The Kenya Civil Society Platform on Oil and Gas (KCSPOG) has questioned the overwhelming government backing of the early oil pilot scheme (EOPS) project a no profit making venture that could lead to losses of $29 million at current market prices as well as wasted resources in the upgrading of the refinery for storage expected to cost an estimated $15 million.
According to the oil and gas lobbyist umbrella body the decision to use road over rail and pipeline leads to more expenses in transport that are unlikely to be recouped unless the low price environment reverses.
“Public statements have pointed to a number of different reasons for proceeding with a truck/train export scheme rather than focusing exclusively on pipeline exports. While there may be an element of truth to each of these claims, more reasons do not necessarily make a more convincing case, says KCSPOG coordinator Charles Wanguhu.
According to their report dubbed Early Oil from Turkana: Marginal Benefits/Unacknowledged Costs road transport will see costs higher than pipeline by $2 per barrel ($10.50) as well as added charges from the leasing of isotainers (annual Rental for 70bbl is $1825) and storage fees which add up to $2.25 per barrel.
The report also expects capital expenditure from purchase of 36 trucks, 36 trailers and 2 cranes each at 150,000, $25000 and $150,000 respectively as well as operating costs that add up to 18,000 a day as estimated from diesel usage and driver wages and $1,000 daily as payment for crane operators.
Costs of rail are much lower calculated as purchase ($150,000 for unloading crane +Gantry crane), ($500 / day) operating of cranes for Eldoret Stockyard and ($6.50 /bbl) freight fee paid to Rift Valley Railways Ltd.
“It would appear that matters external to economics are significant driver behind the push for early oil. In an election year the official launch of oil could be heralded as key milestones for the government,” adds Wanguhu.
The platform also warns that the early oil poses various project risks that could undermine the final investment decision for the full field development plan. Some of this reasons include: unmet expectations especially with the local communities, violence in 6 of 19 counties where the trucks are expected to pass through as election nears logistical failures and the health and safety risks especially with the high road carnage seen on Kenyans roads.
“Kenya also has a history of accidents when trucking/train petroleum products. The parking of petroleum trucks at night, which is unregulated, is also considered a high-risk practice. Kenya’s history with trains and trucks indicates that managing to efficiently transport oil from Turkana to Mombasa will be a challenge. It may serve to further highlight the infrastructure problems the country faces. This could have consequences for the company and for government, including protests from affected communities along the truck and train routes,” reads a portion of the report.
Tullow Oil and joint venture partners Africa Oil and Maersk Oil and Gas approved the final investment decision for the scheme last week.
KCSPOG also wants contracts between the government and the IOCs disclosed in a move to promote transparency. KCSPOG further wants the International Finance Corporation IFC to push Africa Oil (one of the JV partners) in line with its policy to have contracts between governments and companies it funds made public.
Another major concern by the report is the fact that the government is yet to initiate a recovery audit with IOCs estimating to have spent $1.5 billion to date.
“We launch this report to spur public debate on whether the costs associated with EOPS are worth the benefits. It is our hope that the analysis in the report will help inform the public debate,” Wanguhu concludes.
KCSPOG presently has 13 member organisations that contribute differently to the strengths of the platform including: The Southern and Eastern African Trade, Information and Negotiations Institute (SEATINI), Econews Africa, Friends of Lake Turkana,the Institute for Social Accountability, Danish Demining Group, Kwale County Natural Resources Network, Oxfam GB, Katiba Institute, Kenya Land Alliance, Peace Pen Communications , Transparency International Kenya, International Institute for Legislative Affairs and the Kenya Human Rights Commission.