Photographer: Eduard Gismatullin/Bloomberg

Kenya Delays Early Crude Shipments

Updated on
  • Election set for August; new lawmakers will then discuss law
  • Stand-off between government, local community over revenue

Kenya will only begin early oil exports after legislation to govern the industry is passed by lawmakers chosen in August elections, the Energy Ministry said.

While East Africa’s biggest economy was scheduled to ship its first crude this month in a pilot program, a tussle between northwest Kenya’s Turkana community and the central government over revenue sharing has delayed the passing of the law in parliament, Energy Secretary Charles Keter told reporters Thursday in the capital, Nairobi.

“After consultation with the leadership of Turkana and the community, we have decided, instead of having the project commence this month, we’ll defer it until the bill, which is pending at the senate,” he said.

Kenyan President Uhuru Kenyatta last year refused to sign the bill, which hands 10 percent of petroleum earnings to the local community and 20 percent to local authorities. Instead, he’s asked lawmakers to stick with the government’s original plan of giving 5 percent to the residents of the impoverished and remote region and 75 percent to the central Treasury.

Tullow Oil Plc, which discovered 750 million barrels of Kenyan oil in 2012, had been expected to start trucking out the crude this month as Kenya arranges for the construction of a pipeline. Keter said a deal on the pipeline will be concluded next month.

“There may be a deferral, but the vision still remains,” Martin Mbogo, managing director of Tullow Kenya, told reporters.

While the government sees the project breaking even at a Brent crude price of $43 per barrel, consultancy Wood Mackenzie puts it at $68.

Tension, Insecurity

Bandits have blocked Tullow staff from accessing two of its sites -- Ngamia 3 and Ngamia 8 -- where 40,000 barrels of the early oil that was meant to be trucked to the Kenyan port of Mombasa is being stored, the Nairobi-based Standard newspaper reported Thursday.

One of seven companies contracted to upgrade roads to the oil fields has also suspended work after its employees were attacked by gunmen, the newspaper reported.

“Insecurity has been there from day one, it has nothing to do with the revenue-sharing formula,” Keter said.

The early oil pilot program risks exacerbating tensions between the community and oil companies, given the revenue dispute, Emma Gordon, a senior analyst for East Africa at Verisk Maplecroft, said in a report. 

“The opposition is likely to win in Turkana, which, if Kenyatta wins overall, means disputes between the county and the center will continue,” she wrote. “As local members of parliament fight for control over revenues, they are liable to mobilize supporters to protest at oil facilities or block trucks.”

— With assistance by Felix Njini

(Updates with analyst comments from penultimate paragraph.)
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