extractives mag final to press correct 2

publisherTrendstone Holdings Ltd14, Riverside DriveCavendish Block, 4th FloorWestland, KenyaTel: +254 4231505www.trendstoneholdings.co.ke

managing director &lead consultant Patrick Nganga

strategy & business developmentHazel Wangari

editorial directorAmani Mustafa Mhinda

editorBilly Etale

editorial boardWilliam LayKung’u MbuthiaRobert MaganaDan OlagoKioko Mangeli staff writersTabitha MuthoniRading Biko

design & productionCasper’s Studio [email protected]

photographyShutterstockGoogle ImagesStock Exchange

printingMFIwww.groupmfi .com

© 2014 - Trendstone Holdings Ltd.No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying or otherwise without prior written permission of the publisher.

2 EDITORIAL 4 CONTRIBUTOR BIOS 9 INDUSTRY NEWS 15 COVER STORY 15 Risk variables to consider in extractives’ project planning 16 Investing the Citi way 18 Oil & Gas: Are Kenya’s insurers ready? 20 Kenya Re: Reinsuring extractive projects 22 Afro Asia Re-insurance Services 24 Honing human capital for African resources

26 COMMENTARY 26 Information on the award of the Lamu coal power project

30 OPINION 30 Kenya’s hydrocarbons market walks on a tight rope

36 POLICY 36 CAREFUL...let’s not kill or ‘golden egg’ goose 38 Can Kenya’s democracy survive mineral discovery?

40 INDUSTRY PROFILE 40 KOGA on collective energy 43 Oil & Gas exploration in Kenya 45 The exploration geologist

46 STAKEHOLDERS 46 Minding the environment 48 Towards responsible mining 52 Miner’s bottlenecks

54 MARKET MAKERS 54 NSE indicates strong market perfomance in 2014

58 Q & A: Banking on mining... 60 Q & A: ...banking on deals. 62 A derivative exchange - the way to go...

64 CLASSIFIEDS

extractives ea | october 2014 | 1

EDITORIAL NOTEExtractive sector companies are in agreement that the risks found in both technical and non-technical risks are real, and that compelling answers are yet to be found. �is premier issue seeks to avail some of these answers.

From a local content perspective, our lead story,examines three risk variables characteristic in oil, gas and mining projects; operational/commercial enterprise, local content component and security. In exercising our editorial independence, we have commissioned experts in the subject areas to share their professional pro�les with our readers and incise into management strategies, which are most e�ective in containing the main risks in extraction, production and trading.

Lead continental enterprise risk management consultants lay out the intricate system thinking, needed to optimize governance and compliance processes strategic for the extractive industry. �ese are lead re-insurance and insurance experts, notably the best practice and best standards case studies in the region. �eir knowledge in risk evaluation is customized for the extractive industry, and essential to creating strategies, and solutions to protect assets and reduce thelikelihood of losses from operational risks. Security in extractive projects is key, to informing local content development framework.

Resources should be mobilized to harness local human capital. A regional security services and logistics provider shares charisma, on how best this can be achieved, so as to contain security and safety risks.Exploration, production and trading of the extractives is quite capital intensive. In this issue we feature makers of the regional capital marketsto set up a kaleidoscope to investors and other stakeholders, to glimpse into possibilities and options that can assist to alleviate that intensity of capital outlay in the extractive sector.

We pro�le the Kenya Oil and Gas Association and the Geological Society of Kenya, to build a geology and engineering portal, and depict syner-gy drawn fromcollective energy.GSK casts out a resource map of East Africa, to authenticate that indeed, East Africa is a treasure trove.

We urge the reader to keep a tab on sector development, through insightful economic overview given in the budget excerpt. It expounds on tax and policy issues relevant to the regional extractive industry. We direct readers to further sector information available at the Information Centre for the Extractives sector hosted by African Development Bank.

�e social license is the ‘make or break’ investment tool in the extractive sector. Our social scientist, and environmentalist urges objective stakeholder engagement through development of sustainable social economic systems for a�ected communities.

In the shi� or dri� of things, we observe the Sino-Africa relations, and how they convert into regional economic windfall.

To moderate your reading, we draw your attention to the local suppliers showcasing their products and services in this issue.Enjoy your reading.

The publication of this magazine is a good idea whose time has come.

Exploration activities for more natural resources are ongoing in several countries in Africa. However, there is an alarming information gap on the processes involved in the discovery, development, production and trading of natural resources. Therefore there is inherent need for a portal where up-to-date information can be shared by a broad spectrum of stakeholders.

Mining, oil and gas, are dynamic and constantly evolving sectors. There are numerous and varying factors which directly and indirectly affect how the industry works. Quests spreading across policy, regulation, capital outlay, security, standards and certification among others all have their respective role in the development of this industry. We have to be realistic and appreciate that mining, oil and gas projects are capital intensive and require prolonged periods of time to actualize. The irrational exuberance that has developed largely to the ill-informed un-aware of the high risks involved is unwarranted and needs to be defused.

Protocols of discovery, assessment, decision making processes involved in developing a mineral resource or an oil and gas discovery require specialised knowledge.

Africa has been a dormant economic giant but the increased demand for natural resources globally has created a competing arena for foreign investment. Nonetheless, over past millennia Africa continues to develop capacity to deal with emerging needs in the extractives sector. It is the role of African democracies to put in place the right infrastructure for resource governance and sustainable development.

Extractives East Africa will strive to identify the emerging needs in the mining, oil and gas sectors and inform its readers by bringing together objective expert opinion.

editorial

The oil, gas and mining sector companies are in agreement that the industrial risks are both technical and non-technical in nature, are real, and their solutions are yet to be found.

