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September 24, 2018

Manage revenue from oil wisely

President Uhuru Kenyatta flags off oil tankers carrying oil barrels to Mombasa on June 3, 2018. /HESBOUN ETYANG
President Uhuru Kenyatta flags off oil tankers carrying oil barrels to Mombasa on June 3, 2018. /HESBOUN ETYANG

The launch by President Uhuru Kenyatta of the Early Oil Pilot Scheme (EOPS) is a critical milestone in Kenya’s path to be an oil producing and exporting country. But while elation is high, caution must abound.

Under the EOPS 14 trucks, each carrying 159 litres, will transport 2,000 barrels of waxy crude from Lokichar to Mombasa, a distance of 1,120km over three days. And because the crude oil is the waxy type, it will be heated to about 76 degrees Celsius and transported in special heat insulated oil tanker trucks. The security and environmental safety safeguards required are therefore not trivial.

The launch of the EOPS on June 3 also marks the point where expectations begin to rise. And the politicians have not been helpful in setting the record straight. Pumping 2,000 barrels of oil per day does not make Kenya an oil exporting country. We are not in a full development phase yet, let alone production. At this point we don’t even know the real size of Kenya’s recoverable reserve.

The purpose of the EOPS is to enable full evaluation of the oil reservoirs by providing data on reservoir characteristics in order to optimise field development, including number, type and location of well and level of field production.

While big oil money will not be here soon, we need to think long and hard about how oil revenue will be managed and utilised, both at the national and the county level. There is every indication that we are on the path of a resource curse. Lack of transparency in use of devolved funds and local revenue as well as profligate spending by county authorities provides little confidence that windfall from oil revenues will be used prudently.

Under the revenue sharing agreement, the national government will keep 75 per cent of all oil revenue. Oil producing counties will retain 25 per cent of the revenue.

All national oil and gas revenues due to the national government will be paid into the National Sovereign Wealth Fund as stipulated in the National Sovereign Wealth Fund Bill 2014. The purpose of the fund is to build savings for Kenyans, protect and stabilise the budget from volatile revenue and provide a base for diversification from primary commodity exports. But it is disconcerting that four years later the Bill has not been passed into law.

Similarly, it is not clear yet how the hydrocarbon rich counties will spend or manage their share of revenue. What is clear at this point is that the county government will keep 20 per cent and disburse five per cent to the local communities where the oil wells are located. One would expect that more concrete policies and laws would be enacted to govern and direct the utilisation of hydrocarbon revenue.

Moreover, blistering corruption at all levels of government, bloated public sector, rising deficit and ballooning national debt are not especially reassuring signs that oil revenues will be used prudently and accountably at the county or national level.

Alex O. Awiti is the director of the East Africa Institute at a Aga Khan University

 

 

 

 

 

 

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