Kenya’s oil business needs strict controls

In Summary

• A major concern is the fact that Tullow Oil is pulling out of the project and ceding its investment to other investors.
• But the unstated fact is that the project is not viable, yet billions have been pumped into it.
• The exploration firms burnt their fingers and learnt lessons, which is why they can no longer keep digging.

By EDITORIAL
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Kenya celebrated when British oil and gas company Tullow announced the discovery of oil in Turkana in 2012 after years of exploration. For a country that depends on agriculture, this oil find was a godsend. If all went according to script, Kenya would join the ranks of oil exporters with the attendant wealth. Underneath the excitement, however, were many unanswered questions.

Was it factually correct that Kenya had huge amounts oil underground? Were the exploration firms and their business associates adequately prepared for full-fledged extraction, processing and exportation? Was the government properly briefed on the actual status of the oil finds and what awaits the country? Was there proper infrastructure to facilitate oil trade?

Emerging information is giving a different scenario. Investigations by this newspaper and weeks of careful analysis of the goings-on at the oil fields and business plan of Tullow Oil indicate that all is not well. The company is easing out of the deal because of a financial crunch. Its business operations elsewhere are hurtling down the cliff. Exploration is prohibitively expensive and there is no proper infrastructure to support the oil business. Whereas in organised economies crude transportation is through pipelines, Kenya’s oil is loaded on trucks and transported by road from Turkana to Mombasa, more than 800 kilometres away. That is capital-intensive. Moreover, Turkana is an insecure locality and therefore truckers are badly exposed.

In June last year, President Uhuru Kenyatta launched the trucking of the oil from Lokichar to the storage facility in Mombasa, where the consignment was stockpiled for months before being exported. After the initial stunts, everything has gone quiet and nobody knows where the oil project is headed.

Generally, the entire oil plan was convoluted, bureaucratic and expensive. Kenya cannot make money from the oil through the model it has adopted. Something is patently wrong.

A major concern is the fact that Tullow Oil is pulling out of the project and ceding its investment to other investors. But the unstated fact is that the project is not viable, yet billions have been pumped into it. The exploration firms burnt their fingers and learnt lessons, which is why they can no longer keep digging when already in the hole. Neither does the government stand to benefit.

The Petroleum and Mining ministry has to clarify the issues. Our oil discovery is sounding like a hoax. Unless properly checked, we risk being exploited by scheming dubious investors.