financial statements are submitted.
Broader legislative gaps identified
The Auditor-General further cited structural weaknesses in Kenya’s petroleum governance framework, including:
- Unclear procedures for awarding petroleum contracts
- Lack of standardized reporting formats for recoverable costs
- Ambiguity around government participation percentages in upstream projects
- Kenya’s non-membership in the Extractive Industries Transparency Initiative
She warned that failure to join EITI could elevate governance risk perceptions among international investors and lenders, potentially increasing borrowing costs for energy infrastructure projects.
To strengthen oversight, Gathungu announced plans to reconstitute a dedicated Petroleum Audit Unit and continue building staff capacity in oil and gas accounting, petroleum economics and energy law. Where necessary, her office may outsource specialized audits as permitted under the Public Audit Act.
Parliament urged to scrutinize plan before approval
Concluding her presentation, Gathungu urged Parliament to carefully address the identified gaps before approving the South Lokichar Field Development Plan.
She emphasized that petroleum resources can accelerate national development if managed prudently, but weak governance and delayed oversight could erode public value.
“The Office of the Auditor-General will continue to provide quality and timely audit reports to Parliament,” she said, urging lawmakers to debate audit findings expeditiously and ensure implementation of recommendations.
The proposed development of Blocks T6 and T7 is widely viewed as a significant milestone toward commercial oil production in Kenya, with far-reaching implications for national revenue, local content development, environmental management and long-term economic sustainability.
