Move to cut share of royalties now threatens Early Oil

working oil pumps
A section of the Turkana community has threatened to scuttle Government plans to start exporting oil on a pilot basis scheduled to take place by June this year.

This follows the proposal to reduce the amount the community will earn from the oil when commercial production starts in three years.

The community initially expected 10 per cent of what will be paid to the Government by Tullow Oil once the country starts exporting oil on a commercial basis.

This has, however, been halved to 5 per cent, which is contained in a new proposed law, the Petroleum Exploration, Development and Production Bill, which is likely to be passed by Parliament.

While the Bill is not specific to the oil fields in Turkana County and instead will apply to other areas in future, the county is the only one so far where substantial resources have been discovered.

According to the proposed law, the profit derived from upstream petroleum explorations shall be shared between the contractor and the National Government in accordance with the petroleum agreement.

The Petroleum (Exploration, Development and Production) Bill, 2017 states that the National government’s share of the profits derived from the upstream petroleum operation shall be apportioned between the national government, the county government and the local community.

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“The county government’s share shall be equivalent to 20 per cent of the national government’s share: provided that the amount allocated in accordance with this subsection shall not exceed the amount allocated to the county government by Parliament in the financial year under consideration,” read the Bill in part.

The Bill says the local community’s share shall be equivalent to five per cent of the Government’s share and shall be payable to a trust fund managed by a board of trustees established by the county government in consultation with the local community.

“This is provided the amount allocated in accordance with this subsection shall not exceed one- quarter of the amount allocated to the county government by Parliament in the financial year under consideration.” 

This has not gone down well with professionals from community, who last week said they felt cheated by the Government.

They said the earlier proposal to give the community 10 per cent of proceeds from the sale of crude oil would have enabled locals of the oil rich region shed of the tag of marginalisation.

“While the initial percentage (10 per cent) stood to expose the communities to a constitutionally better social and economic status, the currently anticipated percentage threatens this,” Turkana Professionals’ Association (TPA) official David Ekiru.

“We wish to reiterate that this 10 per cent share will ensure that the lives of the marginalised communities get to a level contemplated by the constitution in terms of roads infrastructure, education, insecurity within and across the borders.”

He added: “We wish to cautiously advice the National Assembly, in the interest of empowering communities and devolution, to refuse any attempt to alter the 10 per cent originally entitled to the community and 20 per cent share to the County.”

Small scale exports

The professionals said they would oppose any plans to move ahead and develop the Lokichar Basin fields including the planned Early Oil Pilot Scheme that is expected to start by June should the Government not reconsider increasing the community’s share of the oil revenues.

The pilot scheme has already suffered several blows including being postponed on the eve of the initial exports in July last year. The Government then cited lack of a legal framework that could enable the small scale exports.

The framework, which also happens to be the The Petroleum Exploration, Development and Production Bill, which went through Parliament last year but President Uhuru Kenyatta declined to sign it into law instead referred it back to the law makers with a proposal to slash the revenue to counties.

The ministry was sure that the proposed rates would have been in place by end of 2017 and clear the way for the pilot, it might be another few months to go through Parliament once it is tabled.

Petroleum and Mining Cabinet Secretary John Munyes says the backstop on the Bill relies on the approval by Parliament.

Munyes said the Bill has been subjected to public participation. The CS, however, emphasized on the importance of community participation especially in hydro carbons and minerals.

“It’s my view that proper consultations are done before the Bill is passed into law. I am optimistic that Kenya will be a successful country in production of oil and gas,” the CS said.

However, most African countries such as Nigeria and Angola have faced the oil curse which has seen conflicts brew in oil producing areas leading to prolonged civil strife and rise of militias.

Despite the stumbling blocks that stand in the way of the pilot project, both the Ministry and Tullow Oil said EOPS is ready to commence in the first half of this year.

Petroleum Principal Secretary Andrew Kamau said other than the enabling legislation, the law is ready. “We are ready… the production facility is being set up and we are now waiting for bill,” he said.

Though it has in the past been termed as an unnecessary loss making venture, Tullow Oil said the project it is expected to give an insight into how the market will react to the Kenyan oil and inform the commercial development.

“We are moving on to early production which will give us more data as we get through 2018,” said Tullow Oil Chief Executive Paul McDade at a briefing with analysts after the firm published its 2017 results.

The challenges that the firm could face from the community over revenues as well as lack of an enabling legislation as it embarks on the pilot project and eventual full field development are in addition to a push by the Government to get the project going and usher Kenya into the league of oil exporters.

Tullow noted that it would be able to cope with the pressure from the Government to deliver value fast as was the case close to a decade ago with Ghana.

“We realise that the oil is not ours but belongs to the countries where we work in. We had the same conversation with Ghana. The Government saw it as an opportunity but only if it was delivering revenue to the country and they wanted to move quickly and efficiently,” said McDade.

Create value

“We are having a similar conversation with Kenya. They want us to move quickly and efficiently. They do not want us to destroy value but instead want us to create value and would like to see the cash flow coming to the country and help the Kenyan.”

McDade added, “We are listening to the Government. As we define how to move forward, one key stakeholder is Government and we have to stay aligned to their requirements even as we have one eye on the shareholder.”

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