Impact of the oil discovery in Turkana, Kenya

Oil drilling in Turkana
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  • Written by:

    Dan Mwangi

    5 years ago Turkana County was known for pictures of malnourished children and hunger stricken adults in news headlines. But this picture is gradually changing. The turning point came with discovery of oil at Ngamia 1 in Lokichar Basin three years ago. The oil discovery has now turned pastoralists into property investors and Turkana is seeing an influx of foreigners, a new crop of visitors who can pay for accommodation and sleep in guesthouses. A few years ago, the town only had three hotels and five ‘‘sub-standard facilities’’ that offered accommodation to long distance truck drivers or commuters travelling to Lodwar, Kakuma, Lokichoggio and South Sudan. Most locals, even those visiting other towns, never stayed in guesthouses, which were charging Sh300 a night. A visitor would be given a mat to sleep on outside the manyatta with a shuka (sarong) for the cold.
    But now guesthouses in the town like Zebra, Another Chance and Naperobei are fully booked. Land prices have soared. Three years ago an eighth of an acre in the town was going for Sh80,000, but now none of the residents would sell the same piece of plot at below Sh400,000. The growth of Turkana has turned the nomads into entrepreneurs. The construction boom has opened new business opportunities for locals who sell building materials. Transport business is also flourishing, fuelling investment in petrol stations. There are about 10 new petrol stations along the Kitale-Lodwar-Juba highway. On the other hand, Kapese airstrip in Lokichar has undergone a Sh174 million facelift with an extended runway to accommodate larger planes. Airlines that frequent the Kapese airstrip include Astral Aviation, Phoenix Air, Flying Doctors, Tropic Air, Safarilink and chartered planes contracted by Tullow Oil to transport its workers.
    The oil discovery has attracted other investors offering auxiliary services to Tullow Oil and its workers. Atlas Development and Support Services (ADSS), for instance, set up an operational base along the Kitale- Lodwar- Juba road. The company invested Sh180 million to set up a logistics hub which provides support services such as medical, storage, housing for oil firms that have set up shop in Turkana. For the oil firms, relations with the locals has not been rosy. Two years ago, residents demonstrated on Tullow Oil’s Twiga 1 drilling camp demanding jobs and other benefits. But the dispute was solved and company pledged it would boost its engagement with the local community.
    The oil firms have started with investment in the education sector. Canadian firm Africa Oil has invested Sh100 million in refurbishing Lodwar Youth Polytechnic to equip locals with skills in the emerging oil sector. Africa Oil which is currently exploring oil in northern Kenya in partnership with Tullow Oil raised its exploration block estimates to 1.3 billion barrels by September last year.
    However, the oil discovery has fuelled inter-communal violence as neighbouring communities battle over control of the oil-rich region. Turkana South MP James Lomenen and Turkana Senator John Munyes said the discovery of oil has triggered border conflicts in Lorogon, Nakwamoru, Napeitom, Juluk, Kainuk, and Kalingorock villages. Pokot leaders claimed ownership of Lokichar, triggering cattle raids closer to the oil fields in places such as Kakong and Nakukulas.
    Crime rate has also increased in the region and highway banditry has made some roads impassable. The insecurity has forced motorists to hire police escort to protect them from attackers. The stretch between Marich pass in West Pokot to Lokichar on main Kitale-Lodwar highway is the most insecure section of the road.
    The locals, however, see a better future despite the insecurity that has come with the discovery of the resource which promises to spur economic growth in the region that had been marginalised since Kenya regained its independence five decades ago. Living standards have improved after the oil discovery. People are doing small businesses. Some have bought or borrowed vehicles from friends in other counties to start car hire businesses. Even women supply charcoal and vegetables to oil firm workers.
    Oil could earn Kenya at least Sh66 billion a year in sales and windfall tax. The reserves are estimated at 600 million barrels of recoverable oil with the first production to start in 2021, with a production span of 20-plus years. The report estimates a barrel to cost Sh4,500 and assumes that production will peak in 2025 and 2030. Windfall tax is levied on companies that will benefit from the Sh400 billion crude pipeline and its oil when the price per barrel is greater than the set threshold of Sh5,000.
    Global oil prices have in recent times hit a 12-year low, selling at around Sh3,000 a barrel, a situation that has discouraged investments. But on Friday the price per barrel was steady at Sh4,400, a few cents above the previous day’s close (Thursday).This implies that the current situation could favour Kenya if production begins soon.
    But if the price per barrel falls further, that would not, in the long run, be beneficial to Kenya because the revenue earned would be minimal. Higher oil prices attract better revenues for oil exporting countries. The estimates on Kenya’s expected revenue from oil resources are based on the government’s production sharing contract with investor Tullow Oil. The report states that Kenya’s earnings will come from oil profit and windfall tax, with more revenue flowing in through the government’s right to acquire equity stake in the project. According to the report, the earliest that oil from Kenya can be exported is 2021, a scenario that Tullow Oil has also forecast. A final investment decision in 2017/18, at the earliest, will prepare the way for production.

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