Kenya’s Black Gold: Oasis or Mirage?

I am almost certainly convinced that when Jacobs wrote ‘The Monkey’s Paw’ he was thinking about oil. What could be a better analogy for black gold than a story where each wish made carries an almost absurd price. But maybe that’s just me; it certainly didn’t seem to be what the people of Turkana thought when waves of black ink worth very many arms and legs were discovered below the soil they walked. No, the people were filled with hope, enough to christen one building in the heart of Turkana ‘Black Gold Hotel’.  I imagine this was meant as a good luck charm, a symbol of better days, and brighter tomorrows paid for by the revenues expected from the sale of this newfound gold. 

I have never been to Turkana. In fact, I personally know maybe one person who has ventured that far. Situated in what was the Rift Valley province, it’s a place that’s heard about rather than seen. When it floods,  when it’s in the grips of yet another drought, and when cattle rustlers take enough lives to trigger the papers into publishing a story: then we are reminded of it. Other than that, it is more or less Kenya’s neglected stepchild. Good roads are virtually non-existent to say nothing of schools or hospitals. It is a land we have left to the pastoralists who have managed to draw water where we only see stones.

Yet, this casual disregard of Turkana came to a screeching halt in 2006 when all roads (bad or not) led there. Oil had been found in neighbouring Uganda. It only stood to reason that Kenya would be as oil rich as its sister-nation. There was a stampede of multinationals, eyes glittering, ready to break the soil and unearth their own small fortunes…I mean, our fortune. Even our disinterested politicos who would hardly flick the lint off their coats in that direction were suddenly interested. Turkana the neglected became Turkana the coveted. 

Predictions were as wild as they were fantastic: double digit economic growth, they said. We were going to be rich, rich, rich! We had to move fast, there was money to be made, lots of money just sitting under the soil, our soil. Initial estimates projected that Kenya would produce 80,000 to 100,000 barrels of oil per day. There was potential for 750 million barrels, some even said a billion, all commercially viable. Committees were set up to ensure all the regulations were in place so as not to miss the windfall that had landed like a white dove on our lap.

Lokichar Basin, the Turkana oil vein, relinquished its first oil in June 2018, a mere six years after exploration began. The first sale was made In 2019: 200, 000 barrels for Ksh 1.2 billion ($12 million). Here we were, a ‘mineral poor’ country and exporting oil. The light at the end of the tunnel was astonishingly bright and if you looked too hard you were momentarily blinded by the glare of possibility. Yet, even as Tullow Oil broke through the earth, fissures were already starting to form 

Tax Havens and Kenya’s Oil 

Doubtlessly, the first visible crack in the dreams of prosperity was the report released by Oxfam in 2016. 30 pages explaining the various ways Kenya was being taken to the cleaners. Or, at least was slated to be taken to the cleaners. The gist of the report was that the multinational corporations that had acquired petroleum rights had subsidiaries based in known tax havens.

To understand how this came about you first need to appreciate how many companies were awarded mining blocks and under what terms. Here another fissure arises. While the government does provide the names of the 41 companies that have stakes in the country, the terms of their Petroleum Sharing Contracts (PSCs) remain confidential. What we do know is that these 41 companies can be linked back to 35 firms. Working through unnecessarily complex company structures we arrive at 27 parent companies that ultimately won the various subsidiaries operating in the country. Of this 17 have subsidiaries registered  in well known tax havens.

Take Tullow Oil and Total for instance, with 50% and 25% state respectively, both are linked to the Netherlands. In 2015, Kenya signed a Double Taxation Agreement with the Netherlands which provides for zero or reduced rates on withholding taxes on dividends and interest. It is also interesting to note that the Netherlands was implicated in revenue losses plaguing Malawi’s own oil sector. 

Wouldn’t this all be avoided by a little transparency? It’s not an alien concept; Norway publishes ‘Fact Pages’ providing detailed information on current and past rights holders including the legal names of operators and joint venture partners, and dates when the rights were acquired, sold and relinquished. Why doesn’t Kenya do the same? It all comes down to the political pronunciation of oil. 

Kenya’s Oil History

The search for oil in Kenya was not a  new pursuit. British Petroleum (BP) and Shell began prospecting for oil in the 1950s. They were doing this in the Lamu Basin, believing, erroneously, that’s where they would strike gold. In fact, at the time, the Turkana region was considered to have little viability. The late President Moi, not one to expend energy chasing after the wind, barely gave the project a second glance. There was a ‘petroleum bill’ of sorts which was a few paragraphs long, if that. Even the National Oil Corporation of Kenya (NOCK) existed as little more than an appendix. 

Shell did eventually succeed in identifying oil in Turkana in 1992, which is when the true history of Kenya’s oil starts. Because though Shell did find oil, it abandoned its stake the following year citing the political climate at the time (which Western media, of course, took pains to sensationalise).The search for oil began again in 2002 when our elected economist, President Mwai Kibaki, took  office. NOCK was allocated more funding and Mary M’Mukindia,  a former ExonMobil executive, was appointed CEO. 

Everything was, in fact, working well…until it wasn’t. The failing of the oil dream has been linked to the resource curse. A curse, apparently, that is carried by minerals such as oil creating economic wealth while engendering political instability with a light garnish of disease. You don’t need to go far to see its existence: Congo is, quite literally, the textbook example. (Although, of course, these textbooks often conveniently leave out the role of imperialist nations in this ‘curse’, but, I digress).

