Kenya sells its first oil to China

A Chinese State-owned petroleum multinational has won the deal to buy Kenya’s maiden crude oil export, giving the Asian nation an upper hand in negotiations when the country moves to commercial production of the commodity.

The maiden shipment of 200,000 barrels of crude from Mombasa is scheduled for next month.

Petroleum principal secretary Andrew Kamau Thursday revealed that ChemChina (UK) Ltd won the bid to lift the Turkana oil, in what marks Kenya’s entry into the league of oil exporting countries.

The Chinese firm, which is the oil trading arm of ChemChina Petrochemical, is engaged in crude oil trading, storage and procurement for ChemChina’s refinery companies.

The firm also has a presence in West Africa, according to its online profile.

“Kenyan government and Tullow Oil Plc together with its Joint Venture Partners in Kenya (Total and Africa Oil Corp) are pleased to announce that ChemChina UK Ltd has been selected as the buyer for Kenya’s first crude oil export.

The firm was selected on the basis of its offered price and according to standard international terms,” Mr Kamau wrote in a response to enquiries on where the crude from Mombasa would be shipped.

The disclosure comes two weeks after President Uhuru Kenyatta announced the Sh1.2 billion ($12 million) sale of the crude trucked from Lokichar to Mombasa over the past one year.

At the current brent crude price in world markets, the sale value represents at least $61.99 per barrel.

Mr Kenyatta’s announcement, however, fell short of disclosing the buyer and the destination of the crude, a detail kept under wraps by both the government and Tullow Oil.

By yesterday, the British multinational had maintained it would not reveal the buyer of the crude, citing a non-disclosure agreement.

“The process was competitive; a group of target buyers was invited to bid for the crude with the winning bidder selected based on the price offered.

The Joint Venture Partners in collaboration with the GOK were involved throughout the process” Tullow country manager Martin Mbogo wrote before the PS disclosed the name of the buyer.

The entry of China into Kenya’s crude oil business signals a new milestone for Chinese interests in the country.

Petroleum analysts in and out of government intimated that the mention of China in the oil project was deemed unpopular given the piling debt Kenya has accumulated from Chinese lenders, with the possibility that the public would view it like a debt swap.

China remains Kenya’s top bilateral lender with the debt currently standing at Sh620 billion, according to the latest official data. The country also remains the biggest source of imports to Kenya with Sh370.8 billion worth of goods sourced from the emerging Asian giant last year.

The crude oil export could, however, work to bridge the Sh360 billion trade imbalance between the two countries, as trade relations expand into oil.

The revelation on the destination, however, still leaves many questions unanswered, with no public production sharing contract to tell how much of the Sh1.2 billion will be shared between the Kenyan government and the Joint Venture Partners.

The Petroleum Act, 2019, provides for profit sharing between the National Government (75 percent), County Government (20 percent) and the local community (five percent) but the amount to be shared will only be known after the cumulative cost of the Early Oil Pilot Scheme is known and a formula agreed on how the cost will be recovered.

A coalition of 16 civil society organisations under the Kenya Civil Society Platform on Oil and Gas said the government was violating the Constitution and breeding mistrust by concealing details of the oil project contracts.

KCSPOG co-ordinator Charles Wanguhu said the lack of a clear revenue sharing with the local community may complicate the smooth progress of the project, which has been prone to interruptions from civil unrests in the past.

“EOPS has been shrouded in secrecy since its flagging off in June 2018. This has brought about issues with the host community who in June 2018 had a 30-day stand-off and halted the project temporarily. It is likely, the local community in Turkana shall rightfully expect a share of the $12 million – yet the Government may be unable to remit it under the EOPS PSC. This situation can be clarified and remedied by disclosing the PSC for EOPS,” Mr Wanguhu said.