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Thursday, 31 July 2014

Mining law delay may cost Kenya major investment

Regulatory uncertainty, corruption and infrastructural deficiencies could cost Kenya billions of shillings in lost investment.

Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader, believes that delays in passing the Mining Bill, and the resulting regulatory uncertainty, could force investors to put their money elsewhere on the continent. He cited Nigeria’s example where delays cost the country between $50 million (Sh4.4 billion) and $100 million (Sh8.8billion) in lost investment.
The news comes after a review on Africa’s oil and gas industries published yesterday showed that key investors had delayed or cancelled projects elsewhere in Africa due to regulatory uncertainty or legislative delays.

In a phone interview on Wednesday, Bredenhann told the Star that delays increase the likelihood that exploration firms will target Kenya’s competitors: “There is evidence in Africa that companies indicated they had plans to invest but went elsewhere”.
“They cannot move forward with doubts, given the long-term nature of the needed investments,” he added.

Oil was first discovered in January 2012, by Tullow Oil Plc, but 18 months later the legal framework is still at the debate stage in parliament. The first off-shore gas deposits were found last September.

Mary M’Mukindia, an industry expert, said in a phone interview yesterday that she believed delays and poor regulation could impact heavily on gas exploration. “If there aren’t rigorous structures in place, including pricing structures or formulas which relate to generating electricity from gas, then that will impact negatively. We [Kenya] are are also competing for investment dollars with other attractive locations.” On the subject of infrastructure she added: “Definitely infrastructure is an issue. Back in June one of the logistical companies made a plea to Minister Balala over a bridge that is in danger of collapsing. It led to the gas exploration areas, so it would shut down the industry! And that is just one little bridge.”

The report adds pressure to Mining Minister Najib Balala, whose exclusive power to grant mineral rights contracts has this week been questioned by MPs. Members are now planning to introduce amendments that would create a board to exercise some of those powers and check against abuse, a move that will further delay the bill’s passing into law. The review details that, in other countries, companies indicated that uncertain regulatory framework was a significant impediment to developing an oil and gas business.

Although Kenya’s oil and gas industry is nascent, its challenges reflect those felt previously by organisations around the continent, with the top three issues of uncertain regulatory framework, corruption and poor physical infrastructure also identified as the biggest challenges facing Africa in 2010 and 2012.

The PwC report shows that despite issues, the oil and gas industry in East Africa continues to show substantial growth, with new hydrocarbon provinces developing at a significant pace.

Earlier this week analysts at Standard Bank reported that recent oil and gas discoveries have the potential to fundamentally transform Kenya’s economy through investment in road, rail, power and industrial infrastructure.

Source: The Star