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Business and Development

Will Kenya’s crude oil export match that of other profit-making countries

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Kenya is now officially recognized as an oil exporter after shipping its first-ever consignment in August 2019. The shipment of 2,000,000 barrels earned the country $12 million. Although many citizens are excited about future prospects, experts say that full commercial production won’t happen for some years to come. 

There are mixed feelings about the ‘black gold’ discovery in Kenya and a lot of speculation is rife on how the oil export sector will be run and more importantly, how the revenues will be shared. Many oil-producing countries in Africa have experienced lots of upheavals as far as oil management is concerned and the big question is, could Kenya be headed down the same path?

Discovery

Kenya’s mining and exploration industry has focused more on other mineral deposits and largely overlooked oil in the past. Oil exploration activities have been few and far between. It’s not until 2012 that a significant oil reserve was discovered in northern Kenya by Tullow Oil, a British company.

The estimated oil reserves in the Turkana site range between 500 and 700 million barrels. This is a great boon for a largely desolate region with minimal economic activity.  Tullow Oil and Africa Oil have also conducted explorations in another part of northern Kenya known as Kerio Valley which is said to have up to a billion barrels underneath its rich earth.  Unfortunately, these resources may not be able to be exploited fully due to sub-par infrastructure.  The closest port of export is also far away and no direct pipeline has been set up yet.

Ownership and legislation

Simmering tensions have cast a cloud on Kenya’s oil discovery with the local residents claiming that they have not been included in the allocation of revenues from the oil proceeds.  Tullow Oil owns a 50% stake in the overall project with Total and Africa Oil Corp each holding a 25% stake.  The combined investment from all investors stands approximately $2 billion. 

In a bid to preempt any future disputes, the Kenyan government is putting in place policies that will help steer the oil industry. In March 2019 President Uhuru Kenyatta signed into law The Petroleum Bill that will guide the processes of oil exploration and production.  The bill also outlines the sharing of revenues between the national government, county governments, and local communities. 

Under the new law, the national government will receive 75% of oil export returns owed to it by the oil companies, while the local government and Turkana community will get 20% and 5% respectively.  The local community had initially insisted on getting half of all the revenues as well as monthly stipends for the families that will be directly affected by oil production activities. 

There have been several protests by Turkana residents, including a major standoff during the shipment of the first consignment in August 2019. The locals were later reassured by government officials that their plight will be heard, however, a status quo seems to have prevailed.

How can Kenya catch up to other major oil producers?

The first shipment of 200,000 barrels earned Kenya just over $10 million in foreign earnings but this is a far cry from what other countries are producing.  According to research data, the estimated reserves in Turkana and Kerio Valley are enough to make Kenya a major oil export earner.  If this is to happen, a number of issues need to be addressed to ensure that oil resources are sufficiently exploited and revenues shared equitably.  

  • Improving Infrastructure

As earlier mentioned Kenya has not yet invested adequately in setting up structures to support the oil industry. Most of the investment has been done by private companies with some intervention from the government.  For instance, improvement of the current pipeline and a new line from the Turkana to the portside city of Mombasa would be a great step in easing the overheads as far as transportation of the commodity is concerned.  Currently, oil consignments are transported by road to Mombasa. 

  • Homegrown Training

Currently, the only institution that offers courses in Oil-related studies in Kenya is the Petroleum Institute of East Africa. Many of those interested in this field have to go abroad to get certification and often end up working abroad.  A localized curriculum and additional institutions would be a good way of attracting young people to this sector.  This will also help in creating an employable skill-pool from within the country.

  • Public Participation

The intermittent standoffs between Turkana residents could be addressed with better civic education drives and more public-private partnerships.  Once the public is aware of their involvement in this sector, they will be more informed and have a sense of ownership of the resource.

  • Research and Development

Oil and gas research projects should be established in conjunction with tertiary institutions of learning. With the right government support, Research and development initiatives will study the sustainability of the oil sector and find ways to stimulate its growth. 

  • Corporate Social Responsibility

All the stakeholders involved in Kenya’s oil sector should be compelled to establish charitable and development programs that benefit the frontline communities.  This will go a long way in improving the livelihoods and wellbeing of the residents.  

 

  

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