The cost of month-long work stoppage at Turkana oil mines has risen to nearly Sh1 billion and could escalate further if the stalemate is not resolved in time, top Ministry of Petroleum officials said Thursday.
Petroleum chief administrative secretary John Mosonik said losses incurred during the standoff will hit Sh1 billion by next week.
The losses are being incurred in compensation payable to companies involved in the mining of the oil and its movement by trucks to the port of Mombasa following suspension of operations in the wake of protests by locals.
The cash payout burden, which will mainly come in the form of recoverable costs in the Turkana oil project, could balloon even further if the lockdown doesn't end soon.
Petroleum ministry officials said they expect to reach a return-to-work agreement with the investors next week.
“It’s Kenyans who will pay for the losses, including the very ones blocking movement of the oil,” Mr Mosonik said on the sidelines of a petroleum sector briefing forum.
Turkana residents have blocked the trucks, demanding that the State beef up security in the vast pastoralist region, recover stolen livestock and assure them of their share of jobs and tenders in the oil operation.
The blockade has slowed down Kenya’s early oil export drive that began early last month. The programme involves use of trucks to move crude to the Mombasa port for storage, pending shipment to foreign buyers.
British oil explorer Tullow, the main developer of the Turkana fields, last week said the freeze in operations had punched a Sh200 million hole on its books.
The figure excludes losses incurred by contracted firms such as providers of trucks and Dubai-based Almansoori Petroleum, the firm hired to set up equipment for separating crude oil from impurities before it’s loaded on trucks.
Tullow reckons that it is absorbing huge costs in accommodation for dozens of expatriate staff in Nairobi hotels, pending resumption of work.
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At the heart of the stalemate is failure by the government to sign a memorandum of understanding (MoU) with the Turkana community and oil companies on the ground, a document prepared on the advice of the Attorney-General.
The MoU is expected to offer a structured way of resuming operations following recent disruptions that have stalled the trucking of crude from northern Kenya to the coast.
The document also provides a framework for handling possible future disruptions, providing certainty to investors.
On Wednesday, Tullow and partners Africa Oil of Canada and French major Total suspended Kenyan operations, citing insecurity and delays in signing the MoU.
Resumption of works is dependent on the MoU that the Petroleum ministry is yet to sign.
“We received a draft copy of the MoU from the Attorney-General only yesterday and we’ve shared the same with Tullow and partners for perusal,” said Mr Mosonik. “We expect to arrive at an agreement in the next three or four days.”
Details of the MoU have not been made public but Mr Mosonik said it seeks to address several concerns raised by the Turkana community, including a local content policy for jobs that can be handled by the locals.
“Security is a concern in areas where there are natural resources, including crude oil, and we want to ensure all necessary instruments that promote peace, including but not limited to local content development and regulations, regulatory framework for community engagement and benefit sharing are put in place,” he said.
Just a week ago, Tullow had warned of an imminent shutdown of operations, saying suspension of works would further delay resumption of crude oil trucking by about two months from the day the MoU is signed.
This means the compensation burden could rise further from the current Sh1 billion lost in the month-long impasse.
Kenya’s early oil export plan, which involves movement of small-scale crude by road to Mombasa, has had a rocky start that caused delays since June 2017.
It finally took off early last month only to be met with a groundswell of opposition from locals three weeks later.
Tullow and partners have jointly sunk 40 wells in the Turkana oilfields since 2012, positioning Kenya as a potential oil producer. Over the period, the company has hit estimated recoverable reserves of 750 million barrels of crude, considered commercially viable.