This ‘resource curse’ befell Kenya even before really the resource could become profitable. It became a tool to barter with, create political goodwill, cement alliances and consolidate power and (as is custom) share the wealth with those whose turn to eat had arrived. Mwai was the first to use oil as political leverage, awarding a number of hurried PSCs from 2006 to 2007 to companies with dubious track record allied to his own political outfit. Transparency was rendered the handmaiden of political clout (yet, even this was not enough to secure a clear victory in 2007). Ultimately, M’Mukindia resigned in frustration in 2007: NOCK had become no better than a rubber stamp. 

Not one to pass up a teachable moment: President Uhuru and his Deputy William Ruto took their cues from Mwai Kibaki and refused to be outdone. “The county has no teeth,” exclaimed a Turkana county official, “when the ‘big people’ have spoken there is nothing anyone can do.” The statement effectively reflected what would characterize the Jubilee government’s own management of oil. An exercise in moving pawns, Uhuru and Ruto would divide every oil-related avenue between themselves leaving the people of Turkana to scramble for the falling bones. Discontent clung to the air.

“Since the discovery of oil, we are like dead animals. The vultures are hovering above us waiting to eat us, ” This was the frustrated cry of a lone woman in Lochwaa village where the six oil pads were discovered. And she was more or less right, the spotlight had shifted to Turkana but the people were as invisible as ever—perhaps even something more than invisible: a nuisance.

Things eventually came to a head when a determined group denied passage to the trucks carrying the initial 2018 oil consignment from Lokichar to Mombasa as a last negotiating tactic. It worked: it was only after an amicable conclusion was arrived at that the  lorries were allowed to pass.

How Far the Piped Dream?

It has been nearly a decade since the dream of oil was conceived and birthed. However, from where I’m standing it was little more than a bit of stardust collected on the seams of a traveller’s skirts. The predicted ocean of wealth has become little more than a shot in the arm.  The problems have been burgeoning really: the pipeline that was to be built with the sister country hit a road bump, which became a mountain, and has solidified into an impassable chasm. 

Ah, but what of this now-infamous pipeline? The pipeline which was meant to function as an assist of sorts, a paved path on Kenya’s road to oil glory. This did not happen, instead the pipeline acquired a life of its own and became yet another bad omen in a tale shuddering with them.  

Plans for the pipeline began to take root in 2014. After all, now that we were well on our way to being an oil superpower we couldn’t afford to dither on obvious technicalities — such as a pipeline. We did not merely want a pipeline, no, we needed one and one we would have.

Ideally, the Lokichar Lamu Crude Oil Pipeline (LLCOP) was a necessary investment to be undertaken jointly with Uganda. However, Uganda set its sights elsewhere opting to place its confidence in Tanzania. Costly, time-consuming, and probably not even worth the oil it is intended for, estimates have placed the cost of the pipeline at Ksh 4 billion with the state already having spent Ksh 1 billion  just on surveying the land. 

Initially, promises delivered by our resident optimists stated that the pipeline would take18 months to build. The tune has changed however, new figures have brought this to a 33 to 35 month timeline. Yet, beyond the diplomatic tension the pipeline has created, beyond even the money expected to be spent on it, a multitude of other problems has been linked to the undertaking.

A report by the World Wide Fund for Nature (WWF) highlighted a host of detrimental environmental and socio-economic implications of the pipeline. On the environmental front: the pipeline not only cuts through protected areas such as Rahole in Garissa and Nyambene in Meru, it also trespasses several important areas to wildlife, one being the crossing habitat for the Grevy’s zebra.

What of the socio-economic costs? The pipeline poses a significant threat to the tourism and fisheries sector in Samburu and Lamu with a likelihood that construction will damage key fishery nursery sites such as coral reefs. The question of land still haunts the project. A large part of it passes through community lands for which no title deeds exist. Given the nature of Kenya’s law as relates to compensation, the lack of a valid Title to the land may mean that the communities come away with nothing. 

The pipeline…it deserves a story on its own, there will be time for that yet. For now: we return to the big question:

What Next for Kenya’s Oil  

Come 2020 and Tullow Oil was neck deep in problems. The company that had the resources and capabilities to prospect in the country found itself in financial straits. It was looking for buyers for its stake but no one was biting. As the 2021 New Year rose majestically after a difficult period of lockdown, Tullow cowered before the rising sun. Things were bad and only seemed to be growing worse, In three short months shareholders lost Ksh 180.6 billion as the oil giant tripped and stumbled. Tullow Kenya, a casualty of the shock waves rocking the Mother Company, announced staff cuts.

It was a bad time for oil-sellers, earlier projections had estimated that a barrel would sell at $100 dollar. Yet here we were barely breaking $60. The Greta Thunbergs and Vanessa Nakate’s of the world were working hard, and it wasn’t in vain. Everyone was shunning oil, the market was contracting before the very eyes of those who had just hacked it.

A recent report by the World Wide Fund for Nature  established that the prevalence of upper respiratory tract infection (URTIs) has been increasing by the year, blamed on the high carbon dioxide concentration in Turkana. The risk of respiratory infections, heart diseases and even cancer had been significantly increased owing to the drilling operations in Lokichar. 

There is crude oil under the ground and it need only be mined and sold, as President Kenyatta put it. But there is also disease, degradation, and the other incalculable cost to the Turkana people. The oil will be sold, by luck or by sheer force of political will, too much has been paid for it to fail.

Yet we must imagine a better framework, with more transparent legislation, more efficient taxation agreements and with a closer eye on the people of Turkana. There is the Petroleum Act 2019 which attempts to address all these and all that is required of us is to apply and respect the ideals reflected there. The dream of oil, while tempered, is not lost. We may yet get our three wishes but only at the price that they merit.

Indeed, if oil is to help this country—our country—then we must demand better from those we have appointed its guardians. 

Commissioned by Tax Justice Network Africa

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