Let corporates tap opportunities in oil, gas

In a recent forum where the Kenya Pipeline Company was engaging its customers — the oil marketing companies, the newly appointed principal secretary for Petroleum, Mr Andrew Kamau, challenged KPC, to aspire to be bigger than Safaricom, the region’s most profitable company.

Let us put some facts and figures into perspective. Safaricom recently announced a 38 per cent rise in profit after tax from Sh23 billion to Sh31.9 billion for the year ended March 31, 2015, with much of the growth coming from non-voice services.

These figures hardly compare with KPC, which posted a profit after tax of Sh7.2 billion for the year ended June 30, 2015, but there is a cardinal lesson that public institutions must learn from Safaricom — diversification of business lines.

The fact that Safaricom’s growth is now a function of non-voice services — what many would have termed ‘non-core’ business for the company — is a distinction that the telecommunications giant should be commended for.

Recent discoveries of oil and gas reserves in Eastern Africa, specifically in Kenya, Uganda, Tanzania and Mozambique have the potential to transform these economies and enable them scale new heights.

According to an African Development Bank 2015 report, East Africa will record the fastest growth on the continent in 2016. It’s growth in 2016 will be 6.7 per cent, making the region the most attractive on the continent.

ACCELERATE JOB CREATION

This demonstrates that the East African countries continue to exhibit resilience in the face of global economic adversity despite threats such as lower oil and commodity prices, bad governance and political uncertainties that could thwart growth.

If well-managed, these resources could be fundamental in meeting the huge infrastructural deficits that characterise the region and continent. The resources could form the basis for agricultural transformation and investments in key aspects of human capital such as education and health.

The oil and gas resources, therefore, present a great opportunity to sustain high rates of growth in the region and accelerate job creation.

But this portrait of success will be a mirage for the region if we don’t build strong and focused institutions, public and private.

These will play a pivotal role in utilising these resources in trans-boundary settings so as to tap the ultimate economic benefits accruing from these resources.

The East African countries must determine how to avoid the ‘resource curse’, whereby rising resource revenues lead to volatility, rent-seeking and corruption.

The new oil and gas economies in Africa have examples from which to learn and can choose whether to follow a path that leads to the curse or to blessings.

The link between natural resources and development is good corporate governance. Without appropriate institutions of governance that ensure accountability and transparency, natural resource endowments are unlikely to translate into positive developmental outcomes.

CHANGING VERY FAST

Now is the time for in-depth discussions on how these natural resources should be managed.

In light of this, KPC acknowledges that the oil and gas sector is changing very fast and presents various challenges and opportunities.

This has led to the crafting of a 10-year corporate strategic plan to take the public body to the region as Africa’s premier oil and gas company.

Africa must start asking itself critical questions: How can the oil and gas revenues be captured and invested wisely? How can the continent prudently convert the below-ground assets into above-ground assets that can yield an adequate rate of return to stimulate economic development?

KPC’s expansion strategy partially answers these questions by underlining creation of value from emerging opportunities in the sector through a comprehensive look at our business model.

With analysts concurring that East Africa is fast becoming one of the world’s most interesting oil and gas hotspots and can be expected to attract tens of billions of dollars of investment over the next decade, Kenyan institutions have a perfect opportunity to dominate the regional oil and gas commerce.

This must go hand in hand with prudence on how to invest the additional revenues in the much-needed infrastructure projects such as schools, hospitals, roads and sanitation.

The writer is acting managing director of Kenya Pipeline Company