Parliament orders release of secret State oil export deal

Parliament has in a transparency drive given the Treasury 90 days to make public how proceeds of Kenya’s first crude oil exports were used.

A report tabled in the National Assembly by the Budget and Appropriations Committee on the 2020/2021 Budget Policy Statement has also asked the Executive to propose how such funds will be used in future.

Kenya made its first crude oil exports in August last year, earning an estimated $12 million (Sh1.2 billion) from the sale of 250,000 barrels.

The oil was bought by ChemChina (UK) Ltd, the oil trading arm of ChemChina Petrochemical Co. Ltd.

Part of the pending disclosures include the production sharing contract that will show how much of the revenues earned from crude oil export were shared between the Kenyan government and the Joint Venture partner.

Parliament wants to know how much the joint venture partners —Total and Tullow — earned. The agreement remains top secret.

"A status report on the Early Oil Pilot Scheme (EOPS) including recommendations on financial management of proceeds from sale of the crude oil be submitted to National Assembly within 90 days upon adoption of the report by the House," reads part of the committee’s recommendations to the National Treasury and State Department of Petroleum.

The government has said that the small-scale exports are meant to test demand for the country’s low sulphur crude oil. There has not been disclosure on how proceeds of the sales were used by the Treasury including offering a share to Turkana County residents.

Although the sale process was not fully laid out to the public, the government maintained that there was a competitive bid process with 11 companies having expressed interest in buying the crude.

ChemChina UK’s initial purchases are expected to be small-scale, with full commercial shipments due to begin once the pipeline is constructed.

The recommendations come at a time when Kenya’s move to commercial oil production is expected to delay on the back of falling oil prices and financial challenges at Tullow Oil, which is leading the consortium of multinationals developing the wells in Turkana.

It recently emerged that Tullow and Total S.A. are looking to sell a significant part of their stakes in the Kenyan venture.

This followed an earlier disclosure by Tullow that it had written off $800 million (Sh81.6 billion) of its exploration costs in Kenya and Uganda after lowering its forecast for long-term crude oil prices.

Oil firms recover their exploration costs over years once production and sale of the commodity starts, with lower oil prices indicating a slower-than-expected rate of recouping the investment.

"Exploration costs written off are predominately driven by a write-down of the value of the Kenya and Uganda assets due to a reduction in the group's long-term accounting oil price assumption from $75 (Sh7,650) per barrel to $65 (Sh6,630) per barrel," Tullow said in a trading update.

Crude oil prices have traded below the $75 per barrel mark since October 2018 and have fallen further in recent days to $49.5, slipping below Tullow’s new target level.