The National Assembly has started debating a proposed law that would extend special economic zone incentives to petroleum operators to heighten investor appetite in a sector the Kenyan government wants to expand.
- •The Special Economic Zones (Amendment) Bill, 2026, seeks to formally integrate upstream and midstream petroleum activities into the country’s SEZ framework, aligning investment rules with the needs of large-scale oil projects.
- •Lawmakers backing the proposal argue that gaps in the current legal and fiscal regime have slowed the transition from exploration to commercial production.
- •The Bill also proposes licensing reforms aimed at reducing investor uncertainty in a capital-intensive sector including granting petroleum zone operators licenses with a minimum duration of 10 years.
This will replace shorter-term arrangements that have been seen as inadequate for projects requiring billions in upfront investment and long development timelines.
Alongside these regulatory changes, the legislation introduces a suite of fiscal incentives designed to lower project costs and attract capital. Proposed amendments would extend value-added tax relief to supplies made to SEZ operators and remove time limits on certain withholding tax exemptions for payments to non-residents.
Additional changes would also exempt key oil equipment from select levies, particularly those tied to rail transport thus easing the movement of heavy infrastructure into remote production areas.
In 2025, the government granted extensive tax and duty exemptions to Gulf Energy under a restructured production-sharing contract for Block T7 in Turkana, eliminating VAT on petroleum inputs, scrapping import levies, and easing withholding tax obligations. That agreement also expanded cost recovery limits and clarified eligible capital expenditures, underscoring the scale of fiscal support deemed necessary to make the basin commercially viable.
The proposed SEZ amendments would generalize such incentives across the petroleum sector, embedding them within statute rather than project-specific agreements. Lawmakers supporting the Bill say this approach could standardize investor treatment and accelerate development timelines across multiple blocks in the basin.
The Turkana fields are estimated to contain recoverable reserves of more than 300 million barrels and have long been viewed as commercially promising but financially constrained by high development costs and infrastructure challenges. By extending SEZ benefits, traditionally reserved for manufacturing and export-oriented industries, policymakers are attempting to reposition the sector within a more competitive fiscal environment.
