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, warning that failure to address them could significantly reduce Kenya’s share of petroleum revenues.
Appearing before the Joint Committee of the National Assembly Departmental Committee on Energy and the Senate Standing Committee on Energy on Wednesday, Gathungu said the Office of the Auditor-General (OAG) 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 10BB) and T7 (formerly 13T) in Turkana County.
Gathungu told lawmakers that although the Constitution mandates her office to audit public resources, including petroleum revenues, no approved recoverable cost statements for the two blocks have been submitted for audit to date. She noted that the lack of audits on costs incurred during the exploration phase has denied the country an opportunity to disallow ineligible expenditures, which could ultimately reduce government revenue once production begins.
She explained that under the Petroleum Act, 2019, the government may audit contractors’ books within seven years, but warned that delayed audits risk contractors’ accounts being deemed correct by default. Earlier PSC provisions had even shorter audit windows.
The Auditor-General also cited delays in the review of the Field Development Plan, which was submitted in October 2021 but had not been approved for three years, as well as past delays in establishing key institutions such as the National Upstream Petroleum Advisory Committee.
Her office’s previous financial and performance audits have flagged several weaknesses in petroleum oversight, including failure to monitor cost recovery, irregular submission of progress reports by contractors, inadequate review of work programmes and budgets, and insufficient monitoring of local content requirements.
In a 2021 performance audit, the OAG found that Tullow Kenya B.V. had implemented work programmes and budgets before approval, and that cost recovery statements were submitted inconsistently and without sufficient breakdowns. The audit also revealed gaps in enforcement of local employment and training obligations, including unpaid training fees amounting to millions of dollars and irregular use of the Petroleum Training Fund.
Gathungu expressed concern that Parliament has not debated most of the performance audit reports submitted by her office, saying consideration of those reports would have helped close policy and operational gaps earlier.
On international best practice, she cited Uganda and Indonesia, where supreme audit institutions have explicit mandates to directly audit oil companies’ recoverable costs. In Kenya, she said, the legislative framework remains weak, and Parliament should strengthen the law to ensure transparent and timely cost audits.
Turning to the South Lokichar Field Development Plan, the Auditor-General highlighted inconsistencies with existing legislation. She questioned 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.
She further warned that proposed revisions to fiscal terms—including exemptions from VAT, withholding tax, railway development levy and import declaration fees—could result in multi-billion-shilling revenue losses if approved without thorough review by the Kenya Revenue Authority.
Additionally, the contractor’s request to raise the cost recovery limit to 85 per cent, from the current limits of 55 per cent and 65 per cent for the respective blocks, contradicts the Petroleum Act’s 60 per cent ceiling. While acknowledging that such incentives may aim to attract investment, Gathungu cautioned that higher cost recovery limits reduce immediate government take and require robust real-time monitoring to prevent cost inflation.
She also flagged the absence of a comprehensive decommissioning plan in the Field Development Plan, contrary to the Decommissioning, Site Abandonment and Restoration Guidelines, 2025, which require submission of such a plan before development begins. The current proposal indicates that contributions to the Decommissioning Fund would start in 2036, despite development being scheduled to begin in 2026.
Citing global practice in Nigeria, Brazil and Indonesia, she recommended that contractors begin contributing to decommissioning funds early in the production stage to ensure adequate resources for site restoration.
On the Early Oil Pilot Scheme, which transported crude from Turkana to Mombasa between 2017 and 2020, the Auditor-General said her office had previously sought documentation to conduct an audit but did not receive the information. A factual findings report was only shared last week, and the OAG will review it before undertaking a full audit once approved financial statements are submitted.
Gathungu further pointed out broader legislative gaps, including unclear procedures for awarding petroleum contracts, lack of prescribed formats for reporting recoverable costs, ambiguity on government participation percentages in upstream projects, and Kenya’s non-membership in the Extractive Industries Transparency Initiative (EITI).
She warned that non-membership in EITI may elevate governance risk perceptions among international lenders and investors, potentially increasing borrowing costs for energy infrastructure projects.
To strengthen oversight, the Auditor-General announced plans to reconstitute a dedicated Petroleum Audit Unit and continue building staff capacity in oil and gas accounting, petroleum economics and energy law. She noted that her office may also outsource specialized audits where necessary, as permitted by the Public Audit Act.
Concluding her presentation, Gathungu urged Parliament to carefully consider the gaps identified before approving the South Lokichar Field Development Plan, emphasizing that petroleum resources can either accelerate development or fuel 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 expeditiously and follow up on implementation of recommendations to safeguard public interest.
The proposed 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 sustainability.
