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Budget cut hits plan to build Lamu oil pipeline

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Mr Charles Keter, Energy and Petroleum secretary. FILE PHOTO | NMG

Kenya’s plan to build a pipeline from the Lokichar oilfields in Turkana County to Lamu port has suffered a setback after the Treasury slashed the budget for initial works by more than 70 per cent.

The Treasury cut the budget from Sh260 million to Sh75 million as it reorganised government spending plans to find money needed to finance immediate obligations such as the October 26 repeat presidential election.

Energy and Petroleum secretary Charles Keter told a special committee of Parliament that the budget reduction would negatively affect the early oil project and the ministry’s other key plans.

“There has been a reduction of budget to the State Department of Petroleum to the tune of Sh1.84 billion. This will affect the early oil project that is ongoing,” Mr Keter told the committee chaired by Kipkelion East MP Joseph Limo.

The early oil project, a key Jubilee administration’s plan that was to start ahead of the August 8 election, had been allocated Sh170 million but that has now dropped to Sh42.5 million.

Kenya was to start shipping out crude from its five wells in Turkana in a plan the ministry said would initially see the country move 2,000 barrels a day. Tullow, the UK oil firm that is drilling the Turkana oil fields, had stored over 70,000 barrels of oil ahead of the early export plan.

Mr Keter said the government had suspended the plan to await conclusion of the Petroleum (Exploration, Development and Production) Bill 2015, which is stuck in the Senate after President Uhuru Kenyatta sought to reduce the revenue share meant for local communities from 10 to five per cent.

Mr Keter told MPs scrutinising the mini-budget that the Lokichar crude oil pipeline would be severely affected by the austerity cuts initiated by the Cabinet to raise money for the repeat presidential poll and enhanced free secondary education, among others.

The purchase of 6kg gas cylinders, which had been allocated Sh2 billion but will now have Sh500 million, has also been affected by the cuts in a move that is likely to upend contracts already signed with suppliers.

“The procurement has been done. We are encouraging local manufacturers to produce and distribute the gas cylinders. If you cut the budget, the progression of ongoing tender for LPG will be affected,” he said.

“We are finalising the mode of distribution of the cylinders which National Oil Corporation of Kenya (NOCK) is coming up with. The cylinders [plan] targets rural women to improve their use of gas.”

The minister also asked MPs to reverse the budget cut on the Energy Regulatory Commission (ERC), allocated Sh8.5 million, down from Sh33.5 million.

“We plead that where possible, reinstate the Sh1.8 billion to go hand in hand to ensure projects don’t stall as they are in critical stages of implementation,” Mr Keter told the ad-hoc committee.

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