Kenya to wait longer for the oil trillions

Tullow Oil. (Photo: Courtesy)

Kenyans may never know details of how trillions of crude oil revenue would be shared between the government and foreign producers, amid soaring opacity over every aspect of production so far.

This is despite a vow by President Uhuru Kenyatta to promote transparency at an international forum three years ago, and passage of a law enabling public access to information.

Long-standing dispute

Now, the proceeds from the sale of the oil is at the centre of a long-standing dispute in the oil-rich Turkana County, even threatening production and evacuation before exportation for refining.

Tullow Oil, the British exploration firm which claims to have spent nearly Sh200 billion recoverable from proceeds of oil sales, says it has no problem publishing its production sharing contracts.

The government, however, insists on maintaining secrecy, and has made no effort yet to audit the reported expenses incurred by Tullow.

Petroleum PS Andrew Kamau said confidentiality about the contracts will be upheld because the country does not have a uniform agreement for the various exploration companies.

“If we do that right now when we are just starting, other companies will want to be given the same agreement as Tullow,” said Mr Kamau.

But Martin Mbogo, Tullow’s country manager, contradicted Kamau's position, saying his firm had published similar contracts elsewhere.

“We have encouraged the government that we take no exception in disclosing those contracts,” he said, citing that Tullow’s contracts in Ghana are public.

Interestingly, though, Tullow published the contracts in Ghana where it started producing oil within three years of discovery in 2010.

It is however unclear how different companies would demand the same treatment yet the oil blocks are not homogeneous. In any case, the exploration companies are only looking for business opportunities and that as the seller, Kenya cannot be compelled to offer any specific terms.

Kamau’s sentiment flies in the face of his boss, President Kenyatta, who told a meeting in the US that he “absolutely” advocated full disclosure of oil contracts.

Uhuru, in his address, said secrecy in such contracts had been a cause for turmoil in other countries, and Kenya was keen to avoid going down the same route – to the approval of his audience.

Kenyatta has clashed bitterly with Josephat Nanok, the Turkana Governor, over how the oil revenues would be shared between the national and county governments. Mr Nanok is demanding 30 per cent of the revenues earned by the State to be shared between the county and local community.

The President holds that the local community should be entitled to only five per cent, while the county would get 20 per cent but with a rider that the amount should not exceed double the allocation from the national government.

But even in the standoff, Nanok is in the dark over the amount of total expected revenues since the sharing formula with the oil firms remains confidential. The governor’s position is shared by many of his constituents who may frustrate any future attempts to evacuate the oil from the fields.

Besides the secrecy around the contracts, the government has repeatedly lied about the progress at the oilfields and the much-publicised Early Oil Pilot Scheme (Eops). So far, it has postponed three attempts of executing Eops, with each postponement having its own unique excuses.

Initially, the government had announced an export date of September 2016, before it was pushed to January and later June 30.

Mr Kamau now expects that the pilot scheme – a push propagated by the government, would start in February despite the myriad of existing challenges, including a disenfranchised local community.

But the reality on the ground and the demands being made by the residents of Turkana County before the production of oil starts means this might be a tough deadline to beat.

Key among the demands Sunday Standard has established, is tarmacking of the 512km Kitale-South Sudan road.

"No oil will leave these fields unless this road is done, that is a fact and they know it," John Baraka, a local activist in Lokichar says.

"It will be a disaster if they try to force their way because this community feels it has been neglected for so long that they have nothing more to lose," he says.

Because of the long distance and the government's eagerness to start exporting crude, seven contractors were awarded deals to construct the road last year. Construction works were launched by Deputy President William Ruto in November.

However 10 months on, evidence of the difficulty of constructing a road in a heavily armed area are already showing.

Construction is slow due to the distances involved when ferrying materials and disruptions by armed gangs who attack the sites and steal from the workers. The worst affected areas are Marich Pass and the Kainuk region where Turkana County borders West Pokot.

Kenya has also been flip-flopping on when an audit of the expenses booked by Tullow would begin, considering that the costs are fully recoverable.

Long-due audit

Mr Mbogo said the audit requirement as per the contract is every two years.

But since Tullow’s arrival in 2010, the government has been unable to find and contract a suitable auditor after three failed attempts, including one which was called out by the World Bank after the quoted prices was too high.

Tullow Kenya BV, which is so far the only company that has discovered significant amounts of crude, is registered in British Virgin Islands, Guernsey, Isle of Man, Jersey.

The company claims it has so far spent Sh200 billion to drill 40 wells in the Lokichar region. The costs must be recouped from the crude oil sales once production starts.

“Matters of audit are standard practice there is nothing unusual. They (government) are actually late in doing so. We have kept our books open including now. In reality, they have written letters to say that they will come and audit,” said Mr Mbogo.

He is lost on why the State would be unwilling or unable to do the audit.

His firm is now caught up between politics between the national government and the Turkana County Government.

For the residents of Turkana, however, especially those living at the Kainuk region which has been marred by endless conflict between the Turkana and the Pokot, Tullow is a new enemy.

“We are now caught up between two enemies. The Pokot want our cows and the oil company wants our oil for free,” one woman who lives at the dangerous border says.

Among the reasons the community is aggrieved is the land compensation process. They say the Sh7 million Tullow pays for each piece of land where it is drilling for oil is too little and they want more.

Tullow, however, says the money it pays is not compensation and is only an access fee since it has not started production of the oil. Instead, it blames local politics for the standoff, saying it is slowing down the exploration process.

“The language of compensation does not arise until you get into full field development where you will say I need some land for 30 years. Then you can talk compensation because there will be loss of value of the land,” says Mbogo.

A recent study by Oxfam – a British NGO -- reported that 85 per cent of the companies prospecting for oil in Kenya, including Tullow, are registered in tax havens, meaning once production starts it will be difficult for the Kenyan government to monitor how much these multinationals will be raking in.

More prospects

Kenya has four potential oil producing basins divided into 46 blocks. Licences to explore in these areas are issued by the Ministry of Energy.

The rights can either be granted to a single company or to a consortium which in petroleum parlance is known as a “joint venture.”

The company with a majority of the shareholding is known as the “operator” and is the lead in the project. It makes all the major decisions related to the sites operated by the consortium and acts as a link between the government and the oil exploration exercise.

There are at least 41 active petroleum licences in the country where 35 separate companies have a stake through subsidiaries. These subsidiaries are owned by 27 parent companies. Seventeen of these parent companies which are all multinationals are registered in tax havens.