Why Kenya’s oil economy status remains a pipe dream

Wednesday, May 31st, 2023 18:14 | By
Why Kenya’s oil economy status remains a pipe dream
An oil well at Ngamia 1 in Turkana County. PHOTO/Courtesy

President Uhuru Kenyatta launched the Early Oil Pilot Scheme (EOPS) on June 3, 2018 in Turkana amid high hopes of Kenya becoming an oil exporting nation beating its neighbours to the punch.

At the time, EOPS project entailed the transportation of 2,000 barrels of hydrocarbon reserves per day from Turkana to the Kenya Petroleum Refineries Limited (KPRL) in Mombasa. Tullow oil at the time confirmed that the scheme was meant to understand the South Lokichar hydrocarbon crude through well testing which would inform Full Field Development.

The scheme was also meant to establish logistical infrastructure through road upgrades of the A1 and C46 roads as well as enable national and county governments to gain technical expertise as the project transitioned from exploration to development.

The oil production levels under EOPS were comparatively low as compared to the planned production rates of 130,000 barrels per day as indicated in the upstream environmental and social impact assessment study (ESIA).

On August 26, 2019 the country witnessed the culmination of the EOPS journey when former President Uhuru Kenyatta flagged off the maiden lifting of 240,000 barrels of Kenya’s crude, considered the first ever, from East Africa to the international markets. This generated Sh1.86 billion in revenues against the global price of crude at the time.

During a presentation at the Senate recently, Cabinet Secretary for Energy and Petroleum David Chirchir stated that 414,777 barrels of crude was sold under EOPS. This was at an overall project cost of Sh7 billion which translated to accrued revenues of Sh4 billion only.

While it would be argued that EOPS was an important yardstick for the Kenyan government and the Project Oil Kenya partners for marketing and benchmarking, it fails to determine why the project continued post-lifting of the initial consignment in full glare of the impending losses at the cost of Sh3 billion.

On June 27, 2018, barely a month after the launch of EOPS, communities along the Lokichar-Kapenguria road effected road closure as a result of concerns and frustrations on rising insecurity due to armed banditry. The government was on record stating that the suspension of EOPS as a result of the seven-week stoppage by communities had resulted in losses estimated at Sh400 million.

Kenya, while in the rush to streamline petroleum governance frameworks, developed a transparency and accountability framework and action plan anchored on section 119 of the Petroleum Act 2019.

However, implementation is yet to be seen which means the public may never fully grasp the implication of the significant losses accrued under EOPS would mean for Kenya’s percentage of profit oil once production commences. The government needs to build and sustain citizen confidence by fully disclosing EOPS agreement as well as the Production Sharing Contracts of South Lokichar oil basin project. Without full disclosure and community veto power on free prior and informed consent, disen-franchised communities will utilise the only leverage at their disposal, in this case, disruptions to oil infrastructure development as experienced under EOPS.

Importantly, natural resources and specifically hydrocarbon resources belong to the citizenry and who, therefore, deserve full accountability by the government they voted for.

—Muturi is a Programme Manager of the Kenya Oil and Gas Sector Working Group

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