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Kenya Must Get it Right With Oil

By   /  April 12, 2012  /  No Comments

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Last month, Kenya declared that oil was discovered off its coast for the first time. Nairobi expects explorers to invest at least $40 million in the country and dozens of international oil companies have already expressed interested in offshore blocks. But with civil war simmering in neighboring Somalia and a looming water crisis in the region, Nairobi should take heed that the power which comes from oil reserves does not lead to corruption as the country heads toward national elections.

British energy exploration Tullow Oil last month said it made an “excellent start” to its campaign in Kenya with the discovery of around 60 feet of net oil pay in the northwest of the country, near the Somali border. The country has seen a surge of interest in the region, where Tullow said the reserve potential is on par with the lucrative Lake Albert region in neighboring Uganda. Tullow said it planned to invest as much as $40 million at just one of its drill sites in Kenya and the London-listed company said it was “pretty confident” about developments in Kenya.

Last week, however, the U.S. State Department issued a travel warning for Kenya, warning of “recently heightened” terrorism concerns and a “high rate” of violent crime in the country. Kenyan forces, meanwhile, are fighting alongside pro-government forces in Somalia, spurred on by a spat of kidnappings of Westerners in the region last year. The ICC, for its part, announced charges against four Kenyans for crimes related to post-election violence in 2007. More than 1,000 people were killed in the election violence and the State Department notes more elections are set for early 2013. This week, the White House said it was extending the national emergency regarding Somalia for another year because of the security situation there.

Tullow officials said they were confident there were good things in store for its exploration campaign in Kenya. Nairobi expressed similar optimism, noting an ad hoc tax measure would likely encourage more investments in its fledgling energy sector. But that tax was criticized by the International Monetary Fund, which warned last month that “risks have heightened and challenges remain” for Kenya’s growth prospects. Meanwhile, wildfires in Kenya’s northern grasslands are forcing some ranchers to migrate, sparking tensions between pastoral communities in the region.

Nairobi is right to seize the opportunity presented by newly found oil riches in the region but it must be wary of neighborhood blight. Massacres tied to cattle raids in neighboring South Sudan only add to security challenges for the world’s newest, and oil-rich, country. The U.S. State Department, in its travel warning, noted six Kenyans were killed during the run-up to a constitutional referendum in June 2010. That follows the estimated 1,000 killed during 2007 presidential elections. The IMF and ICRC have already expressed their concern about Kenya and, with presidential elections set for early 2013, getting it right with oil may prove to be a paramount national security concern.

By: Daniel J. Graeber of Oilprice.com

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