Are we well prepared for coming oil boom?

According to the latest numbers that I have seen- the estimate right now is that we are at about between 60-100,000 barrels per day of commercially exploited crude from the South Lokichar region.

Clearly, this is a resource base with a value running to billions of dollars. If we manage it well, it can improve our lives. All indications are that preparations for drilling and construction of a pipeline are on course.

Mark you, we have to construct an 820-kilometre crude pipeline from Lokichar to Lamu. I read somewhere that – because of wax, the pipeline will have to be heated up to 57 degrees Celcius.

According to the plan, the government is going into a partnership with Tullow, Mersk and Africa Oil, which will own exploration and production.

Under the second part, the same joint venture partners will form a pipeline company tasked with the responsibility of developing, financing and constructing one of Africa’s most sophisticated heated pipelines. It is this pipeline company that will manage the off-take at the Lamu.

Remarkably, we have no plans for a refinery, which means that there will be no value added activity within the economy. Initially, development of a world scale refinery was supposed to be one of the centrepieces of the Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) corridor project. Even the coal power plant being built in Lamu was supposed to benefit from demand from the refinery.

Clearly, the omission of the refinery in the current plan represents a major departure from the original vision.

Still, the biggest issue is how we propose to manage revenues from the windfall. In the first place, we don’t seem to have made up our mind about a proper institutional framework for ownership and managing oil exploration, transportation and exports.

In many oil producing countries, this role is played by national oil corporations.

Yet although we have had our National Oil Corporation of Kenya (Nock) for many years, the plan is not to involve it in the new arrangements.

We must remember that the government currently owns two entities in the petroleum sector-namely, Kenya Pipeline Company and Nock.

Kenya Pipeline Company has the mandate of providing the most economical way of transporting petroleum products. While Nock is supposed to be responsible for exploration, development of infrastructure and marketing of oil.

Yet under the new plan, these critical institutions appear to have been sidelined from the new plan.

Allowing the Ministry of Energy to be directly involved in owning and managing our petroleum assets is not a very clever thing to do.

Such loose ownership arrangements and structures create loopholes, which local elites will readily exploit to acquire shares surreptitiously on behalf of shadowy cartels - the Mobitelea way.

Why can’t we just establish a new autonomous state-owned entity to be in charge and to be the one to go into partnerships with these oil majors?

Then there is the vexing issue of creation of a sovereign wealth fund in the current plan. There is very strong evidence that countries that don’t create sovereign wealth funds to manage oil revenues always end up in trouble.

For the past 30 years, the Nigerians did not have any effective structure to save and invest oil wealth. All they had was a loose equalisation fund that the government raided at will and depleted to zero.

It is only recently that both Nigeria and Angola decided to create sovereign wealth funds specifically tasked with receiving, managing and investing their oil revenues.

Ghana was widely applauded for fast-tracking production of oil within five years of discovery.

However, the mistake the Ghanaians made was that they did not establish a robust framework for managing the oil windfall.

The country soon fell into debt distress, especially after they resorted to recklessly borrowing in international debt markets. The circumstances forced them to seek an IMF bail-out.

In Kenya, despite the fact the presidential task force on parasatatal reforms explicitly recommended the establishment of a sovereign wealth fund to receive, manage and invest oil revenues- nothing has been done.