Spotlight on Gulf Energy's dominance of energy sector

Oil and gas players are set for major tax breaks in Kenya’s latest bid to fast-track the road to being an oil producer and exploit the resources already discovered in Turkana County.

The plan, however, faces criticism. It is seen by some as favouring one firm that appears set to be the dominant player across the sector, from the production and export of crude oil from the oilfields of Lokichar in Turkana County to the importation of refined products and their distribution to petrol stations across the country.

Gulf Energy, which took over the Turkana oil project from Tullow Oil last year and is set to steer the realisation of Kenya’s vision to become an oil producer, also plays a major role in the importation of refined petroleum products.

It is one of the key firms handling the local transactions for the Middle East (Gulf) firms. While it quit retail operations a few years ago, its role in the government-to-government (G2G) framework has seen it remain relevant in Kenya’s downstream oil sector. 

A new Bill tabled in Parliament last month has proposed giving oil and gas producers a Special Economic Zone (SEZ) status, which will see companies in the midstream and upstream oil sectors get major tax exemptions. 

Under the SEZ framework, oil producers will enjoy a preferential corporate tax rate of 10 per cent for the first decade, a steep drop from the standard 30 per cent that firms in Kenya pay.

It also seeks to lower the cost of machinery and raw materials by exempting the companies from Import Duty, Excise Duty, the Import Declaration Fee (IDF) and the Railway Development Levy (RDL).

Leader of the Majority Party, Kimani Ichung’wah, explained that the Bill had sought to implement recommendations by Members of the National Assembly and Senators who had recommended the extension of benefits that companies operating under the SEZs get to the capital-intensive oil and gas sector. 

“The Bill, therefore, is intended to facilitate strategic investments in midstream and upstream petroleum operations by improving the legal and fiscal environment within SEZs, in particular,” he said in a memorandum to the Bill.

“The Bill seeks to ensure that the SEZ regime accommodates the structure and operational needs of capital-intensive projects, including those undertaken under petroleum exploration agreements.”

The government expects the incentives that come with the inclusion of oil and gas players under SEZ will help move the Turkana oil project into the commercial phase.

This is also expected to attract major players into the upstream oil sector, which, though tipped to have immense potential, has failed to spark interest with work currently confined to the Lokichar Basin.

“A licence issued under this Act to a special economic zone developer, operator or enterprise carrying on business or undertaking activities in zones designated for midstream petroleum operations or upstream petroleum operations shall be valid for 10 years,” reads the SEZ amendment Bill. 

Tax havens

The proposed laws also remove a clause in the principal act that requires firms benefiting from being in SEZs to be incorporated in Kenya.

This could mean that even companies registered in tax havens and already employing major tax avoidance measures for their Kenyan operations could also enjoy SEZ status and the benefits coming with it.

Among the qualifications for a firm to be an SEZ developer or operator and issued with an SEZ licence include “a company incorporated in Kenya”, whether or not it is 100 per cent foreign owned.

The proposed Bill also hands all SEZ operators a major reprieve, exempting their earnings such as royalties, interest, management fees, and professional fees by a non-resident person from income tax. Currently, such earnings enjoy a tax holiday of 10 years, after which they start attracting a five per cent tax. 

There are, however, concerns about the proposals, which MP Ndindi Nyoro said are designed to favour one company, giving it a firm grip on Kenya’s oil sector.

It dominates the subsectors from upstream in Turkana through to midstream, while having an important role in how oil marketing companies (OMCs) access fuel for their downstream operations through its role in the G2G deal.

He noted that Gulf Energy is one of the key Kenyan oil marketing companies selected by the Gulf firms that export products to Kenya under the G2G framework to handle the local distribution.

Retail operations

The critical role it plays in the G2G deal gives it firm control over the midstream petroleum sector.

While it exited the downstream business segment following the sale of its outlets to Rubis, the firm’s role in the G2G ensures that it influences the retail operations of OMCs. The firm also took over the Project Oil Kenya last year following the exit of Tullow Oil, putting it firmly in the driving position in the country’s upstream sector.

The company is seeking to fast-track the project and achieve first oil by the end of this year and export the first batch of oil by the first quarter of 2027.

The Kiharu legislator said the G2G framework had been fashioned as a “business” that is seemingly expanding, with the firm that has been handling the bulk of consignments imported under the G2G deal now involved in the exploration of Kenya’s crude oil in Turkana.

The firm, he said, is set to receive major incentives, including tax exemptions proposed in the SEZ amendment Bill 2026.

“G2G is basically a business, which is also entrenched through patronage. And that is why the same company handling 75 per cent of the fuel imported through G2G is the same company that is dealing with exploiting our Turkana oil,” said Nyoro. 

“G2G was fashioned as a petroleum cabal, and it has percolated from downstream to midstream to upstream now, which is why it is the same people who are exploiting our fuel resources in Turkana.” 

He added that the recently published SEZ (Amendment) Bill 2026 had proposed to give firms in midstream and upstream petroleum operations the incentives accorded to companies operating in SEZs.  

“It is very insensitive that when other countries are dealing with how to alleviate the issue of fuel supplies and prices, to benefit their citizens, in Kenya, the leadership is taking this crisis as a way of entrenching their same, same personal interests in the fuel sector,” said Nyoro. 

“It is even more selfish that the same cabal dealing with G2G is now exploiting the oil resources in Turkana for personal gain. They have brought a Bill before Parliament to enable the company to enjoy SEZ status.”