Kenya to wait longer for oil riches over delayed key licence

Wednesday March 18 2020
By EDWIN OKOTH

Kenya’s path to oil riches is in limbo over permit delays and confusion on when the commercial operation to bring in the petrodollars will start.

Of concern is the costly waiting period that threatens to wipe out the hopes for wealth Kenya has held for years.

CASH COW

This week, British multinational Tullow Oil pushed its target for making the critical Final Investment Decision to 2020 after it emerged that, among other issues, the National Environmental Management Authority (Nema) had delayed its issuance of licences.

With the delay, the recoverable cost, which the explorers will have spent in the process, keeps soaring above the Sh200 billion Tullow now claims to have already spent.

This comes even as fresh concerns emerged that influential individuals are scrambling for oil-related contracts worth billions of shillings.

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Appearing before a parliamentary committee last week, Tullow Oil bosses ducked questions on whether they would provide any Production Sharing Contracts, asking the legislators to seek the information from the Petroleum department instead.

The National Assembly Departmental Committee on Energy, chaired by Nakuru Town East MP David Gikaria, heard that Tullow plans to spend at least Sh500 billion by 2022 when the Phase 1 of full field development will be complete. This does not include the cost of building the heated pipeline, which will cost at least Sh10 billion.

MPs were also told how the ongoing trucking of crude from Lokichar to Mombasa costs Sh2,100 for each barrel ferried, meaning the trucking would have gobbled up some Sh525 million by the time Tullow hits the required 250,000 barrels for export to “test” the market. No audit has been publicly revealed over the expenses and it remains unknown how much of these will be confirmed in the end.

The controversial Early Oil Pilot Scheme, which is suspected to have been turned into a cash cow by well-connected politicians, became an embarrassing topic before the MPs when Tullow managing director Martin Mbogo said a company owned by Turkana South MP James Lomenen’s brother was among its key transporters.

Mr Mbogo said Kapese Transporters had cumulatively received Sh30 billion from Tullow since 2010, prompting the committee to demand a list of companies that Tullow has contracted, including the owners of the Kenyan firms.

SHOWDOWN

The fiery Turkana South legislator denied the allegations and fired back at the MD over his conflicted involvement in the project with National Oil Corporation (Nock), which is headed by his wife MaryJane Mwangi, having bagged an exclusive contract to supply fuel to the project.

Mr Mbogo did not deny his marriage to the Nock MD, saying the Petroleum and Mining ministry had approved their procurement plans with the oil marketer.

The session, which dragged on for close to four hours, also heard that Tullow Oil disputes the exact start date of the oil trucking that was initially delayed after protests by the local community. This has introduced the possibility that the expensive experiment, which has since grown its trucking from 17 in July 2018 to 100 this month, may continue beyond the 2021 date earlier set.

This Wednesday, a showdown is looming between the Tullow management and the MPs who will be demanding to know the ownership of Oil Movers Limited – the firm that supplied the trucks and the insulated transtainers – whose directors Mr Lomenen had raised questions about.

By last week, the trucks had made 1,000 trips between Lokichar and the Coast and had transported 155,939 barrels of oil.

Tullow’s community projects have also become a cash cow, with fears that millions may have been lost to undeserving beneficiaries as the rush for riches before the production begins threaten to tear the project apart. “We signed a Trust Deed that makes it our obligation to ensure that disbursements are made to the correct persons. Our audit has already shown us that Sh3 million meant for school fees bursaries would have been paid to people who are not students and we have rectified this error by identifying students within the community,” Mr Mbogo told MPs.

Last year, the British oil explorer clashed with Nema on a Sh3 billion waste disposal deal from its Twiga 1 site of the Turkana oil fields after the regulator proposed a costly procedure and even nominated Environmental Combustion and Consultants Limited (ECCL), and three other firms — Bamburi Cement (Mombasa), Bamburi Cement Athi River and Environsafe Limited  — to be given the job.

EXPENSES

Analysts believe the latest postponement of the Final Investment Decision by Tullow may be the tip of the  iceberg that may see the project delayed for years, with billions spent but very little or nothing gained from it in the end.

The Kenya Civil Society Platform on Oil and Gas (KCSPOG), which had termed the early oil project as a loss-making experiment, now says the secret pact signed this week may contain elements of cost recovery and the role of the government in the project once it starts its commercialisation.

KCSPOG co-ordinator Charles Wanguhu said the signing ceremony was a signal that Tullow Oil and the Kenyan government had reached agreements that they wanted to remain secret even as the land issue continues to be a hot matter that may delay the project.

“Overall, the signing of the Heads of Terms Agreement is a step forward but falls short of the final investment decision required to ensure the project moves towards development. The land access issues have been further complicated with the court decision that renders Section 2 of the Community Land Act, more specifically the definition of community land,  unconstitutional. It would appear that Kenya’s oil dream is a case of musical chairs with the twist that every time the music stops an extra seat (read hurdle) is added,” Mr Wanguhu wrote.

Part of the musical chairs have been the changing timelines. As early as August 2016, Tullow Oil officials, led by chief operating officer Paul McDale, told President Uhuru Kenyatta at State House in Nairobi that the firm would have enough stocks ready to export by June 2017.

No one knows which tax incentives the National Treasury offered to the firm, with the expected margins from the oil expected to be eroded if the government okays any generous incentives to Tullow.

The joint venture partners had reportedly sought some level of government guarantee to protect them from issues like the stoppages that have plagued the project, a costly clause that exposes the government to expenses incurred from the firms during stoppages and other delays.