Interview: Davis Chirchir
How will the recent oil discoveries in Kenya affect its import bill, local reserves and export capacity?
DAVIS CHIRCHIR: The recent discoveries in Kenya are certainly exciting for us in terms of improving our revenue base by developing our natural resources. The size of the first find, in March 2012, is quite substantial: 600m barrels of recoverable crude oil. Before this occurred, we had already decided to create the LAPSSET corridor to provide access to the global market through the ports of Lamu and Mombasa, as well as to the landlocked countries of Uganda, Rwanda, Ethiopia and South Sudan. Now that we have made discoveries, the drive to develop this corridor has accelerated, as we can now begin exporting our own energy products.
We have also signed an agreement with Uganda to jointly develop an oil pipeline for exporting our combined products, and we are working with South Sudan on a framework to include them as well. We have already assigned consultants to conduct feasibility studies in order to get the products quickly to market and expect their final report in December 2014, which will map out the pipeline’s final route. Interested companies like Total and Tullow Oil have already finished their feasibility studies and have their own preferred route, as has Kenya. The aim is to include the views of every single party involved, in order to reach a consensus on which route would be best, accounting for the product capacity in each region, the prospects of various blocks, the sizing of the pipeline and elevation constraints, among other factors. In the next six to nine months, we expect to know in detail the scale of the products that we can extract in Kenya from the production-sharing contracts with Tullow Oil and Africa Oil, which will also have an impact on the size required for this pipeline.
Suddenly, we can foresee a new line of revenue for our country. Kenya’s economy is already very diversified, and having a cashflow from natural resources will surely help support the country’s revenue base and thus help tackle the major infrastructure projects that are expected to accelerate our economic development.
What progress has been made on integrating the region’s petroleum supplies and harmonising its energy frameworks?
CHIRCHIR: We have a major agenda for integration to build up a critical regional market. Trade within Africa as a portion of the total is as low as 10%, and for an industry like energy it is obvious that we need to grow our own market. The East African Community (EAC) accounts for 113m people and should be a great market for achieving economies of scale. However, we can also go beyond EAC and develop partnerships according to the competitive advantages of our neighbours. For example, we can benefit from Ethiopian expertise in power generation projects and move towards a regional power grid. The Northern Corridor Integration project initiative between Rwanda, South Sudan, Uganda and Kenya should boost movement not only of goods but also of people, which will help trade flourish. The agreement signed with Uganda for a joint crude pipeline is a good start, as this will help us scope out the areas where cooperation will be needed to transport our energy products and prepare them for export.
What can be done to ensure a favourable environment for exploration and production in Kenya?
CHIRCHIR: We currently have a bidding round for which upstream oil firms willing to take on exploration blocks can still apply. Previously, it was very difficult for Kenya to attract international oil companies for exploration, due to the high risk of drilling in a country where there were not yet any major discoveries. As Kenyans have become more forward-looking today in terms of exploration, we have drafted a new policy and new petroleum and energy bills to improve the structure of production-sharing contracts and frameworks, working closely with the World Bank and the IMF to this end. These amendments should be made before the end of the fifth year of the Kenyan constitution, as required by law, but we expect to vote on them sooner than that and have the new bills ready by November 2014.
Read More from OBG
