State will not fund Turkana oil pipeline

An employee of Tullow Company breaks a seal from trucks of the first crude oil consignment from Lokichar, Turkana upon arrival at the Mombasa's Changamwe KPRL storage facility. [Maarufu Mohamed, Standard]

The Government will not invest any money in the Turkana-Lamu crude oil pipeline, with the companies that are exploring for oil expected to source for funds to construct the line.

The 900-kilometre pipeline is projected to cost Sh100 billion, although a consultant is currently undertaking preliminary designs that are expected to inform the shape that it will take as well as the cost.

A senior advisor at the Ministry of Petroleum and Mining, Brian Muriuki said the firms – Tullow, Africa Oil and Total – will be required to source for funding, which he expects to be largely loans.

“As you know the Government of Kenya has been quite instructive that we are no longer providing sovereign guarantees for projects... they must stand on their own feet,” he said when the ministry gave an update on the Lokichar oil project yesterday.

“We will be going to the market, and we will do 70 per cent debt and 30 per cent equity.”

He said the upstream will be paying tariffs to the transportation of the crude through the pipeline and the revenue will be used to finance the debt.

“As revenues come from the transportation of the crude, you will pay your operation expenditure first and pay your lenders,” he told the firms.

At the same time, Mr Muriuki said the Government is still pursuing plans to a sell stake in the National Oil Corporation of Kenya (NOCK) to raise funds for the State-run firm to buy into the Turkana oil fields and the planned crude oil pipeline.

Kenya had planned to raise Sh100 billion by cross-listing NOCK at the Nairobi Securities Exchange and the London Stock Exchange. The funds would be used to exercise buy-back rights in the Lokichar blocks that are expected to start producing oil commercially by 2022.

The agreement with the oil firms allows Kenya to buy up to 35 per cent stake in the blocks.

The listing has delayed, raising doubt as to whether the Government plans to go ahead with the plans.