Losses loom in stalled crude export plan

Taxpayers were on Thursday left at the risk of losing billions of shillings in breach of contract payments after Energy and Petroleum secretary Charles Keter announced that the government had suspended the early oil export plan that was to start this month.

The payments will be made to private companies that were hired early this year to execute the plan.

The sudden application of brakes on the plan, which was meant to test the appetite for Kenya’s crude oil in the international market, comes barely a month after three firms signed a Sh1.5 billion contract to move the oil to Mombasa for shipping overseas.

Oilfield Movers, Prime Fuels Kenya and Multiple Hauliers were hired to move the crude from Turkana oil fields to the Kenya Petroleum and Refineries Limited grounds in Mombasa meaning any delays may have financial consequences.

Mr Keter on Thursday said the government had decided to stop the plan awaiting the conclusion of the Petroleum (Exploration, Development and Production) Bill 2015, which got stuck in the Senate after President Uhuru Kenyatta sought to reduce the revenue share meant for the local community from 10 to five per cent.

“After consultation with the local leaders and the community, we have decided that instead of having the project commence this month, we will defer it until the Bill, which is pending before the Senate and as you are aware that can only pass after we have the next parliament,” Mr Keter said.

The uncertainty surrounding the exact timelines for the crude export plan has left wide open the possibility of the government and the explorer paying a heavy financial price for suspension of the contracts signed with private companies.

The early oil export scheme was deigned to run between mid-2017 and mid-2019.

Delayed start of the scheme also means that Tullow, the explorer, will spend more on storage and security of the oil -- money it is entitled to recover from the revenues earned.

Tullow, which discovered oil deposits in Kenya in 2012 has signed a production sharing contract with the government, whose details have not been made public.

Kenya is yet to audit the British explorer after it claimed to have spent over $1.5 billion (Sh150 billion) in oil exploration activities since 2010. Africa oil and Mersk oil are the other firms involved in the scheme.

Tullow Oil Kenya country managing director Martin Mbogo, however, dismissed the possibility of his company suffering any commercial consequences from the change in timelines only terming it, a ‘lesson to learn.’

“The contracts were designed in a manner that that they can be turned on and off easily. Flexibility was built into this and we do not see any adverse effects from the changes,” Mr Mbogo said adding that the contracts can be switched on and off within five to seven days.

READ: Tullow signs agreement to start exporting Turkana oil

“Our base business is not impacted with the position we are in today so we are confident that we have picked up the lesson and we should take this as a plus,” Mr Mbogo saod during a joint press conference at the Ministry of Energy offices.

People familiar with the early export scheme said some of the tanktainers - specialized transport containers and the trucks had been moved to Lokichar in readiness for the failed exercise.

Last year, the Kenya Civil Society Platform on Oil and gas raised concern over the plan to truck the crude from Turkana -- terming it a Sh4 billion loss making exercise.

ALSO READ: Kenya's first crop of oil barons

Until Thursday, the government had maintained that the project would go on and that Kenya would enter the league of oil exporters this month.

Tullow Kenya already gave a nod for the supply of 50 trucks and tanktainers  to lift the 2000 barrels of crude to Mombasa every day with each taking an average of 6 days on a single round trip.

In the plan, Kenya had hoped to build a brand in the international market ahead of the move to full commercial production of 100,000 bbl/d of oil either in 2020 or 2021.