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

Africa Oil & Tullow Oil likely to seek partner for Kenyan oil fields

Canadian explorer Africa Oil Corp. and its partner Tullow Oil are likely to bring in a third partner to help develop their oil discoveries in northern Kenya, Africa Oil's chief executive officer said.

The firms discovered oil reserves in Block 13 T and Block 10 BB in northern Kenya's South Lokichar Basin, estimated at a combined 600 million barrels.

Experts say those reserves are enough to make a pipeline viable even without factoring in crude deposits of 3.5 billion barrels, found in neighbouring Uganda.

"We will likely bring on a partner to help develop Lokichar Basin reserves but no timetable has been set," Keith Hill said in an email response over the weekend to questions from Reuters.

Oil discoveries in Uganda and Kenya and gas deposits found off Tanzania and Mozambique have turned east Africa into a hot spot for hydrocarbon exploration.

Kenya, Uganda and Rwanda have invited bids for a single consultant to oversee a feasibility study and initial design for the construction of a 1,300-kilometre (808-mile) pipeline to transport crude to the Kenyan coast.

In April, executives of both Tullow and Africa Oil said they aimed to submit development plans to the Kenyan government in late 2015 for their discoveries.

Africa Oil also holds licences for exploration blocks in Ethiopia and in Puntland, a semi-autonomous enclave in Somalia.

Hill said Africa Oil plans to spend some US$1.6 billion this year and next in exploration activity on its blocks in the three countries.

"Our gross budget this year is over US$800 million ... and we would expect a similar amount next year but (that) budget has not yet been approved," he said.

Africa Oil and its partner Marathon Oil Kenya Limited B.V., a unit of U.S.-based Marathon Oil Corporation have also discovered gas in Block 9 in northern Kenya.

Hill said while the amounts had not been proven, they estimated the gas discovered at the block's Sala-1 well at between 0.5 trillion and 1 trillion cubic feet, although tests were still being carried out.

"(We) will spud Sala-2 appraisal well before end of July to help confirm," he said.

When announcing the discovery in late June, Africa Oil said it had held discussions with the government and power companies to see how to fast-track a gas-to-power project at the site.

"We have held several meetings with GofK (Government of Kenya) to progress gas-to-power project terms and believe these will be sorted out in next 60 days," Hill said.

Source: Reuters