Business
Kenya or Uganda, Who gets oil first?
Talks on the Lamu pipeline have stalled because of fighting in South Sudan, where the Juba government could use the export outlet to reduce its reliance on pipelines through Sudan. Construction of the pipeline and refinery could begin next year. The government has not decided if it will insist on owning part of the pipeline.
“The decision on whether the government will invest in the pipeline or not is dependent on the structuring of the investment … This decision will therefore be made later when the financing structure has been decided,” explains commissioner Ernest Rubondo of the energy ministry’s petroleum exploration and production department.
Greasing the taps
With production yet to begin, the government is already showing signs that it will have difficulty managing the oil revenue. Parliament is set to debate the amended Public Finance Bill 2012, which seeks to create a petroleum fund, among other things, under the auspices of the central bank. The government’s first proposal was to split the fund into two accounts.
A reserve account would hold money for future generations, with strong limitations on who could access it, while a holding account would be used to support the national budget. The government no longer sup- ports protecting revenue for future generations. In October 2013, finance minister Maria Kiwanuka argued: “The split effectively prohibits the government from ever accessing the principal of the Petroleum Investment Reserve for budget financing. This is likely to prove incredible in a country with relatively limited oil reserves and large long-term development needs.”
Civil society groups are opposed to the government’s change of position. There has been more momentum on the Kenyan side of the border after Tullow made its discovery at the Ngamia-1 well in 2012. Tullow and its Canadian partner African Oil Corporation are in talks with the government to launch field development and the construction of an export pipeline by next year. Africa Oil announced in February that it will drill 20 wells in Kenya and Ethiopia this year.
Despite companies’ statements about the government’s support for the industry, it has been slow to set up frameworks. While Kenya’s constitution makes sound provisions for the equitable sharing of mineral resources, the laws that give the executive a broad discretionary mandate on how to exploit the country’s natural resources have not been updated for close to 30 years.
Mohamed L. Baraka, a petrochemical engineer with decades of experience in the oil sector who now runs a downstream oil company, asked, “The upstream game is shrouded in secrecy. We know that the Turkana Basin alone contains about 10 billion barrels of oil: that’s between three and five times Uganda’s known deposits. But the government is yet to clearly articulate what it is going to do with the oil, for the country generally and the people of Turkana specifically. What, for instance, are the terms of the production-sharing agreements with Tullow?”
