Tullow Oil’s woes in Turkana expose the soft underbelly of EA
Saturday November 09 2013
The recent two-week closure of Tullow Oil’s operations in Turkana after a standoff with area residents has renewed fears of the rough terrain exploration firms will have to traverse in managing community expectations while trying to profitably run the nascent oil and gas business in the East African region.
On October 27, the UK firm suspended operations in Block 10BB and Block 13T in Turkana East and Turkana South sub-counties.
Tullow, whose main operations are in Africa with sites in Uganda, Ghana, Gabon, Cote d’Ivoire, Liberia, Mozambique, Ethiopia and Madagascar, halted operations after hundreds of locals held protests at its installations on October 26, demanding jobs from the company.
The firm resumed operations Friday, after a negotiated settlement with the local community that involved it giving a number of concessions: Doubling its social project spending to $4 million per year and an undertaking to train more Turkanas to take up high-profile jobs. In return, the government would provide its workers with security in the volatile region.
While it may have been resolved, analysts and oil and gas industry players said the incident in Northern Kenya typifies growing economic activism in East Africa, heightening the need for clear rules of engagement between investors and hosts.
Such protests are also likely to put at risk existing investments, as well as the region’s reputation as a favoured destination for investors, especially in extractive industries.
Kenya does not have clear rules governing the relationship between exploration firms and local communities. A National Energy Policy, which is expected to fill this gap, is still being drafted.
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“I hope this incident forces policy makers to give serious consideration to the propositions that the private sector has made on the development of local content and value addition in Kenya in order to maximise the benefits of oil and gas wealth generation comprehensively,” said Wanjiku Manyara, the general manager of Petroleum Institute of East Africa.
With oil and gas finds in Uganda, Kenya and Tanzania, the region has become a hotspot for exploration. With the discovery of hydrocarbons in Turkana County and offshore gas deposits, local communities are now demanding for 25 per cent of the revenue when commercial production starts.
The rest of East Africa has also witnessed its fair share of economic activism. Mtwara, where Tanzania discovered large natural gas deposits, witnessed bloody violence when locals protested the government’s decision to pipe the gas to Dar es Salaam for refining and eventual sale, instead of building a refining plant in the area.
READ: Mtwara protests expose gaps in oil, gas, mineral laws management
In Uganda’s Albertine region, where vast oil deposits have been found, there are already concerns over wealth sharing.
According to Patrick Obath, a consultant in the industry and former CEO at oil marketer Shell, the Turkana incident is likely to create increased caution among investors. He said Kenya’s existing laws emphasise fiscal policies and income distribution rather than focusing on long-term wealth creation.
“We should not have situations where each company is expected to negotiate its own engagement with the community. If this is allowed to happen, we will have the so called best practice escalation where each community will look at what the other has achieved and then try and achieve more. This will create an upward spiral and the earlier communities are likely to get agitated at seemingly having been short-changed and agitate for changes,” said Mr Obath.
Last week, Mukhisa Kituyi, the Secretary-General of the United Nations Conference on Trade and Development (Unctad), warned that disputes over resources and boundaries could turn off foreign investors.
“We cannot be operationalising devolution and take our eyes off the collective agenda of developing the country’s economy. I do not oppose devolution, but the national and county governments should agree on predictable and comparable laws on ownership and right of access to resources,” he told MPs in Nairobi.
Such actions are especially disruptive for a listed company like Tullow, which trades on the London Stock Exchange and operates in an information-sensitive market. The firm’s share price has always shown vulnerability to news from its sites. New finds lead to a price rally, while bad news, like the recent stoppage in operations, leads to a drop.
In the wake of the statement announcing the closure of its Turkana operation, the firm’s share price fell 1.53 per cent to £9.63 ($15.5). On Wednesday, it dropped further to £9.46 ($15.2); analysts say the share value remains vulnerable. The return to full operations is expected to bring some stability.
But beyond the efforts to have the rigs operating again at the two locations without disruption, the action by the locals raises fundamental questions about the relationship between extractors of natural resources and host communities. The blocks are 50 per cent owned by Tullow, with Africa Oil being the other partner.
“Tullow takes its relationships with the local communities extremely seriously and the decision to suspend operations was taken to prevent further escalation of the demonstrations while discussions to resolve this issue for the long term were ongoing. We will continue engaging, with an emphasis on dialogue as a way of resolving grievances,” country manager Martin Mbogo told The EastAfrican.
Of Tullow’s corporate social investment portfolio for Turkana, Ksh105 million ($1.2 million), focuses on health, water and education.
According to the company’s official documents, 57 per cent of Kenyan employees at the sites are Turkanas, who also comprise 85 per cent of the semi-skilled and unskilled workforce. Kenyans constitute 82 per cent of the total employee roll, with the rest being expatriates.
As part of its attempts to improve capacity in the highly specialised field, Tullow has funded 20 scholarships for young Kenyans to study oil industry-related courses — like geographical information systems, petroleum geoscience, sustainability — in British universities, to gain knowledge and skills in which there is little local capacity. Four beneficiaries of the scholarships are from the local community.
The company says it has engaged a number of local contractors, giving them business totalling Ksh80 million ($941,100) this year.
So what caused the souring in relations between Tullow and its host community?
Already, there is concern that it could be a case of elite interests, largely for contracts and favourable terms, being advanced through a mass campaign.
Tullow’s problems in Turkana could also be evidence of the sometimes wide chasm between money spent on corporate social investment and public perception around the same, a function of strategic communications. Sometimes CSI is only considered useful if it helps the company cultivate a good relationship with its hosts.
Ms Manyara says incidents like the one in Turkana are not altogether unexpected in extractive industries, and that they provide an opportunity to manage local and national expectations through “structured and nationwide” community sensitisation by both the government and the exploration and production companies.
“The emergence of activism as well as civil society groups is always an expected outcome in and around the areas of natural resource discoveries. Oil can be an emotive subject given the history of how it has changed countries, and not always for the better. In this case, there are high expectations that oil in Turkana will now provide solutions to the historic and current socio-economic problems facing the county,” said Ms Manyara.
It does not help Tullow’s cause that its sites are located in an area that has been neglected by past governments.