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National oil to lose powers as new regulatory unit is mooted

FINANCIAL STANDARD
By Macharia Kamau | Jul 17th 2018 | 4 min read
By Macharia Kamau | July 17th 2018
FINANCIAL STANDARD

NAIROBI, KENYA: National Oil Corporation of Kenya (Nock) is set to lose regulatory powers as the Government starts setting up an oil and gas regulator.

The new entity, the Kenya Petroleum Regulatory Authority, will oversee the exploration and production of oil and gas in the country.

The Ministry of Petroleum and Mining last week started the search for a consultant who will advise the Government on setting up the regulator proposed in the Petroleum Bill currently going through debate in Parliament.

Setting up an authority to oversee operations among companies exploring and eventually start producing oil in the country is among the priorities for the ministry as Kenya prepares to start production of oil commercially.

Some of the functions of overseeing the upstream industry are undertaken by NOCK as well as by the Ministry of Petroleum, which Petroleum Principal Secretary Andrew Kamau said would be hived off and transferred to the regulator.

“The consultant will review everything and see where the expertise is… it will look at the existing framework on how the upstream industry is regulated and make recommendations on what will be undertaken by the regulator. Some of the functions are carried out by Nock and the others by the ministry,” he said in an interview.

While Nock’s mandate includes the development of the upstream oil and gas sector - including marketing Kenya’s oil blocks as well as some regulation aspects - it has in the past found it difficult to execute this specific role owing to being a player in the sector as well.

Conflict of interest

The state-run oil firm has in the past made an attempt to audit companies exploring oil in the country but industry players raised concerns about a possibility of the conflict of interest.

Nock has been licensed to explore for oil in Block 14 T in Kajiado.

In a statement last week inviting firms to bid for the consultancy job, the Ministry said the selected company will design how the regulator would operate, including making recommendations on the staffing and organisational structure.

“The objective of this assigned is to develop an organisational structure, job profiles, businesses processes and institutional procedures for the establishment and operationalisation of the Kenya Petroleum Regulatory Authority covering the down, mid and upstream value chain,” said the ministry.

“This will enable the Government to effectively establish an independent and transparent functioning authority with its mandate as stipulated in the Petroleum Bill.”

While the consultant’s job will also include looking at how the downstream segment of the industry is regulated, a role that is undertaken by the Energy Regulatory Commission (ERC), Mr Kamau said the commission’s functions will remain largely unaffected.

ERC currently shuffles between the ministries of Energy – which oversees the electricity sector – and that of Petroleum and Mining that is charged with overseeing extractives including oil as well as the downstream aspect that deals with refined petroleum products and cooking gas.

Upstream sector

Kamau said the functions of the planned petroleum regulator will be limited to what has been set out in the Petroleum Bill, which is more limited to the upstream sector.

Some of the functions of the regulator, according to the Bill, will include the licensing and supervision of oil exploration and production companies operating in Kenya including auditing the costs incurred while undertaking their activities in the country.

Among the immediate tasks for the regulator will be to steer the country as it starts preparations for commercial production of oil discovered in Lokichar by Tullow and its joint venture partners.

The Final Investment Decision is expected to be made next year.

It will stipulate what role and investments every player, including the Government, will make towards commercialising the Lokichar finds.

The regulator will also take over the auditing of investments made by Tullow in Lokichar, currently being overseen by the Ministry.

The company is expected to start recouping from its investment once commercial production begins.

Tullow Oil has in the past said it has spent over Sh150 billion ($1.5 billion) in the Turkana oil fields since it started exploring in 2010.

The investments have since gone up and are expected to increase further as the firm and its joint venture partners get into an intense phase that is expected to lead to commercial production.

The firm is also undertaking the early oil pilot scheme that is expected to see an escalation of costs and which is estimated to cost at least Sh4 billion.

The ministry recently identified a firm, Swale House Partners, that is now undertaking an audit of the expenses that Tullow Oil has incurred in Lokichar between 2010 and 2016.

The consultant’s findings are expected to be out early next year and will be taken over by the regulator.

 

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