Rift Valley Railways misses out on lucrative Turkana oil exports deal
An RVR locomotive. PHOTO | FILE
Rift Valley Railways (RVR) missed out on a lucrative opportunity to transport Kenya’s first batch of crude oil exports due to delays in meeting key deadlines, the government has said.
Kenya intends to commence small-scale oil export by next June. Originally, the oil was to be moved by road from Lokichar to Eldoret before being transported by rail to Mombasa.
Using trains, even for part of the journey, was billed as a cheaper option than relying purely on trucks.
However, when the Ministry of Energy briefed on the Early Oil Pilot Scheme two weeks ago, the rail option had disappeared in a move that has incensed the RVR.
“We were interested in the project until August 30. That is when they told us that they had already made a decision,” said group chief executive Isaiah Okoth in a telephone interview on Monday.
On the other hand, the Ministry of Energy claims that RVR missed key deadlines in a plan to modify its rail equipment for the transportation of the oil.
“We were not happy with the progress they were making on the changes that were needed. We were requesting for certain things and we were not getting them,” said Petroleum PS Andrew Kamau.
One of the prerequisites for moving the oil via rail was the construction of a Sh304 million ($3 million) facility at the refinery in Changamwe to allow for the unloading of petroleum cargo from the trains. The RVR was expected to provide the specifications for this rail siding.
Documents seen by the Business Daily reveal repeated concerns raised by Tullow Oil and State agencies on RVR’s failure to meet key deadlines including those concerned with the provision of drawings and specification the rail siding.
On August 16, a steering committee overseeing the project resolved to go for a road only option, a decision which Mr Kamau claims was informed by the need to meet the mid-2017 deadlines.
In a bid to salvage its role in the project, the RVR later submitted a proposal that would have seen the oil transported by road to Eldoret, then by rail to Changamwe before being moved back onto trucks for the last kilometre to the Kenya Petroleum Refineries storage facilities. This proposal was rejected.
Last week, Tullow Oil, the British firm leading oil exploration in Turkana County, invited contractors to provide trucking services for the movement of the crude oil. The oil will need to be moved in insulated containers, also known as tanktainers with 14 trucks leaving Lokichar each day.
The government also says a re-evaluation of how much oil Kenya was going to export in this first small-scale production also influenced the shift to road. The initial plan was to move between 10,000 to 20,000 barrels of oil per day.
However, with the falling costs of oil, this was reviewed downwards to about 2,000 barrels per day. Although RVR is locked out of this initial phase of oil transportation, Mr Kamau said the firm may still be considered in later phases.
A report from the Kenya Civil Society Platform for Oil and Gas has shown that while pipelines are the ideal mode of transporting oil, rail is still far better an option, in terms of cost and safety, than road.
The civil society group has recently raised concerns about Kenya’s early oil export scheme warning that it could lead to losses of up to Sh4 billion, especially considering the economic risks associated with an election year in Kenya.
Heavy costs will be incurred from the investments that Kenya will need to make in road infrastructure if it is to move the oil by truck.
Additionally, the country is beginning oil exports at a time when the commodity’s prices have hit historic lows.
