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Let us get oil pipeline to Lamu before Ugandans reach Tanga

Wednesday February 20 2019

Oil trucking

Trucks transporting crude oil from Lokichar in Turkana in June 2018. PHOTO | FILE | NATION MEDIA GROUP 

JAINDI KISERO
By JAINDI KISERO
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If I were Dr Fred Matiang’i, one of the projects I would give priority is the Kenya oil project. The minister should make sure that the oil pipeline from Lokichar to Lamu is completed before the Ugandans reach Tanga with theirs.

Why is it important for us to get there before Uganda?

URGENCY

It makes strategic sense for us to hit the international oil chain before our neighbours get there. Didn’t they thump their noses at us when they decided to route their pipeline through Tanzania, ostensibly because of insecurity and expensive land in our country?

Dr Matiang’i should deploy his newly acquired clout to drill a new sense of urgency in the execution of this critical project.

The joint venture partners and the potential financier, who are waiting in the wings for the right signal before they take the plunge, have lately been grumbling loudly about how the project is suffering an acute form of bureaucratic lethargy.

As things stand, it is way behind timelines agreed on and signed by the government and the joint venture partners several months ago.

When I inquired about the status of execution recently, all I heard were sensational stories about tension, mutual suspicion and personality disagreements between key players in the negotiations delaying progress. The air is rife with rumours and claims that cannot be substantiated.

Dr Matiang’i must move in to dismantle the fiefdoms around the project, restore clear lines of command and remove this important project from that clutches of power seekers.

As it is, intrigues around the negotiations have made it impossible for the government and its partners to arrive at the critical milestone referred to — in jargon — as the Final Investment Decision.

VIABILITY

From what I gather, the main sticking points are the following:

First, commercial agreements — the so-called heads of terms — which have to be signed to enable the project to progress to the stage of preparations and arrangement of finances are taking long to be signed.

Secondly, the negotiating parties have been arguing and going around in circles about the appropriate threshold on the internal rate of return to be adopted in designing the financial models.

Thirdly, the parties are unable to agree on the fiscal incentives — mainly tax breaks and waivers — which the government has been asked to offer to improve the financial viability of the project.

Behind milestones

Finally, a deal is yet to be struck on the fast-tracking of land acquisition on the pipeline route.

The project is nearly 12 months behind milestones, some of which were agreed with joint venture partners as far back as August 2017.

If I were Dr Matiangi, I would shake up everything and escalate and make sure that I have insulated the project from the self-absorbed bureaucrats who are yet to appreciate that it is bound to be a game changer in the economic fortunes of this country.

If ‘first oil’ happens as planned, by 2022 — and if we produce the volumes of crude oil as projected — the boost to the Exchequer will be substantial. Indeed, Kenya is on the brink of witnessing the biggest inflow of FDI in recent memory. As a country, we are at a very critical stage in terms of the transition to being exporters of crude oil.

MOTHERSHIP

Make no mistake: I am not suggesting that we should not be tough with the three joint venture partners and that we should just negotiate away national interest to Tullow, Mersk and Africa Oil.

However, when dealing with international investors, you must demonstrate more faith in negotiations and in bargaining as you strive to reach closure in negotiations without unnecessary delay.

There are many aspects of the Kenya oil project that we should still debate.

I am not too convinced that we should go into the project without thinking about value addition. For instance, we are not thinking about building a refinery.

And we are yet to make up our minds on setting up a proper institutional framework for ownership, and for managing oil exploration, transportation and exports. In many oil-producing countries, this role is played by national oil corporations.

Although we have had our National Oil Corporation (Nock) for many years, we have agreed not to involve it in the new arrangements.

Despite the fact that we have been operating our own pipeline company — Kenya Pipeline Company — for four decades, KPC is nowhere in the Kenya oil project.

We are going by a mode where both the oil wells and the pipeline will be a consolidated asset. There will be no investment in storage facilities and crude oil will be pumped from Lokichar into a mother ship — also owned by the joint venture — that will be waiting at the Lamu Port.

All said and done, let us move quickly on the pipeline.

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