The Energy and Petroleum Regulatory Authority (EPRA) has introduced draft regulations aimed at capping borrowing for upcoming oil and gas projects in Kenya. This initiative marks a significant policy shift to enhance financial discipline in the upstream petroleum sector ahead of commercial oil production in Turkana.
Key Provisions of the Draft Regulations
- Petroleum projects must maintain a maximum debt-to-equity ratio of 70:30 when financing development costs.
- Projects seeking to exceed this borrowing limit need to provide detailed financial justification and obtain approval from the Cabinet Secretary based on EPRA's recommendation.
- Even with approval, debt financing cannot exceed 75% of total development costs.
- Contractors must seek government approval before recovering project expenses from oil revenues.
- Spending that surpasses approved budgets by more than 10% requires prior authorization.
- Only prudent, well-documented costs will be recoverable; expenses such as fines, charitable donations, CSR spending, loan interest, and foreign exchange losses are excluded.
- EPRA will have enhanced audit and inspection powers to verify compliance, including access to financial records and project sites.
- Non-compliance, including obstructing inspections or providing false information, may attract fines of at least Ksh20 million.
The government’s move aims to reduce the risks associated with excessive debt that could delay or jeopardize petroleum projects. These regulations are currently open for public comment and, once adopted, will establish a comprehensive framework for financing, reporting, and auditing upstream petroleum costs in Kenya.
