Why Kenya could take long to begin oil exports

It was a long while since Turkana oil featured in the news, with many wondering what became of the project. However last week the subject was back in the radar as the government and the project joint venture partners (Tullow, Africa Oil and Total) signed a framework agreement for the oil development project (Heads of Agreement).

This should now permit the investors to work on technical and financial evaluations, and project funding that will enable them to make their final investment decision (FID).

Why it took over one year for the government ministries to develop consensus among themselves on critical terms of the agreement we may never know, but it can only be hoped that the terms agreed are reasonable to both Kenya and the investors. The details of the agreement are confidential, a fact that is already raising public and stakeholder concerns.

As announced, the agreement covers commercial and fiscal terms (costs recovery, revenues and applicable tax structure) which will govern the phase one development and commercialisation of some 60-80,000 barrels per day (bpd) of oil from three discoveries in the South Lokichar basin. It also covers the oil export pipeline from Lokichar to Lamu, which will be developed simultaneously but as a separately owned investment.

With the delays already encountered, it is now evident that the first oil export will be flagged off by the next government after Jubilee as it will now happen after 2022. The investors had hoped to make their FID in 2019 to allow for first oil within 2022. The FID is now postponed to 2020 with three-year construction hopefully commencing in 2021 for completion and first oil in 2023.

However, cognisant of how Kenyan governance systems work, I am still sceptical that a 2020 FID can be achieved by investors. This is because three critical investment decision enablers are stubborn no-walk-over issues involving stakeholders, communities and even politicians.

The first outstanding item is the Environment and Social Impact Assessment (ESIA) field review by NEMA which can take time due to potential stakeholder push-back. The second item is acquisition of land for the oil production facilities and the pipeline. Experience from the SGR shows that this can be a time-consuming exercise especially when it involves community land.

The third enabler is water which is required for injection into oil producing wells to push the oil out of the ground. Estimates put the amount of water required at one barrel of water for every barrel of oil produced.

The water is planned to be piped from Turkwell Dam in the neighbouring West Pokot County, and this I am sure will involve negotiations with the county.

All the above will be taking place at a time when political attention at both national and county levels is prematurely diverted to 2022 elections, which will impact the quality of engagement and attention necessary to conclude FID inputs.

I would wish to be proved wrong on my scepticism. However, the government will need to quickly re-establish the momentum, interest and attention that have apparently declined on the subject of Turkana oil. Fast-tracking institutional and technical capacity building within the government is utterly necessary for timely reviews, decisions, and approvals to facilitate investment decisions and project execution. Improved public communication on the subject will greatly elevate public understanding and perceptions.

Diverting to Uganda, it is always of interest to learn how Uganda is faring with their oil projects. At various stages of investment planning and commitments, Uganda projects include crude oil production facilities in the Lake Albert area, a crude oil export pipeline to Tanga in Tanzania, a 60,000 bpd refinery in western Uganda, and a major products terminal near Kampala to receive and distribute products from the refinery.

The timeline for Uganda first oil export is now 2022 while production from the refinery is start in 2023/4. Critical issues do arise in Uganda, but focus and momentum are rarely lost.

Finally in respect of Turkana oil, we need to recreate lost momentum to accelerate opportunities for jobs, SMEs, and contractors especially during the construction of the two projects.