Category Archives: oil industry

Tullow to truck Oil from Turkana to Mombasa

Tullow Oil has an advert in the newspapers today seeking suppliers to help it transport oil from  Lokichar, Turkana to Mombasa. There are two requests:

  • For registered truck companies in Kenya, that have new vehicles, and experience transporting hazardous material.
  • The other is for a lease of 100 pressurized insulated containers of 25,000 litres each. (Presumably, these T11 standard containers can also be transported by railway).

There is a bit of regional and domestic politics here. While Uganda seems to have opted to refine its oil and ship it out via a pipeline in Tanzania, Kenya wants to show that it can deliver on that in the short-term.

Trucks on a highway (via AfricaKnows.com)

Trucks on a highway (via AfricaKnows.com)

Also, the Jubilee government is checking off all its pre-election promises and while the one to prioritise the construction of an oil pipeline from South Sudan and a new oil refinery at the coast may not materialize, expect by the August 2017 elections to have a barrel of Kenyan oil shipped out from Mombasa, regardless of the means of transport or the cost of production.

Once oil is trucked to the coast, the long-term picture could see a lowering of the costs and perhaps  re-engagement by other countries in the region on the suitability of shipping oil through a pipeline in Kenya.

Mining Moment: Kenya Mining Forum

Excerpts

Kenya’s Mining Cabinet Secretary, Dan Kazungu; Kenya has a $30 million budget for an aerial mineral survey, and will also start a mineral data bank & audit unit

  • Kenya has gold, coal, iron, copper, titanium, niobium, fluorspar, limestone, CO2 (carbacid in Kiambu), gypsum and gems.
  • In April, the cabinet approved a mining & mineral policy, and in May, Kenya repealed the 1940 mining act and replaced it with a new progressive law.  The mining act 2016 aligns itself to 3 documents – the 2010 Constitution, Kenya Vision 2030 and the AU Africa mining guidelines
  • Mining was an environmental ministry department until Jubilee made @madinikenya an economic transformation pillar.
  • The new application laws are simple, clear, predictable and transparent for a level playing field. They engaged the industry and there will be no more single-person decisions. Committees will give feedback on mining requests in 3 months with reasons, and if  mining applications are for worth more than $500  million, it has to go through Parliament.
  • Intra-Africa trade can also include legally-trade minerals i.e make Kenya a trading hub (not a smuggling one)!

Patrick Obath: How can Kenyans get more mining information? Right now it’s only in the gazette which hardly anyone reads.

Central field at Base Titanium, Kwale, Kenya.

Central field at Base Titanium, Kwale, Kenya.

Martin Ayisi: Kenya law now recognizes artisanal mining . . can have impact like Mali where they produced 23 tons of gold worth $742 million in 2015

  • Kenya government can now award some mineral rights by tender, as opposed to the first -come, first-served way.
  • Prospecting consent is guaranteed by law .. the challenge is when to apply for formal permission.
  • Mining investors hate when governments change the rules midstream.
  • Kenya is creating a national mining corporation but there have not been success stories in Africa. Nevertheless, they will take on lessons from Ghana and Zambia and learn from those.

Dominic Rebelo: Miners are concerned that at the end of licenses, all assets go to the Government (immovable ones go to the national government, and movable ones to the county government) ..some investors will scale back operations and sell-off (strip) assets to preempt this before their licenses end.

  • Mining companies and mining support companies will be licensed and have comprehensive disclosure & progress report requirements. This is to lock out briefcase ones, or people who sit on licenses for speculation.
  • Large mining companies are to list 20% in 3 years, but stock exchanges require 5 years of  profit – there may be a need to create a special stock exchange for mining companies. Also,  the government gets 11% for free (10% equity + there’s 1% stamp duty to be paid).
  • If a mining investor finds a strategic mineral, they have to stop operations indefinitely & declare the find. There needs to be certainty of what is defined as a strategic mineral, and a defined process of getting a mineral on or off that list.

Of Games and Theories: Fuel Prices…

You have no idea how my pocket flinched at the news of increase in fuel prices. (see the notice by ERC here).  I literally frowned as I imagined queuing at the chaotic bus stands to avoid the rumbling belly of my petite car. Why do these fuel prices keep going up and in the same rhythm come tumbling down? Why is it that sometimes everyone seems to be hurriedly dashing to fuel stations and in other times station owners are desperately investing in ‘happy’ franchises to attract more customers? Even the non-car owner, the one using public transport is directly affected by the fluctuating fares that usually don’t come down after significant upsurges. What exactly is the game? Or is there a plausible theory?

So I brushed through a couple of articles on the volatility of oil prices and whoa! it took me back to the fourth of nine rows of our 20xx macroeconomics class. The demand, supply, and price elasticity curves, that gave me a really hard time in year One of campus, suddenly begun to make sense. (looking forward to the day I will say the same for parallelograms!)

