PUBLISHED ON March 2nd, 2015

Uhuru looks to Algeria for Lessons on oil

Kenya this week opened an embassy in Algeria and appointed Moi Lemoshira as the Ambassador Extra-Ordinary and Plenipotentiary of the Republic of Kenya to Algeria.

This was swiftly followed by an official three-day visit to Algeria by President Uhuru Kenyatta during which cooperation pacts were signed.

Onlookers were puzzled. What possibly could we want from Algeria?

It helps to understand that Algeria is the largest producer of natural gas in Africa, the second largest supplier of gas to Europe, the third largest producer of oil in Africa and so on.

More telling is that unlike many African countries, Algeria has managed its energy resources relatively well.

Sonatrach, the state owned oil and natural gas company, owns 80 per cent of the country’s hydrocarbon resources with international oil companies owning the remaining 20 per cent.

It owns a minimum of 51 per cent in any oil and gas project in the country and is the largest oil and gas company in Africa.

As Kenya moves to write the laws that will govern the oil and gas sector in the country, it will be instructive for players in that space to monitor the cooperation with Algeria to get an idea of where the Jubilee government is going with policy.

It was during the 2009 South-South conference on oil and gas that was held in Kenya that the then Energy minister Kiraitu Murungi announced that Kenya would soon join the league of oil and gas producers.

At the conference which was attended by global players in oil and gas, two things emerged from listening to examples from around the world.

For a country to successfully overcome the so-called curse of oil it needed a large pool of technical oil and gas personnel versed in all sectors of the industry. This would ensure that a county like Kenya could have its personnel overseeing the entire production chain to ensure the country is not cheated out of the value of its produce.

Countries like East Timor gave their experience in signing production sharing contracts where they omitted to include certain aspects such as the waste gas that is flared (burnt off) during oil production.

Such gases, it had later been found, could be sources of valuable extracts such as Helium which could be sold. However, because the sharing contracts did not include it, the revenues from such gases would not benefit the country but the partners in production.

The second key element to overcoming the curse was having the capacity, technically and financially, to carry out exploration and exploitation of the country’s resources without having to rely so much on foreign companies that can cite all manner of exploration costs that then have to be recovered from any revenues from oil and gas before the host country can benefit.

Middle East countries have been able to gain this capacity for the most part.

Algeria, which was represented at that 2009 conference, in particular gave a very impressive presentation.

Not only had it been able to take charge of its oil and gas sector, it had also built impressive local skills and had established the continent’s leading training school for oil and gas.

It not only had enough personnel able to work in this sector, it was training for others.

Kenya may be looking to head in this direction.

The Ministry of Foreign Affairs, in a statement issued after the signing of the pacts with Algeria said:

“As Kenya looks forward to commercial exploitation of its oil resources, we look forward to learning from Algeria’s expertise, including in the drawing up of appropriate legal frameworks and capacity building to enable us to take charge of our hydrocarbon resources right from the onset.”

The areas of cooperation will cover policy, legal and regulatory framework of the oil, gas and power sector; onshore and offshore exploration and production of hydrocarbons; development of petrochemical industries; refinery maintenance activities; domestic marketing, transport and distribution of petroleum products.

The only thing to note is that Algeria’s legal regime for oil and gas has been seen as somewhat unfavourable to foreign companies and has seen investment decline, so for Kenya it must balance between the good in Algerian laws and the need to bring in more investment especially as global prospecting for new oil slows down in face of slumping crude prices.

But we must by all means take advantage of this cooperation to train as many of our young technical people as possible to build the kind of capacity that will see us being able to handle any aspect of the oil prospecting and production process.

Given the impressive acquisition of skills in the geothermal sector that Kenyan has made in a few years through the activities of Kengen and GDC (Geothermal Development Company), the same can be replicated in oil and gas.

Mbugua is a communications consultant and comments on topical issues.

Source: the Star

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