Questions arise on secrecy around Kenya oil exports

Sunday August 11 2019

Trucks loaded with crude oil at a stopover at Kalemngorok on the Lokichar-Kainuk road in northern Kenya.

Trucks loaded with crude oil at a stopover at Kalemngorok on the Lokichar-Kainuk road in northern Kenya, enroute to Kenya's coastal town Mombasa. PHOTO | FILE | NATION MEDIA GROUP 

NJIRAINI MUCHIRA
By NJIRAINI MUCHIRA
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Sector lobbies have raised concerns over the secrecy shrouding Kenya’s oil exports, saying it does not augur well for transparency in the sector.

President Uhuru Kenyatta recently announced that Kenya had joined the league of oil exporting countries but the government remains tight-lipped on the destination of the exports.

“We are now an oil exporter. We have started the journey and it is up to us to ensure that those resources are put to the best use to make our country prosperous and to ensure we eliminate poverty,” said the president, adding that the country fetched $12 million for its first consignment of 200,000 barrels.

DESTINATION?

Kenya reportedly managed to get a premium price for its sweet light crude which sold at $60 per barrel, an uptick of nearly 40 per cent above the $43 per barrel that the government had set as the break-even point for the Early Oil Pilot Scheme (EOPS).

Andrew Kamau, Petroleum Principal secretary, told The EastAfrican that the first shipment will leave the port of Mombasa at the end of the month following the upgrade of the existing pipeline and completion of a ship-loading facility. But he still would not divulge the destination or whether it was bought directly by a refinery or a broker, saying the government plans to issue an official statement in the coming days.

But civil society has raised concerns about the secrecy that continues to characterise the EOPS.

“We note with deep concern that the government has adopted an attitude of non-disclosure,” said Charles Wanguhu, Kenya Civil Society Platform on Oil and Gas co-ordinator.

He added that the government needs to make public the production-sharing agreement signed with Tullow Oil and its joint venture partners for Kenyans to know how the resources generated will be utilised and shared.

“The president's announcement should have specified how much of the $12 million would cover the costs of EOPS and how much EOPS would eventually cost taxpayers cumulatively,” he said.

INTEREST

Tullow Oil, which has the largest interests in oil in Kenya, with a 50 per cent stake, and has been pushing for exports under the EOPS, is seeking to recoup its investment, estimated at $1.8 billion.

The government has maintained the scheme is necessary as a precursor to full development and commercialisation of the crude oil business, and is not a money-making operation.

To facilitate exportation of the crude, the Kenya Pipeline Company has completed the modification of the pipeline to incorporate a heating component which will help the waxy Turkana oil to flow to ships.

The 18-inch pipeline runs a distance of 4.5 km from the Kenya Petroleum Refinery Ltd storage tanks to the Kipevu oil terminal, Kenya’s main docking facility for oil tankers in the Indian Ocean. An exportation facility has been installed to facilitate pumping of the crude to ships.

Though the final destination of the Kenya crude remains a matter of conjecture, it has received significant interests from refineries in China and India.

Petroleum analysts also say that brokers from across the globe have been circling around the Kenyan crude with promises to source buyers willing to pay a premium.

“The business of crude involves selling directly to a particular refinery or to a broker who in turn looks for a buyer,” said Linus Gitonga, a petroleum expert.

WEALTH FUND

Delays in the establishment of a sovereign wealth fund to administer resources accrued from oil and other minerals has raised concerns over the manner in which the government intends to utilise the $12 million.

The National Treasury is yet to table the Kenya Sovereign Wealth Fund Bill, 2019 in parliament. The Bill is designed to provide institutional arrangements for effective administration and efficient management of minerals and petroleum revenues.

“All the monies in the fund will be used to finance critical development programmes, build savings for future generations in order to ensure inter-generational equity and for stabilising budgetary expenditures in the event of fluctuations in the price of the natural resources,” Henry Rotich, the suspended National Treasury Cabinet Secretary said in his 2019/20 budget speech.

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