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Drilling oil for oil’s sake will be a disaster

COMMENTARY
By By DR MOHAMED OMAR | January 24th 2014

By DR MOHAMED OMAR

There is a clear focus on the role of the oil, gas, and minerals sector in the socio-economic development of the country.

The recent announcement that the Amosing-1 and Ewoi-1 exploration wells in Block 10BB, onshore Northern Kenya, have resulted in the discovery of two new large oil fields, is big news.

These two wells continue the 100 per cent success rate in the South Lokichar Basin with seven out of seven discoveries to date.  

But the excitement must be tempered with a cautionary note on the pitfalls of oil and gas if not well managed or planned. To ensure Kenya optimises the potential of its resources and avoids challenges faced by other nations, a number of imperatives must be in place.

First, a successful extractives industry hinges on a clear vision and long-range planning. On account of the potential significance of the sector to the economy and also of the complex nature of the industry with respect to timelines, need for skills development, and infrastructure, a clear vision and policy direction becomes very vital.

It is in recognition of this fact that the oil, gas and minerals sector has been, incorporated into the Vision 2030’s second medium-term plan, as the seventh sector of the economic pillar. The implication here is that a transformed and competitive extractive industry will be a key driver of foreign investment in Kenya. This calls for a fundamental shift in the way the extractive industry is conceptualised and structured.  The idea is to look at the oil, gas and minerals as an ecosystem with several components, including exploration, production, research and development, trading, services, training and skills development, as well as logistics and supply chain management.

Each of these will eventually generate revenue thereby diminishing the reliance on the extractives alone. Should the natural resources be, depleted in years to come, there will still be a vibrant cluster of related economic activities that will contribute to the country’s economic growth.  Countries whose natural resources have not translated into socio-economic development failed to leverage on related revenue streams.

The second important element is the development of robust legal and regulatory framework to govern the industry. This offers the broad framework within which the sector can be, managed and run. This may include tax regimes, criteria for sharing proceeds from the industry, mechanisms for undertaking geophysical survey, and possible incentive packages for investors.

A clear and sound legal and regulatory framework will help inform and clarify issues related to royalties, foreign and domestic stakes, and engagement with the local communities where the resources are, found, and the interactions between the national and county governments in matters pertaining to the said resources.

Third, what is today a nascent industry revolving around oil and gas is expected to grow in the coming years if the designated oil wells are proved to have reserves that meet the threshold for commercial viability.

Throughout that growth process, transparency and accountability will have to be the defining features that characterise the approach to governance among all stakeholders including investors, communities, counties, and the national government.

The fourth imperative relates to the status of human capital development of the population to, actively participate in the industry particularly in terms of vocational and entrepreneurial skills. The question here is, what is being done today with respect to skills acquisition in order to fully prepare for the oil that is expected to flow and the minerals that are to be extracted in the coming three to five years?

At that point, engineers who can conceptualise and design projects will be required but equally important are the middle-level technicians with hands-on vocational training. Indeed, a critical mass of young people should immediately be, enlisted to join apprentice-type vocational programmes to prepare them for the task ahead.

Similarly, people with entrepreneurial zeal to act as contractors, suppliers, and logistics providers need to be trained and supported in anticipation of the numerous opportunities to be availed by the extractives ecosystem.

Infrastructural and institutional development forms the final pre-requisite for a successful oil, gas and minerals sector. A series of facilities and support infrastructure will have to either be developed afresh or upgraded if they already exist.

The writer is the Director, Economic Pillar at the Kenya Vision 2030 Delivery Secretariat (VDS) http://www.vision2030.go.ke/

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