The theory. Positive shocks would be as a result of increased production from OPEC (Organization of the Petroleum Exporting Countries) as well as non-export oil-producing countries. The increased supply in oil would automatically lower its prices. However, if any of the quotas of these 13 countries (Nigeria, Algeria, Libya, Angola – just to proudly mention the current African member states) are curtailed in the sense of production or political issues, then prices automatically go up due to increased demand for oil. Negative shocks would result from significant decline in demand. Case in point – China. When such a large economy experiences severe downturn, the whole world cries because this very large customer is unable to buy in its unusually large quantities.

The games. In a monopoly (one seller/producer for a product), no competition exists and so the company can demand any price it from its customers for this precious commodity. For duopolies, the two companies have to work in a way that they balance their margins and market share else they can easily find themselves at the mercy of the consumer. The real games lie with oligopolies such as the OPEC cartel because the real power (pun intended) lies at their feet. And the more power an OPEC member state wields, the greater its political influence. Some theorists argue, though, that cartels help regulate the volatility present in every commodity market. Well I don’t know about that, all I remember is that some of us really suffered from the cartels that happened at the University library.

PS: Did you know that chewing gum, crayons, lipstick, sports equipment, and wrinkle-resistant clothes are made from petroleum (by) products?

Guest post by Tesha Mongi (visit her blog) 

Kenol Kobil 2016 AGM

KenolKobil had its annual shareholders meeting on May 12, at the Hilton Hotel in Nairobi. The board chairman spoke of the company’s performance in the three years since they had lost Kshs 6.2 billion. They had thereafter embarked on a turnaround that involved reducing costs, divesting from non-performing territories, focusing on profitable business rather than growing their market share, paying down debt, and corporate governance moves (separating the role of  Chairman & CEO role) .

Highlights

Regional Business: 

  • Tanzania: The company would up their short foray in Tanzania where they were losing $2 million a year. They had a depot that was part of their venture was an expensive lease, and while fuel prices in Tanzania are set by the government, many companies sell below that price as they don’t pay taxes. The directors said that Kenol was a responsible company that could not and decided to close shop.
  • DRC: They invested here, but did not ship product there as they were not happy. with the business climate and decided to sell out.
  • Burundi is doing well despite the political turmoil there.

The board faces shareholders at the 2016 KenolKobil AGM

Dividends: One shareholder said the dividend was too low, but the chairman said they have a consistent policy of paying 25% of net  profit as dividend, while the Group MD (GMD) said they still had to pay down a lot of debt.  One long-term shareholder told the meeting, that it was better for the company to be conservative with dividends, rather than aggressive, like other companies, and come back in a  few years to ask shareholders to invest more money in a right issues

Property: They have decided not to put up an office building in Haile Selassie street in downtown Nairobi for now as the office property market is saturated.

Goodies: Lunch box (which Hilton guards would not allow to be eaten on site), and tote bag. Some shareholders pleaded for the company to provide them with caps and umbrellas to promote the brand.

Odd Point: One shareholder asked why the AGM had not started with  prayers. The Chairman said it would not be productive, as they would have to have prayers for Christian, Muslim, Jewish, and traditional African religions  to be fair to all shareholders present.

Oil Pipeline, Economics & Politics

It’s been reported that the oil pipeline from Uganda is going to go through Tanzania, not Kenya. Two forgotten facts about the Uganda oil decision are that; (1) President Museveni of Uganda has been steadfast that he wanted to refine oil in Uganda, not export raw crude (2) Uganda’s oil has been said to be waxy or heavy. This means it would require complex heating to keep it flowing along a complex oil pipeline through the rift valleys and hills – to the coast of Kenya.

M7 poster 2

The cost, insecurity and difficulty of building infrastructure have been cited reasons that Uganda opted to go through Tanzania. Still, Kenya has several LAPSSET projects on the cards including an oil pipeline to go to Lamu where there would be a new highway, railway, coal plant and modern, deep-sea port.

Pipeline Impact

Last year at the TDS Nairobi summit, during the 10th Ministerial Conference (MC10) of the World Trade Organization (WTO), a session was held on local content in extractive (and oil) industries. Some interesting comments there included:

  • It is a legitimate objective for any resource-rich country to try to maximize the value of its resources.
  • If a country puts restrictions on raw exports, it may distort the local economy; it creates artificial demand – and if it is not efficient, local related industries will not survive.
  • Kenya energy expert Patrick Obath suggested that Kenya, Uganda and South Sudan have to talk together and implement projects together for projects like the oil pipeline to be viable. That would also have to happen to get more value-addition from the oil in the countries e.g. can the countries plan to get fertilizer from oil?
  • With mining, you have 20 years of opportunity for local suppliers and jobs, but with an oil pipeline that’s only there in the beginning, then goes away once the pipeline is built (there won’t be many local jobs after, and communities don’t get an economic boom from having an oil pipeline passing through their land..which may lead to some local frustration).

More on Kenya Pipeline:

oil tankers

  • The Kenya Pipeline Company is charged with transporting and storing petroleum products.
  • A (presidential task force on parastatal reforms proposes the Treasury incorporate a holding company known as the Government Investment Corporation (GIC), into which Kenya Pipeline Company should be transferred to determine (its) intended privatization.
  • Meanwhile, Kenya Pipeline is continuing with its projects including replacing the current Mombasa-Nairobi Pipeline.