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On Monday, President Kenyatta flagged off the first ever shipment of crude oil exports from our shores. By any yardstick, the event in Mombasa was a key milestone as we approach the transition to the ranks of oil exporting countries.
It was important for us to demonstrate, even as we await first oil in 2022, that we are slowly gaining the logistical capacity to successfully move crude oil from exploration fields in Northern Kenya to Mombasa and to export markets abroad.
Indeed, it makes a great deal of strategic sense for an aspiring oil exporter like us to hit the international supply chain as early as we have managed.
Yet, flagging off the first shipment of crude oil to export markets and hitting the international oil supply chain at this early stage is but the easy part.
The bigger challenge for the government and its joint venture partners is what has to be done to quickly enhance the project’s bankability and investability... in other words, to negotiate and promptly agree on terms that will make the project more attractive for financiers and investors.
Mark you, the project is faced with the gigantic task of unlocking an estimated $3.2 billion (Sh33.2 billion) of foreign direct investment — money that will be flowing into the country without the government having to issue sovereign guarantees.
According to plans, the project must now move quickly to the stage known in jargon as the Final Investment Decision Stage. With relations between the government and the joint partners having turned for the better, I see the journey towards this next critical milestone proving less rocky than the negotiations that happened in the initial stages.
Indeed, the parties have only recently achieved an important milestone by signing off the so-called heads of terms mainly, commercial agreements covering sticky issues, including the cost recovery formula, fiscal incentives and tax waivers.
But a deal is yet to be struck on speeding up the land acquisition on the pipeline route and access to water from West Pokot.
The upshot is that the project is still behind several milestones, some of which were agreed with joint venture partners as far back as August 2017.
It seems to me that going forward, and in order for the project to move faster to the Final Investment Decision Stage, both the officials negotiating on behalf of the government and representatives of joint venture parties, must strive to maintain the conciliatory approach that eventually led to an agreement on those initial heads of terms.
If you have been following the negotiations, you will have known that those initial negotiations dragged for months even as they continued in the context needless disagreements and frayed tempers.
The breakthrough only came after Mr Stanley Kamau of the National Treasury took over leadership of the process.
Which leads me to the vexed issue of the proposed Sovereign Wealth Fund for Kenya. How well are we preparing to manage oil wealth? Clearly, we are not approaching this issue with the seriousness it deserves.
It was the presidential task force that first suggested the establishment of a Sovereign Wealth Fund to receive and manage all national resource revenues. The task force even came up with a proto-type Sovereign Wealth Fund Bill.
Months later, the National Treasury disregarded the bill by the presidential task force and came up with a bill of its own.
These two bills present two different visions of the role of a Sovereign Wealth Fund. The National Treasury wants to create an account, which the minister can open and close and draw money at his whim and fancy.
On the other hand, the presidential task force followed international best practice for sovereign wealth funds, proposing an independent entity insulated from the Finance minister — and where the only money the government can use is earnings and interest earned by the fund.
The rest of the money sits in a fund with the primary responsibility of the entity being to maximise long-term risk adjusted returns and to save money for the next generations.
When it comes to oil and money from other natural resources, our Constitution says that we must seek to achieve intergeneration equity when the wealth from oil and other natural resources.
We flagged off the first consignment of crude oil exports on Monday.
During the ceremony, President Kenyatta said that the money will be shared equitably.
The truth of the matter is that we have not even started discussing a comprehensive framework for managing or even sharing oil wealth in line with the constitutional principle of intergenerational equity.
And, how do we want to approach county governments? Are we just going to throw money at these corrupt governors to do what they want with or do we want to establish independent county sovereign wealth funds where wealth will be managed for future generations?
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