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The East African : Oct 13th 2014
44 SOVEREIGN WEALTH FUND BILL DRAFTED IMF urges caution over Kenya’s oil and gas revenue potential The EastAfrican BUSINESS OCTOBER 11-17,2014 Local fi≥ms set to p≥ovide clean ene≥gy By KENNEDY SENELWA Special Correspondent EAST AFRICAN farmers are set to benefit from $1.2 million in grants for renewable energy projects for value addition in agriculture. The clean energy projects in Kenya, Tanzania and Ethiopia aim to deliver more power for agriculture production and processing, off-farm businesses, and commercial activities. Five of them will be in Kenya, four in Tanzania and three in Ethiopia. They are among 22 win- ners of this year’s Power Africa Off-Grid Energy Challenge. The Challenge, funded by POTENTIAL Turkana governor Josephat Nanok, Tullow Kenya country manager Martin Mbogo and British High Commissioner to Kenya Christian Turner at an exploration site in Turkana. Pic: File The Fund said new discove≥ies of oil, gas and mine≥als could imp≥ove Kenya’s exte≥nal fiscal p≥ospects By KENNEDY SENELWA Special Correspondent T he International Monetary Fund has warned that Kenya’s fiscal position could deteriorate if government expenditure increases and the expected high oil and gas revenues fail to materialise. The IMF said new discov- eries of oil, gas and minerals could improve Kenya’s external fiscal prospects in the medium to long term. Tullow, a major investor in Kenya’s oilfields, estimates reserves to be above 600 million barrels of oil equivalent (mboe), comparable to Equatorial Guinea and the Republic of Congo. “If this is confirmed, it could bring Kenya’s external current account to surplus soon after exploitation starts,” said the IMF. Kenya is expected to be- come self-sufficient in oil production within three to five years. Prospectors drilled at least 15 exploration wells between March 2012 and June 2014, an average drilling rate of seven wells per year; previously it was at the rate of one well every two years. Kenya’s relatively high ex- ternal current account deficit, of about 8 per cent of GDP in 2013/14, is due to costly imports like equipment for oil exploration and a decline in agricultural exports. The central government deficit in 2013/14 remained unchanged from the previous year, at about 5 per cent of GDP. In addition, there was a higher wage bill and a rise in security spending. The IMF Staff Report on economic developments and policies says Kenya’s current medium-term budget does not include potential revenues from natural resources and plans for the creation of a sovereign wealth fund are premature. Treasury has drafted the Sovereign Wealth Fund Bill 2014 to establish the Kenya National Sovereign Wealth Fund (KNSWF) to undertake medium to long-term local and foreign investment. Seed capital of $114.9 million for KNSWF will be provided in the annual estimates of the national budget. However, the IMF says the sovereign wealth fund proposed by the task force on parastatal reform is premature as long as Kenya’s fiscal position is projected to re- “Kenya’s current medium-term budget does not include potential revenues from natural resources.” IMF Staff report main in deficit. The institution wants the terms of sharing revenues between central government and the counties to be decided once the volume and duration of exploitation of available crude oil with natural gas is known. Shared revenues The Petroleum (Explora- tion and Production) Bill set to be tabled in parliament is expected to provide a formula for oil and gas revenues to be shared between the national government, county government and local communities. The IMF says Kenya is re- designing the framework for oil exploration with model production sharing contracts (PSCs) as the petroleum regulatory and fiscal regime dating back to 1986 needs modernisation. “The production sharing scheme for oil does not reflect properly costs, prices, and production volumes, and needs to be revised. New production-sharing terms for gas need to be specified,” said the report. The Kenya Petroleum Tech- nical Assistance Programme (KEPTAP), supported by the World Bank, is building capacity in areas like geotechnical data acquisition, implementation of environmental, social and health and safety standards. The petroleum master plan is being developed to guide investment in crude oil and natural gas business up to 2044, under KEPTAP, using part of the proceeds of $50 million credit approved by World Bank on July 24. Kenya expects its estimate of