Energy permanent secretary Patrick Nyoike said the UK firm had to come up with a model for remitting the money equivalent to 30 per cent of the valuation of the blocks within Lamu basin.
The government is demanding Sh3 billion in tax from the sale of five oil blocks in Kenya from Cove Energy following its acquisition by a Thai company.
Energy permanent secretary Patrick Nyoike said the UK firm had to come up with a model for remitting the money equivalent to 30 per cent of the valuation of the blocks within Lamu basin.
“The Minister for Energy cannot authorise the deal because we have not yet agreed on the capital gains tax. They need to make a proposal on how they can pay for consideration by the licensing committee comprised of Ministry of Energy, AG’s office, the Treasury, the National Oil Corporation of Kenya and industry experts.
“They are selling for a lot of money. We will be left with nothing. Under the Production Sharing Contract (PSC) Act, the minister must give his consent,” added Mr Nyoike who chairs the licensing body.
“They must pay tax on the income from the sale of our resources,” said Mr Nyoike on telephone. Capital gains tax, however, was abolished in Kenya in the 1970s and it is not clear under what law the government is demanding the money.
The firm applied for the minister’s nod to sell up to five blocks — L5, L7, L12, L11A and L11B in Lamu. It followed the August takeover of Cove Energy by the Thai national petroleum company PTTEP for £1.2 billion (about Sh153 billion) or $1.8 billion. The joint partners to these blocks are US company Anadarko Corporation and Total.
The deal which effectively changes control of shares of the Kenyan assets to a third party has been completed but awaiting approvals, including that of the Kenyan Government which wants to be paid from the profits realised from the sale. The bulk of the assets is from Mozambican natural gas deposits estimated at Thaibhats150 trillion.
Cove Energy sold 100 per cent of its interests in Mozambique and Kenya, bucking the trend of partial sales known as farm-in and farm-outs in industry jargon .
Article 35 (2) of the Model Production Sharing Contract on assignments empowers the minister (or Cabinet secretary) responsible for energy to give consent.
The Petroleum Act allows for transfer of exploration permit only when approved by the minister.
The move to halt transfer of exploration rights to third parties is one of the administrative actions that the ministry has taken to kick out cartels from the oil sector.
But industry experts say current laws create regulatory uncertainty around the buying, selling and development of oil assets.
“The PSC Act is silent on the powers granted to the minister. In case of a transfer of rights of change of control, the Minister for Energy shall approve and not withhold,” said industry analyst Mwendia Nyaga.
It is understood that the partners have spent $50 million (about Sh450 million) to acquire three dimension seismic data on the blocks. Last week, Energy minister Kiraitu Murungi accused an unnamed explorer of speculating on its licensed blocks and demanded a share of revenues from the sale.
“This company has done absolutely nothing. So, we cannot sit back as a government and allow somebody to trade a piece of paper for Sh3 billion. We want a share of that money to authorise the transfer to a third party,” Mr Kiraitu said.
Cove Energy has threatened legal action should the Government makes good its threat.
