Energy ministry remains tight-lipped on plan to start early oil export

Saturday March 25 2017

Energy and Petroleum Cabinet Secretary Charles Keter (right) with Tullow Oil's vice president for East Africa Gary Thompson in Nairobi on March 14, 2017. PHOTO | DIANA NGILA | NATION MEDIA GROUP

Energy and Petroleum Cabinet Secretary Charles Keter (right) with Tullow Oil's vice president for East Africa Gary Thompson in Nairobi on March 14, 2017. PHOTO | DIANA NGILA | NATION MEDIA GROUP 

By EDWIN OKOTH
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Uncertainties, secrecy and confusion continue to characterise Kenya’s plan to start early oil export where trucks will ferry the crude for 1,089km from Turkana to Mombasa.

After months of silence on the plan that is set to start in two months, the government last week signed a production agreement with Tullow Oil paving the way for the exportation of crude oil from Turkana fields.

Details of the agreement remained a secret with both Tullow and the Energy ministry keen not to disclose anything about it. Petroleum Principal Secretary Andrew Kamau declined to divulge any details about Kenya’s  state of preparedness in starting the early export plan that will see the country ‘test’ its crude oil in the international market.

“We will issue a statement soon and invite press when the truck loading starts,” the PS wrote in a text message when pressed to highlight whether Kenya was still optimistic on the June timeline to start trucking the oil to the Coast.

Mr Kamau had recently expressed optimism that the two wells in Turkana County would produce the first cargo of 20,000 barrels of crude in May, a month before the target June date.

FINAL APPROVAL

The British oil explorer also kept most details to itself on the preparedness towards the anticipated launch of the scheme.

The company’s local communications manager Tim Tororey said transport plans to ferry the oil were on time but the firm was still waiting for “final approval” to be announced soon. The firm, however, cited “commercial confidentiality” for not making any public the contracts signed with the Kenyan government regarding the oil.

“We are happy to publish the contracts as we have done elsewhere, such as in Ghana. But other parties, such as the government, may, for understandable reasons of commercial confidentiality, wish to keep them confidential. Tullow agreements with the Kenyan government are subject to the Access to Information Act 2016 through the Ministry of Energy and Petroleum,” Mr Tororey wrote in response to our queries.

The confidentiality explanation, however, contradicts the stance held by the two parties since last year that the early oil pilot scheme was not a commercial activity. Kenya Civil Society Platform on Oil and Gas co-ordinator Charles Wanguhu has already written to the Energy ministry seeking disclosure on the contracts. The civil society group which last year termed the scheme a Sh4 billion loss intimated that they may proceed to court to compel the government to disclose the Production Sharing Contracts with oil companies operating in Kenya.

GUARDED DETAILS

Insiders say beneath the guarded details of the plan lie several difficulties, rush and panic to flag off the first truck of crude oil. The government is said to have resorted to an emergency upgrade of the 296km road linking the oil fields in Lokichar, Turkana to Kitale Town since its hyped construction is only 20 per cent complete. The workers are also said to be experiencing security challenges.

Kenya National Highways Authority is carrying out the Sh31 billion upgrade from the link between Leseru in Kitale to South Lokichar.

The government is also in a tight race against time to complete a new bridge at Kainuk to bear the weight of flatbed trucks ferrying tanktainers filled with 130 barrels of crude.

Transport Cabinet Secretary James Macharia said the roads had been awarded to seven contractors to fast-track their completion, expressing optimism that all will be done by August. “We have had security challenges but we have engaged the Interior ministry to enable smooth progress,” he said.

Political undertones are also said to be raging after the recent public spat between President Uhuru Kenyatta and Turkana Governor Josphat Nanok over a revenue sharing plan. The President criticised those perceived to be opposed to the change on oil revenue sharing between the national and the county government in what analysts say is an early sign of trouble from the local community.

“This should have been a process just to test the waters and to persuade the international market that Kenya is serious about this venture but the turn the discussion is taking now makes the whole experiment prone to faults,” said a Nairobi based analyst on condition of anonymity.

REJECTED BILL

The analyst added: “Politics has set in and Kenya now looks to be struggling to merely create an impression that a bus is moving while passengers inside it know they are not going anywhere yet they are paying the bus fare.”

President Kenyatta had earlier rejected a Bill, which would have given local communities 10 per cent of oil revenues derived from their areas and instead recommended five per cent in October 2016. At an output of 2,000 barrels of crude per day, the country hopes to build a brand in the international market ahead of the move to full commercial production of 100,000 barrels per day either in 2020 or 2021.

Another challenge is that Kenya’s crude is waxy and requires heating during transportation and storage including during the shipping to the international market. Last year, Tullow tendered for 100 trucks and tanktainers to lift the waxy crude to Mombasa. The tender is said to have attracted 45 companies seeking to supply trucks and 30 companies angling for the tanktainers deal.

The trucks, according to the British firm, will adhere to its safety policy, moving at between 50km to 80km per hour.

It is still unclear why testing how the oil is received in the international market, and which may not be instrumental in the making of the final investment decision by the multinationals, will need Kenya to spend Sh4 billion. Trucking and shipping the crude for two years just to test the market has also raised eyebrows.

EXPENSIVE PROCESS

After the September call for 23 tenders to help refurbish the Kenya Petroleum Refineries Ltd facilities for at least Sh1.5 billion, not much progress has been reported.

Analysts are also worried that the country may be derailed from the plan to construct a Sh421 billion pipeline to Lamu should the focus shift to the hectic early plan. If it turns out to be an expensive process as is anticipated, the government will be left with a narrow base to recoup revenue as the expenses will be first deducted before the profit oil is arrived at by Tullow which has already slapped the government with a Sh1.5 billion bill used for her exploration activities.

The firm has since announced intentions to pump at least Sh22.5 billion into appraisal and exploration activities in Kenyan oil fields this year. Tullow, which recently disposed its stake in Uganda to boost cash flow, also denied that it was planning to do the same for Kenya although its books were worrying with the latest loss standing at Sh60 billion and being negative for three years in a row.

But Mr Tororey said Tullow had a healthy cash flow and solid relationship with shareholders, and financiers.