Kenya seeking out Libyan expertise for its oil business
05 Jun 2007
The President Mwai Kibaki visit to Libya, which was scheduled to begin yesterday, comes against the backdrop of Tripoli’s increasing interest in the petroleum sector in Kenya. The state-owned Tamoil of Libya is among the foreign investors that have expressed interest in the $322 upgrade of the Kenya Petroleum Refineries Ltd project.
Tripoli has also been discussing two other projects with the government, a $45 million liquid petroleum gas facility project and $22 million truck and rail loading project, both of which are to be located in Mombasa.
President Kibaki’s visit to Tripoli also comes hardly a month after the government announced that all the three projects had been approved by the Cabinet after discussing a White Paper prepared jointly by the Ministries of Finance and Energy.
Although the government said in the statement that the projects would be subjected to competitive bidding, with foreign investors being invited to buy equity, Libyan companies clearly start at an advantage because the government has already signed a memorandum of understanding with Tripoli, committing it to work with Libya in implementing the projects.
It all began in January when a team of Ministry of Energy officials, led by Permanent Secretary Patrick Nyoike, who were in Tripoli on an unrelated business, secretly signed the memorandum of understanding with Libya. Mr Nyoike signed for Kenya while the chairman of Tamoil Holdings Africa Ltd, Dr Ali Shamekh signed on Libya’s behalf.
Although ministry officials have argued that the memorandum of understanding signed with the Libyans does not give companies from that country exclusive rights to implement the lucrative projects, it is clear from reading the document that the government’s intention was to give the projects to Libyan companies.
“This MoU shall be governed by and interpreted in accordance with the laws of the Republic of Kenya. Disputes shall be resolved by arbitration in accordance with ICC rules,” says the agreement.
Under Article 4 of the memorandum of understanding, Tamoil said its intention was to have the majority shareholding in both the refinery and the LPG projects.
“Tamoil expresses its interest in taking equity and will provide funds for the above mentioned projects, which demonstrate economic viability,” adds the report.
But what is bound to cause most anxiety among Western multinational oil companies operating in Kenya is the proposal to allow Tripoli to participate in supplying Kenya with both crude oil and refined products. Apparently, the government is keen to see Tripoli make an entry into the oil marketing scene in Kenya in a bid to break the stranglehold, which the Western multinational oil companies have for decades maintained in the oil business.
Currently, importation of oil in Kenya is done by the multinationals and local companies through an open tender system presided over by the Ministry of Energy.
In order to make the process competitive, the government has always wanted to broaden the supply of oil sources to include Libya. The thinking by the government is that competitive pressure from Libya will eventually push pump prices down.
In the memorandum, the government stated that having set the minimum crude oil imports at 1.6 million tonnes annually in order to ensure the commercial viability of the Kenya Petroleum Refineries, it was ready to negotiate with Libya the possibility of supplying up to 60% of what the Kenyan market needs. The current demand for petroleum fuels, which is met through imports of both crude and refined products, is close to 2.8 million tonnes and is expected to rise in concert with the rising growth of the economy.
Libya has in recent years begun playing an increasingly visible role in terms of investment and trade in East and Central Africa. Only recently, Tamoil clinched the multi-million dollar contract to build the Kenya-Uganda oil pipeline between Eldoret and Kampala.
Currently, Tamoil is finalising negotiations to acquire assets of multinational Mobil Ltd in Kenya.
Libya has already joined the Free Trade Area of the Common Market for Eastern and Southern Africa (Comesa), giving it duty-free access to the markets of the 14 member states in the trading bloc.
The high profile which Libyan companies are beginning to assume in East Africa is also a reflection of increased activity by companies from other parts of the Arab world in the region. Only recently, Lebanese company, SolvoChem Group purchased a chemical terminal owned by Shell in Mombasa.
Consequently, Shell announced that it had given the Lebanese group exclusive rights to distribute its chemicals in the Eastern Africa region.
Source: The EastAfrican