Weak laws turning off oil and gas investors

An uncertain regulatory environment in the mining sector is discouraging investment in Kenya’s oil and gas industry.PHOTO: COURTESY

An uncertain regulatory environment in the mining sector is discouraging investment in Kenya’s oil and gas industry.

According to a study done by consulting firm PricewaterhouseCoopers (PwC), this is denying the country millions of dollars in revenue at a time when global investors are looking to East Africa for new opportunities as low commodity prices force producers to scale down operations.

In the last two years, global crude oil prices have fallen by more than 70 per cent to levels around $50 (Sh5,080) per barrel, with industry analysts saying it might take several years for prices to rebound to triple-digit figures.

Sustained interest

Despite the slump, East Africa has seen sustained interest from both multinational and local energy companies looking to cash in on prospective revenue from newly found deposits of oil in Kenya and Uganda, and natural gas in Tanzania.

However, more than half the investors in Nigeria, Kenya and Angola cited a general concern about regulatory uncertainty in the region as a significant impediment to growing the business in Africa.

“While poor physical infrastructure, local content and skills shortages still feature in the top five hurdles for developing an African oil and gas business, companies feel that they can develop an approach to deal with these issues,” said PwC.

“Clear and attractive legislation and regulation, however, can only be influenced, and without it, companies are willing to simply walk away in favour of working in other regions of the world that do offer this fundamental pre-requisite.”

The findings were presented in the 2016 edition of the Africa Oil and Gas Review, which stated that out of proven oil reserves of 129.2 billion barrels, Africa produced 8.2 million barrels of crude oil per day in 2014. Of this production, 76 per cent came from Nigeria, Algeria, Egypt and Angola.

Early this year Kenya replaced the Mining Act of 1940 with the Mining Act 2016. The new legislation, once implemented, is expected to tackle several key issues raised by both investors and policy makers as impediments to the efficient development of the mining sector.

Some of the hurdles include transparency in mining contracts, and the protection of the rights of indigenous communities and small-scale miners.

The Government is also seeking to conduct Kenya’s first geological survey in over four decades. The survey is expected to map out the country according to the mineral prevalence in each region to improve planning.

The database created will then be used to evaluate and issue out licences and concessions to mining and prospecting companies.

Other proposals include setting up a mineral exchange that will function independently of the existing agricultural commodity exchange, providing more differentiated options for investors.