Former US Navy Seal Erik Prince’s bid to enter Kenya’s nascent oil and gas industry has run into regulatory headwinds after the government denied him an aviation licence to set up a logistics services business for the extractive industry.
Kenya Civil Aviation Authority (KCAA) last week declined to renew the air service licence for Kijipwa Aviation – the company in which Mr Prince owns a 49 per cent stake – citing queries over the shareholding of the Mombasa-based carrier.
“Licence not granted,” said KCAA, in a Kenya Gazette notice dated October 21, 2014; in response to Kijipwa’s application for renewal of its operating licence.
Mr Prince, 44, is the founder of Blackwater - the controversial defence contractor that came under fierce attack over its operations in Iraq.
KCAA acting director-general Joseph Kiptoo told the Business Daily that the decision was informed by the uncertainty regarding the ownership of Kijipwa and non-compliance with Kenyan laws that limit foreign ownership of aviation firms.
“There are shareholding questions about the company,” said Mr Kiptoo.
Frontier Service Group Ltd (FSG), where Mr Prince is the chairman, acquired the 49 per cent stake in Kijipwa Aviation for an undisclosed amount.
The new owners planned to acquire a controlling stake in the carrier and to use Mombasa as its base to service the emerging natural resources extraction industry.
Kenya has capped foreign investment in the aviation sector at 49 per cent, meaning that licensed carriers must be majority owned by locals.
The decision by KCAA, the aviation industry regulator, deals a heavy blow to the private security baron’s plans to offer logistics, aviation and risk management services to multinationals operating in mining, oil and gas in eastern Africa.
Mr Prince had in April bought a 49 per cent stake in Nairobi-based Phoenix Aviation in a deal valued at Sh1.2 billion, making his second stab at Kenya’s aviation industry with an eye on logistics services.
The entry of Mr Prince, best known for founding the world’s largest private military Blackwater, had set tongues wagging on the emerging business opportunities as Kenya moves towards joining the league of oil producing countries.
Mr Prince had lined up 25 aircraft delivered to Kijipwa’s airstrip located on the grounds of Bamburi Cement in Mombasa, to provide specialised aviation services and aerial survey of installations such as oil pipelines to players in the extractive industry.
FSG had set aside a $85 million (Sh7.5 billion) war chest to finance purchase of the airplanes, with Bamburi as its hub given its proximity to the port of Mombasa.
FSG’s strategy was to provide passenger and freight services to oil and mining companies by transporting staff, machinery and spare parts to far-off areas such as Lokichar in Turkana and remote oil fields in South Sudan and the Congo.
But KCAA rejected all of Mr Prince’s applications for renewal of licence to offer charter flights, flying instructions, aerial work services, and self-fly hire within Kenya and eastern Africa.
Allan Herd, founder and managing director at Kijipwa Aviation, had told the Business Daily in an earlier interview that Mr Prince was attracted by the company’s broad range of air service licence (ASL).
“My licences are very good and will allow them to do many things. It takes very long to get an air service licence in Kenya,” said Mr Herd who has been in the aviation business for five decades.
A renewal of Kijipwa’s licence would have allowed Mr Prince to offer non-scheduled passenger and freight air services in Kenya and eastern Africa – giving FSG a window to access the regional market.
Kijipwa’s comprehensive licence would also allow FSG to engage in other services such as providing flying instructions, aerial work service, aircraft mechanics and self-fly hire within Kenya.
British explorer Tullow Oil in July last year announced it had struck crude deposits in excess of one billion barrels of oil - enough to begin commercial production in the Lokichar basin, Turkana.
This has caused excitement with investors angling for opportunities likely to be created by the oil finds such as logistics, transport, security, engineering and retail supplies.
Regulatory filings made by FSG to the Hong Kong Stock Exchange say that the firm is an investment company incorporated in Bermuda.
Its major shareholders include Mr Prince (15.3 per cent), Hong Kong tycoon Johnson Ko (20 per cent) and China’s state-owned investment firm China International Trust and Investment Corporation (CITIC) with a 20 per cent stake.
FSG was targeting multinationals, mostly from resource-hungry China, who are currently scouring the African continent for oil, gas and minerals to feed the dragon economy.
“Our Chinese partners doing business in Africa approached us wanting logistical and supply chain support for their operations on the continent,” FSG said in a statement.