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Kenya to earn up to Sh360bn each year from oil exports

Dr Miriam Omolo of the Institute of Economic Affairs makes  a presentation on the extractive sector at a conference at Serena Hotel in Nairobi on December 3, 2014. PHOTO | DIANA NGILA
Dr Miriam Omolo of the Institute of Economic Affairs makes a presentation on the extractive sector at a conference at Serena Hotel in Nairobi on December 3, 2014. PHOTO | DIANA NGILA 

Kenya stands to earn at least Sh67 billion every year from oil exports, economists at the Institute of Economic Affairs (IEA) say.

The figure could be as high as Sh360 billion.

Research by the think tank over the past 11 months took into account international prices oil prices of between $60 (Sh5,400) and $100 (Sh9,000) a barrel and the revenues were calculated based on proven reserves of between 600 million and 2.9 billion barrels, said Miriam Omolo, an economist at IEA.

The IEA study also found that the mining industry has potential to add another Sh255 billion per year for the next 25 years.

The mineral export estimates are based on coal, mineral sands, rare earth, gold and other deposits found in Kitui, Kwale and Nyanza regions.

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The study assumes that the government will earn 50 per cent of revenues, even though there is uncertainty over what existing production sharing agreements provide or what future laws may specify.

Falling oil prices could also slow down Kenya’s oil and gas industry, which is in its infancy, but petroleum experts say the recent drop in the commodity’s prices could be short-term.

Patrick Obath, a non-executive director at oil and gas exploration firm Afren, said that prices on the international market have to be maintained at above $90 per barrel for exploration in Kenya to be viable.

Prices on the international market have in recent weeks touched below the $70 (Sh6,300) per barrel level, but Mr Obath said that there were too many vested interests by oil producers for prices to remain at this level.

“Prices will probably go up within the next six to eight months,” said Mr Obath.

The IEA’s work is meant to guide policy making for the extractive industries, which has the potential to earn Kenya enough resources to speed up the county’s Vision 2030 agenda whose most important objective is to lift majority of the population into middle-income status by 2030.

Dr Omolo, however, said that while the extractive industry presents a chance for the country to earn revenues, there is still opaqueness over the contracts signed and there is a risk that the Treasury can go on a borrowing binge using the reserves as collateral.

“There is a likelihood that debt levels could go up because we now have reserves,” said Dr Omolo.

Oil and mineral firms have also said that lack of proper laws, both at the national and county levels, are other factors that could derail the industry from generating the much-needed revenues.

Africa Oil, a Canadian firm exploring in northern Kenya, and Base Resources, which is mining Titanium and other minerals in Kwale, have both raised concern over new taxes.

Africa Oil, which is in several joint oil exploration ventures with UK-owned Tullow Oil, raised concern about the introduction of capital gains tax which stands at 5 per cent, while Base Resources has objected to a proposed export levy by the Kwale County government.

The IEA paper also looked at the value chain in oil, gas and mineral extraction, an area which it said has the potential to boost local businesses and workers but has been ignored.

“There is more focus on revenues yet we have value chains to deal with,” said Dr Omolo. The study found that expatriates accounted for 66.7 per cent of directors in extractive companies, locals take up the remaining 33.3 per cent.

There were no women directors and at management level their share of positions stood at 11.4 per cent.

At the management level expatriates had a larger share accounting for 69.7 per cent of all positions with locals taking up the rest.

In the meantime, players in the mining sector say construction of roads and producing more electricity can have a positive impact on the industry.

Kenya Chamber of Mines Acting chairperson Assumpta Muhoho said that putting up proper infrastructure can double the industry’s output to 6.4 per cent of GDP from 3.2 per cent.

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