Kenya: President Kenyatta to impose capital-gains and windfall tax legislation within months

Kenyan President, Uhuru Kenyatta, stated in a 2 August interview that Kenya will impose capital-gains and windfall taxes on oil, gas and mining companies within months to ensure the East African nation maximizes benefits from its mineral resources.

Enacting the laws this year will be a positive signal to investors that Kenya is keen on creating necessary conditions for the industry. “This is something that we are very clear about,” Kenyatta said from Nairobi’s State House, “We want to ensure that we as a country also are able to benefit from both the windfall and capital-gains tax.” 

Recently oil reserves have been found in northern Kenya, while gas exploration continues and the nation’s potential for gold production is being studied. 

Kenya hopes the new legislation will prevent similar situations to Tullow’s experience in Uganda, where the company is appealing against the state revenue authority’s demand that it pay capital-gains tax of about US$473 million following its sale of assets in Uganda. 

For an in-depth analysis of this issue and how it will affect the exploration companies operating in the country please see our upcoming issue of East Africa Politics & Security.

© 2014 Menas Associates

Iran unveils contract model

The Ministry of Petroleum unveiled the draft model of its new oil and gas contracts, which is aimed at drawing more foreign companies to the Iranian hydrocarbon sector. The Iran Petroleum Contract (IPC) was announced in Tehran by Mehdi Hosseini, who heads a ministry-appointed committee to revise oil contracts.

‘In the new contracts, different stages of the petroleum industry (exploration, development, and production) are commissioned in an integrated manner,’ Hosseini told a forum organised to introduce the contracts.

The IPC is replacing buy-back contracts, which are no longer attractive to foreign companies. Under a buyback deal, the host government agrees to pay the contractor an agreed price for all volumes of hydrocarbons the contractor produces.

Under the IPC, the National Iranian Oil Company will form joint ventures in crude and gas production with international companies to manage projects, provide financing, and maximise hydrocarbon recovery, Hosseini said.

The official emphasised that the new contracts will offer higher fees for riskier exploration and production projects but that ‘ownership of reservoirs is not transferrable. Under new contracts, Iranian experts will work shoulder to shoulder with foreign investment companies in order to become familiar with the latest technologies of the world.’

The new contracts are also intended to raise the recovery factor of Iranian oil fields, half of which are in their maturity period. Iran needs US$150 billion of investments in its upstream oil and gas industry in the next five years, and the share of foreign investment in the contracts therefore had to increase.

Iran expects to attract US$100 billion in investment in its energy sector over the next four years after the new model takes effect.

For more news and expert analysis about Iran, please see Iran Strategic Focus.

© 2014 Menas Associates