Authorities in Kenya have begun working on an oil revenue policy to ensure proceeds from the country’s newly discovered oil wealth are properly used and guarantee the resource is a blessing rather than a curse, as has been the case in most oil-rich African nations.
Kenya Finance Minister Njeru Githae tells Engineering News that the country’s Treasury has started drafting an oil revenue policy that outlines how oil revenue will be spent.
He says the policy will borrow heavily from countries that have successfully managed their oil revenue.
Kenya joined the ranks of oil-producing countries when British company Tullow Oil discovered oil deposits in northern Kenya.
While the company has not completed drilling the well to a depth of 2 700 m before carrying out conclusive tests to ascertain whether extracting the oil will be commercially viability, initial tests indicate the oil has an API that is greater than 30º and that it is waxy, like the oil produced in Uganda and South Sudan.
Tullow Oil, which also discovered huge deposits in Uganda, estimates the Kenyan deposits could average two-billion barrels.
According to Githae, the Kenya government will have to perform a critical balancing act to ensure the resource benefits the country and the local community while making sure Tullow Oil is rewarded for its investment.
“For Kenya, the discovery will be a major blessing, and not a curse, [as has been the case in some] African countries. The oil will help turn around and modernise the economy. We will use the resource to lift our people out of poverty,” he says.
He adds that some of the oil revenue will be used to transform the area where the oil is extracted.
Turkana County, where Tullow Oil’s deposit is located, is poverty striken and, for years, has experienced tribal conflict and cattle rustling.
Githae said the discovery of oil in Kenya would ease the burden of oil importation for the East African country, which saw its petroleum import bill surge to $2- billion last year. Kenya is a net importer of petroleum, which accounts for 22% of all primary energy sources, and demand has been growing steadily at an average of 10% over the past decade.
“The oil discovery will mean reduction of the petroleum import bill and Kenya will have cheaper oil for local consumption,” he says.
The Minister states that the discovery will also help Kenya build its foreign exchange reserves, which have drastically dropped to below $4-billion – equivalent to 3.7 months’ import cover, which is below the statutory requirement of four months’ import cover.