Increased transparency and information will help manage expectations in oil and gas sector in East Africa
A lot of column inches have been exhausted recently on the regional pipeline debate. Will Uganda go with Kenya or Tanzania? Is Kenya going alone? Can it go alone? However, a key component missing from the conversation on the pipeline route is the economics of both the Ugandan and Kenyan project. What potential revenues could be achieved through the oil resources to justify a $4 billion dollar pipeline.
This week a group of organisations including the platform on oil and gas in Kenya launched an analysis “Potential revenues from Turkana oil” from the Turkana proposed oil development. The report seeks to inform debate on the project and more crucially collates information from different sources. A similar piece of work was undertaken in Uganda by Global Witness in 2014 and offered a review of the economics of the Uganda project .
The platform report indicates revenues to the government of Kenya peak in the late 2020s at USD 650 million per year with oil prices at $45/bbl and at USD 1.7 billion at $65/bbl. While the sums are not small the report highlights a short window of peak revenues with a rapid decline after peak production in late 2020’s. This calls for a prudent approach to planning for these future revenues including ensuring that pipeline costs and the subsequent tariff are kept low.
The report highlights the importance of managing expectations around future revenues while presenting a profile of likely revenues. The issue of governments tracking costs accrued is a key determinant of the ability to access future revenues. While there are limits to analysis based exclusively on public domain information, it also points to the need for increased transparency and accountability in the oil and gas sector in Kenya.
Transparency in the developing oil and gas sector in the broader East Africa region is limited with citizens left to glean information from public officials quoted in the press. Civil society interventions promoting transparency and accountability are therefore a critical cog in debate on in the sector.
On a positive note the Kenyan Government committed at the highest levels to make its Production Sharing Contracts public. In the Joint Communiqué emerging from President Obama’s visit in July 2015, the President of Kenya agreed to “adopt a “transparent policy and legislative framework” for the oil and gas sector, including […] publication of contracts between oil companies and the government.” One year earlier, while on a visit to the United States, President Kenyatta responded to a direct question about whether Kenya would disclose the production sharing contracts by saying “absolutely.” Additionally the new Petroleum Bill (2015) is explicit that in the future the contract is “a public document and that the Government shall have the right to publish and keep it publicly available.”
Both the Uganda and Kenya analysis shows that both countries have negotiated comparatively good contracts considering that they had both no confirmed oil finds during the signing of the initial contracts. The global witness analysis report went as far saying the Ugandan government should be congratulated for getting “better financial deals”.
The monetisation of these resources calls for combined partnership to ensure that the significant costs to be borne by countries in the transportation of the oil is minimised to maximise revenues to the East African Nations coffers. These revenues if managed correctly can have a huge contribution in the development of the two nations and especially in the regions where the resources are located.
Going forward, the report points to the need for adequate communication with publicly declared timelines largely unrealistic. In illustration the Toyota tsusho report indicates that the minimum period of time to build the pipeline is three and a half years. As a result, 2021 is currently the best-case scenario for first oil exports from Turkana. However, the risks of further delays due to pipeline complications and low oil prices are high, making first oil production well beyond 2021 a more realistic prospect.
Uganda and Kenya should take the time to first oil to ensure communities concerns around benefit sharing, environmental standards and other crucial regulatory frameworks are up to speed. Disclosure of contracts signed will also enhance transparency and help throw light on the sector as projects in both countries move from discovery towards development and eventual production.
The writer is the platform coordinator at the Kenya Civil Society Platform on Oil and Gas The report is available at www.kcspog.org. Oxfma is a founding member of KCSPOG