oil resources to almost double to 1 billion barrels as well-drilling climbs and the government forges ahead with plans to build an export pipeline. Tullow Oil and its partner Africa Oil Corporation have discovered an estimated 600 million barrels of oil in the South Lokichar Basin since announcing the country’s first crude find in March 2012. The discovery has spurred the country to accelerate infrastructuredevelopment plans, including construction of an oil pipeline that will link Uganda to a planned port in the Kenyan coastal town of Lamu. The Ministry of Energy said, ‘‘Kenya is currently reviewing the Petroleum Exploration and Production Act of 1986, with a model PSC used to award blocks to companies.” The formula for calculating revenue will ensure Kenya’s share increases according to hydrocarbons output. Production costs and total revenues realised by a firm will be used to compute the government’s share. “A profit split formula of calculating government revenue based on daily rate of production (DROP) in PSCs will be replaced by ratio (R)factor derived from a firm’s cumulative hydrocarbons revenues to total costs,’’ said the Ministry of Energy. Kenya’s current production sharing contracts have profit sharing computed on the basis of the first tranche of 20,000 barrels of oil per day (BOPD). The next level is 30,000 BOPD, 50,000 BOPD and next over 100,000 BOPD. General Electric (GE), the United States African Development Foundation and USAid, promotes innovative solutions that develop and scale up technologies to increase access to reliable, affordable power. According to International Energy Agency, only 12.9 per cent of rural communities in sub-Saharan Africa have access to electricity, compared with 64.2 per cent in urban areas. Power Af- customers. Clean cooking stoves re- duce air pollution, improve health, reduce deforestation through decreased fuel use resulting in increased household savings. Biodiesel supply Kitui Industries Ltd re- cently started processing cottonseed oil to biodiesel. It will supply below market price biodiesel and multipurpose engines to 105 farmers with small-scale agricultural units in rural areas in eastern Kenya. Sollatek Electronics Kenya Ltd will work with 15 fishing communities along Kenya’s Indian Ocean coastline to install solar centres in each area to provide cold storage for fish as well as solar lantern rentals. Scode Ltd sells and fi- Number of projects that won this year’s Power Africa Off-Grid Energy Challenge 22 rica co-ordinator Andy Herscowitz said US government agencies and other partners in the White House-led initiative are working with the private sector to increase electricity access in sub-Saharan Africa. “Although less than a year and a half old, Power Africa and its partners are making progress in alleviating energy poverty. We look forward to increasing efforts across sub-Saharan Africa in months to come,” he said. Pfoofy Power and Light Ltd will use the $100,000 grant to develop two 10- kilowatt solar charging stations for 40 electric motorcycles, providing lower-cost transportation for goods and services in western Kenya. Boma Safi Ltd distributes solar and energy efficient products like solar lanterns and cooking stoves. Boma will develop rural distribution hubs in five regions in Kenya to strengthen the supply chain for off-grid nances small solar home systems with efficient cook stoves in Kenya. The firm provides loans to finance up to 85 per cent of cost of products, Customers through custom metering devices repay the loans on a pay-as-you-go plan. GE Africa chief executive officer Jay Ireland said the high quality of submissions received from 300 applicants showed the incredible innovation and entrepreneurship that is happening across the continent. “GE has a rich history in Africa that spans more than 100 years and we are very pleased to be a part of this Challenge to help identify and accelerate projects that will help Africans to compete in the global economy,” he said. In Tanzania, Space Engi- neering Ltd is developing a hybrid solar-biomass plant to generate 40 kilowatts to be distributed in a minigrid to 592 households, two schools and one health centre. It will also supply power to nine local businesses to support maize and coffee agro activities. Jamii Power Ltd will ex- pand existing 11 kW solarbased mini-grid to 33 kW, providing a pilot platform to test its innovative smart meter that pools users, allows improved grid management and reduces nontechnical losses.
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