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Friday, 26 July 2013

West African banks to service East Africa oil finds

NAIROBI — West Africa’s insurance companies and commercial banks are setting up subsidiaries in East Africa to take advantage of the oil and gas financing skills gap following recent discoveries in the region.

Kenya and Uganda are estimated to have recoverable oil reserves of 2.5-billion barrels, but prospectors and geologists believe the amount will increase as the drilling activities continue, especially in the East Africa Rift Valley basin.

Tanzania has recoverable natural gas reserves of 33-trillion cubic feet, according to data released by its energy and minerals ministry.

East Africa’s insurance and banks have been caught unaware by recent discoveries and are struggling to cope financially, and lack skills to benefit from the sector.

The low capitalization of Kenya’s banks and insurance companies means they are not able to participate effectively in the capital-intensive oil and gas sectors.

Strategic partnerships with experienced West African banks and insurance companies are one of the many options the East Africans are pursuing as they also seek to import oil and gas financing skills.

In the past year, Ghana Re and Nigeria’s Continental Re have opened branches in Nairobi, with their major focus being the oil and gas sectors.

Last week, Nigeria’s GT Bank announced it was buying a 70% stake in Kenya’s Fina Bank, again with an eye on oil and gas. Ecobank Kenya also announced it would launch an investment bank in September to finance deals in these sectors.

Calisto Ogaye, the MD of Continental Reinsurance’s regional office in Nairobi, said the reinsurer was partnering with regional insurers to develop products, such as underwriting pools where regional reinsurers could underwrite small proportions of the risks.

"Gradually they will develop the necessary financial and technical expertise to reduce the amount of premiums that are ceded to foreign reinsurers," said Mr Ogaye.
Only on Monday, Ecobank Transnational said it had started operations in South Sudan, its 34th country on the continent.

"Our presence in four of its six bordering countries, namely Kenya, Uganda, the Democratic Republic of Congo and the Central African Republic, is a unique advantage to contribute to the development and integration of South Sudan’s young republic." Ecobank CEO Thierry Tanoh said.

East Africa Community governments were working on a policy that would require the oil and gas insurance business to pass through local insurance companies, said Israel Kamuzora, the head of Tanzania’s insurance regulatory authority.

"This is intended to prevent the business from eluding the local companies. The option insurers are pursuing is to form an oil and gas insurance pool, and employ people with specialised oil and gas insurance skills. The pool will not retain risks, though, but act as an agency," said Mr Kamuzora

Last week, one of Nigeria’s biggest banks, London-listed Guaranty Trust Bank, announced the acquisition of 70% of Kenya’s medium-sized Fina Bank in a deal yet to get final approval from the regulators in Kenya. Guaranty is a strong player in Nigeria’s oil and gas sectors.

Ecobank Kenya is in the process of getting the final licences to start an investment bank, CEO Ehoumann Kassi said. Earlier this year, the bank bought the local subsidiary of the London-based African-focused fixed-income securities firm Iroko Securities Limited.

Another West Africa-based financial institution, Bank of Africa — Kenya, is also focused on the oil and gas sectors, although not directly but by financing small and medium-size enterprises benefiting from investment optimism created by oil and gas discoveries.

The bank last year decided to retain the 15.5% stake after the exit of private equity firm Aureos East Africa Fund, leaving Netherlands Development Finance Company, with a 20% stake, as its only other shareholder that is not related to the parent group.

By Steve Mbogo