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The East African : Nov 21st 2015
The EastAfrican 36 BUSINESS NOVEMBER 21-27,2015 MININ G Oil firms oppose capital gains tax Pet≥oleum Bill 2015 to tax sale and acquisition of explo≥ation blocks By KENNEDY SENELWA Special Correspondent proceeds from the sale and acquisition of exploration blocks reviewed in the new petroleum law. The Petroleum (Exploration O Development and Production) Bill 2015, with the attendant model production sharing contract (PSC), now in its second reading in parliament, is set to embed the capital gains tax (CGT) once it is enacted. CGT guidelines issued by the Kenya Revenue Authority for the oil, gas and mining industry stipulates 30 per cent as the rate for resident firms, and 37.5 per cent for non-resident companies effective January 1, 2015. Analysts said the high capital gains tax could deter foreign investment in the oil and gas sector. Kenya abolished a 30 per cent tax on profits from the sale of shares and property in 1985 to encourage investment. CGT was reintroduced when the Finance Bill 2014 received presidential assent on September 14, 2014. The global oil and gas industry depends heavily on the partial sale of shares (farmout) of exploration blocks to attract firms with technical and financial capabilities to take the projects up to the production phase. The Kenya Oil and Gas Asso- ciation (KOGA) said the 30 and 37.5 per cent CGT needs to be revised down to 5 per cent. Patrick Obath, a managing consultant at Eduardo, said the CGT should be well structured. “During farm-in and farm-out of interest in exploration blocks, there is no gain. Capital gains tax can only be applicable when An oilrig worker at Ngamia III oil exploration site in Nakukulas village, Turkana, Northern Kenya. Picture: File either commercial oil or gas has been discovered, and the amount of resource quantified,” he said. KOGA said high taxes would be a barrier to new investors, erode investor confidence, and delay exploration and development activity. Treasury Cabinet Secretary Henry Rotich said CGT rates for the extractives industry pertaining to the petroleum sector can only be reviewed in the next Capital gains tax can only be applicable when either commercial oil or gas has been discovered.” Eduardo managing consultant Patrick Obath budget. “That is how it is in the law. What we agree on will be put in the 2016/2017 Finance Bill to address industry concerns,” he said. Section 39 of the Petroleum Bill states, “Any assignment pursuant to this clause shall be fully disclosed by the assignor to the Kenyan tax authority. Any tax arising from any assignment pursuant to the Income Tax Act will be paid by the assignor in the manner specified in the Income Tax Act.’’ A company will not trans- fer an interest in a petroleum agreement without the written permission of the Energy Cabinet Secretary, who also has to be furnished with copies of all agreements and deeds related to the deal. Consulting firm KPMG said CGT was reintroduced in 2014 to broaden Kenya’s tax base, increase revenue collection, and align the country with its regional counterparts. “One of the reasons cited is the need for Kenya to balance its ever increasing budget,” said the firm. Uganda levies 30 per cent CGT. Foreign owned companies in Tanzania pay 20 per cent and residents 10 per cent. The impact of the CGT on the oil industry could be disruptive if the interests of investors and the government are not balanced. Eduardo and Associates, a consulting firm, said capital gains tax may discourage investors from prospecting other parts of the country; currently commercial oil has been found in the Lokichar basin in northwestern Kenya. Tullow Oil and Africa Oil Cor- poration have discovered 600 million barrels of crude oil in the South Lokichar basin. Commercial oil production is expected to start from 2018. Climate kitty backs Uganda, Rwanda powe≥ plans By DALTON NYABUNDI Special Correspondent The Climate Investment Funds (CIF), a global kitty backed by several multilateral lenders including the World Bank and African Development Bank (AfDB), has endorsed plans by Uganda and Rwanda to build renewable energy plants to meet the growing demand for power. Uganda aims to add about 151 MW of renewable energy to its grid, including 130MW of geothermal power. “The plan, to be implemented under the CIF programme for Scaling Up Renewable Energy in Low Income Countries (SREP), will focus on geothermal development, solar PV off-grid rural electrification and-grid net metering, and wind measurement for development of a pilot wind power project,” AfDB said. The investment plan will be implemented with support from AfDB and other partners and was endorsed with $50 million. Commitment “Uganda has made a commitment to this investment plan because we recognise that energy is the engine of our growth. Because we have a very low level of energy access, we are urgently addressing that problem as part of our vision for a prosperous Uganda,” said James Baanabe, commissioner of the Directorate of Energy Resources Development and the SREP National Focal Point at the Ministry of Energy and Mineral Development. In Rwanda, the government will create a Renewable Energy Fund to support key energy programmes to help the country meet its target of connecting the 48 per cent of households to the grid, and to offer 22 per cent sustainable off-grid solutions, including solar home systems and mini-grid connections. “We are pleased that this plan helps provide sorely needed energy services to our rural population; at the same time, it breaks down barriers and allows the private sector to build an effective renewable energy market,” said Robert Nyavumba, the energy division manager in Rwanda’s Ministry of Infrastructure. Kurt Lonsway, head of the AfDB’s en- vironment and climate change division and CIF co-ordinator, said the deal with Rwanda will help propel its energy output. il and gas firms based in Kenya want the taxation of secto≥ ≥ound-up Regional mining organisations form body to promote industry National mining organisations from Kenya, Uganda, Rwanda and Tanzania will form a regional umbrella body to articulate industry interests in East Africa. The East African Chamber of Mines, Energy and Petroleum (EACMEP) will be tasked with promoting mining, energy and petroleum industries within the region. The formation of EACMEP follows a meeting held in Nairobi by the Kenya Chamber of Mines, the Tanzania Chamber of Minerals and Energy, the Uganda Chamber of Mines and the Petroleum and Rwanda Mining Association. Singapore firm wins bid for oil and gas exploration in Tanzania Swala Energy Ltd has awarded AWT International (Asia) Sdn Bhd of Singapore a contract to drill exploration wells for crude oil and natural gas in Tanzania. AWT International, which offers engineering services to oil and gas firms, will drill the wells in Kilosa-Kilombero and Pangani exploration blocks next year. “This award allows the drill planning to commence immediately, enabling us to achieve our 2016 drilling objectives,” said Swala CEO David Mestres Ridge. Gold miners in western Kenya. Picture: File Stockport raises $200,000 for gold exploration in western Kenya Stockport Exploration has raised $200,000 from the non-brokered private placement of 5 million shares to fund exploration of gold in western Kenya. Stockport CEO Jim Megann said the proceeds will be used for operations of the pilot gold recovery circuit in the special prospecting licence 214 concession, and for working capital purposes. The company’s shares started trading on the Toronto Stock Exchange on November 4. All securities issued pursuant to the private placement are subject to a four-month hold period. Kefi chooses African Mining as contractor for Tulu Kapi gold mine Kefi Minerals has selected African Mining Services (AMS) as the contractor for the $120 million Tulu Kapi gold mine project in Ethiopia. AMS, a subsidiary of Austral Ltd of Australia, will undertake certain pre-mining earthworks and construction of the open cast mining area. Kefi executive chairman Harry AnagnostarasAdams said building of the Tulu Kapi gold mine located 360km west of Addis Ababa will be funded using both debt and equity. “The provisions for cost overrun and finance charges will be checked and allocated between the funding or contracting syndicate as part of finalising inter-creditor arrangements,” he said.
Nov 14th 2015
Nov 28th 2015