Someone explain: Why has this country not struck oil?

Tuesday September 8 2009

EACH TIME I READ THAT Tullow Oil or Heritage, so far the most successful oil exploration companies in Uganda, have sunk another well, I keep wondering when our time will come.

Geophysicists say the Albertine Basin, where most of that oil is being discovered in Uganda, extends into Kenya territory. Is it possible that the Almighty gave our two neighbours, Uganda and Sudan, oil but decided to leave us out completely?

Uganda has now discovered over one billion barrels of oil. What I find surprising is that we don’t appear to be keen enough about what is happening in the oil exploration field.

There is very little public discussion or interest on the matter, even from oversight bodies such as Parliament.

Part of the reason is that we have left decisions on this critically strategic area to a tiny bureaucratic elite. Although the licences to exploration companies are granted by an inter-ministerial body, real decision-making is in the hands of a few bureaucrats at Nyayo House.

This tiny elite acts as if it is not accountable to anyone outside the ministry. For instance, in 2007, the ministry unilaterally introduced what it calls a ‘‘signature bonus’’ which all oil exploration companies must pay at the point of signing a production sharing contract.

Critics have opposed the bonus on the grounds that the payment is not obligatory under the law, and is a disincentive to oil exploration companies.

When you ask, bureaucrats at the ministry will explain that the payment was introduced to deter joy- riders and briefcase companies.

Yet when you look at the matter critically, the oil exploration game here is still dominated by risk-averse types – companies more adept at trading rights and selling shares of their companies among themselves than on exploration itself.

Today, the most important and visible activity taking place in the oil exploration sector is the buying of shares and rights between companies. Indeed, the ownership of the companies we have given licences to has been changing hands in an unprecedented manner.

The pace at which mergers and acquisitions have taken place in this sector is unparalleled in the history of oil exploration in this country.

Even the giant Chinese company, CNOOC, which is about to start drilling of oil in the Isiolo area, has sold some its rights to two other companies, including an entity from, of all places, Taiwan.

Right now, you have to know this sector intimately to track which company has bought shares where and who owns rights over which oil exploration block.

AND, BECAUSE NOBODY, BESIDES the Ministry of Energy, monitors their performance closely, you cannot independently tell which of the companies is not meeting the benchmarks agreed on in the production sharing pacts signed with the government.

CNOOC was supposed to have started drilling several months ago. But it is becoming apparent that actual drilling may not start until after November.

Have we given these companies too much leeway? When you ask, you will be told that because Kenya is yet to discover oil, it does not make sense to introduce too many stringent rules.

You will be told that oil exploration is a risky business and that you must permanently seek to seduce investors to come here.

But what if most of the companies you are dealing with are mere wheeler-dealers? How can we know whether we are not just dealing with briefcase companies and speculators if we don’t encourage more public scrutiny and more disclosure in some of these transactions?

The other day, I received a call from Australia by a person who asked me to investigate the circumstances under which a company from that country, Woodside, were allowed to abandon drilling for oil in Lamu.

Apparently, Woodside was supposed to drill two wells. The caller alleged that the company was allowed to ‘‘plug and abandon’’ unprocedurally, and in contravention of the law.

Indeed, Woodside’s partner in the Lamu project, Dana Petroleum, had taken the Australian company to court accusing it of abandoning the Lamu project irregularly.

When I put the question to the Ministry of Energy, I was told the Australians paid a $6 million fine for abandoning the wells. Underlying the controversy is a heap of unsubstantiated allegations.

I have also received representations to the effect that licences for geothermal exploration were being granted arbitrarily, even to companies with no capacity or experience in drilling wells.

Theory teaches that if you allow a small group too much powers and discretion over issuance of licences or permits, you will end up with a toll station for rent-seeking.

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