Experts are warning that a proposed windfall tax by the Kenyan government on oil once production starts could keep away potential investors much as it would amount to more income for the state.
According to Dr. Anthony Hyatt a lecturer at the Aberdeen based Robert Gordon University the concept that involves increased taxation should oil prices exceed a set value, have long term effects on the industry and is considered as a fiscal risk that could slow down activity.
“Windfall taxes brought in by the UK government have led to a slowdown in investment. The UK Is now considered among countries with a record of changing tax regimes especially given that the windfall tax was introduced after oilfields had started producing,” says Hyatt.
The lecturer proposes that the government in the various production sharing agreements needs to structure deals that would remain a win-win situation for both parties especially considering that exploration is only in the early stages with the majority of the country still untested.
Hyatts view is however set to be unpopular among community groups and political leaders who are determined to reap the most out of the reserves should they be termed of commercial quantities and thus a greenlight to production be given.
“Many people view the oil industry as being money stuffed. No one remembers the risks involved with companies having to sink in millions if not billions of dollars in investments that are never guaranteed not to mention totally capital intensive to put up facilities should oil be discovered in large quantities.”
The don is also pessimistic that oil companies that invest millions in corporate social responsibility will put much in local content in regions where their profits are squeezed to the last drop.
“Studies have shown oil is less profitable than selling soda, retail, manufacturing among others but everyone targets this industry and ignore the rest,” he adds.
Elsewhere in the world plans by governments to levy more taxes on oil companies have always been met with opposition due to the risk of decrease in jobs and increase in products.
“With less money available, companies potentially could reduce investments in domestic energy production and slash research spending,” warned Jim Constantopoulos a professor of geology at Eastern New Mexico University cnjonline.com following a plan by the U.S government to increase taxes on the oil and gas industry in 2013.
Kenya’s president Uhuru Kenyatta last week stated his government’s intention to impose capital-gains and windfall taxes on oil, gas and mining companies within months to ensure the East African nation maximises benefits from its mineral resources.
“We want something that’s fair, but equally recognising that Kenya as a country must benefit from this.” Said Kenyatta.
Hyatt who offers corporate lectures is currently offering training Kenya’s MPs and Senators sitting in various energy related committees in parliament on the industry as efforts to formulate legislation and other policy documents continue.
Tullow Oil and Africa Oil have discovered oil reserves in Block 13 T and Block 10 BB in northern Kenya’s South Lokichar Basin, estimated at a combined 600 million barrels.