At a time when the larger East Africa continues to evolve into a natural resources hub, our premier edition carries the themes of transformation and innovation. These are basic ideals which our small, medium and large businesses in the region must abide by, to drive our economy forward, away from the shadows of immobility.

We asked featured companies how they will ensure growth as the extractive industry emerges. A unifying consensus is evident in each instance, that innovation and persistence for change is what we must invest in.

From landmark projects and how best to implement them, to dedication of industry associations; the content herein embodies what makes great businesses - effective management strategies and customer driven services; and it makes Extractives East Africa magazine the most eclectic oil, gas and mining portal yet.

Enjoy your reading and see you in our next issue.

publisher’s note

editor’s note

2 | october 2014 | extractives ea

EDITORIAL NOTEExtractive sector companies are in agreement that the risks found in both technical and non-technical risks are real, and that compelling answers are yet to be found. �is premier issue seeks to avail some of these answers.

From a local content perspective, our lead story,examines three risk variables characteristic in oil, gas and mining projects; operational/commercial enterprise, local content component and security. In exercising our editorial independence, we have commissioned experts in the subject areas to share their professional pro�les with our readers and incise into management strategies, which are most e�ective in containing the main risks in extraction, production and trading.

Lead continental enterprise risk management consultants lay out the intricate system thinking, needed to optimize governance and compliance processes strategic for the extractive industry. �ese are lead re-insurance and insurance experts, notably the best practice and best standards case studies in the region. �eir knowledge in risk evaluation is customized for the extractive industry, and essential to creating strategies, and solutions to protect assets and reduce thelikelihood of losses from operational risks. Security in extractive projects is key, to informing local content development framework.

Resources should be mobilized to harness local human capital. A regional security services and logistics provider shares charisma, on how best this can be achieved, so as to contain security and safety risks.Exploration, production and trading of the extractives is quite capital intensive. In this issue we feature makers of the regional capital marketsto set up a kaleidoscope to investors and other stakeholders, to glimpse into possibilities and options that can assist to alleviate that intensity of capital outlay in the extractive sector.

We pro�le the Kenya Oil and Gas Association and the Geological Society of Kenya, to build a geology and engineering portal, and depict syner-gy drawn fromcollective energy.GSK casts out a resource map of East Africa, to authenticate that indeed, East Africa is a treasure trove.

We urge the reader to keep a tab on sector development, through insightful economic overview given in the budget excerpt. It expounds on tax and policy issues relevant to the regional extractive industry. We direct readers to further sector information available at the Information Centre for the Extractives sector hosted by African Development Bank.

�e social license is the ‘make or break’ investment tool in the extractive sector. Our social scientist, and environmentalist urges objective stakeholder engagement through development of sustainable social economic systems for a�ected communities.

In the shi� or dri� of things, we observe the Sino-Africa relations, and how they convert into regional economic windfall.

To moderate your reading, we draw your attention to the local suppliers showcasing their products and services in this issue.Enjoy your reading.

editor’s note

Andre DeSimoneAndre was Chief Executive of Kestrel Capital in 1995 and played a pivotal role in developing the research tradition now associated with the fi rm. Prior to this, Andre worked for Blackstone Group L.P. in New York as Vice President specialising in acquisitions and restructuring. Between 1997 and 2001, Andre was a portfolio manager at Zurich Scudder Investments in New York where he co-managed a Global Emerging Markets Equity Fund. From 2001 to 2003, Andre was at Kenol/Kobil Petroleum where he was responsible for new acquisitions and oversight of subsidiaries outside Kenya. Andre has returned to Kestrel Capital as Executive Director. He holds a BSc in Management Science from the Massachusetts Institute of Technology.

Rainbow FieldRainbow Field was admitted as a Barrister and Solicitor by the Western Australian Supreme Court in 2006. Having worked as a lawyer in Perth for two years, she moved to Kenya in December 2006 and worked at Kaplan & Stratton (from early 2007) until joining Coulson Harney in March 2009. In March 2011 she was made Director of International Legal Services. Rainbow’s main practice areas are mergers and acquisitions, mining, energy and resources, employment, joint ventures and business formation and advising not-for-profi t companies.

She has recently been recognised as a Rising Star by IFLR (2014) and as an Up and Coming lawyer by Chambers & Partners (2014).

Yusuf KhanYusuf is the Director, ECA Financing Head of Trade for Sub Sahara Africa, CITI. He joined Citi 5 years ago and has worked with the fi rm across various debt products. He has extensive origination, structuring credit and execution experience in structured trade, commodity trade and export fi nance. He currently manages the trade platform for Citi’s Africa franchise based in Johannesburg with sizeable annual revenues and assets.

our contributors Rob RudyRob is the Regional Integration and Strategy Expert, East Africa Regional Resource Centre (EARC).

Gladys Kianji Gladys is the Chair, Geological Society of Kenya and, a Lecturer at the University of Nairobi.

bios

Jadiah Mwarania Mr. Jadiah Mwarania is the Managing Director of Kenya Re-insurance Corporation . He holds a Bachelor of Commerce (B.com.) (Hons.) and Master of Business Administration (MBA) degrees from the University of Nairobi. He is a Fellow of the Chartered Insurance Institute of London (FCII), and the Insurance Institute of Kenya (FIIK). Mr. Mwarania is a Chartered Insurer (CI) of the Insurance Institute of London, the highest and the most prestigious level of professional achievement with the Institute, and a Fellow of the Kenya Institute of Management (FKIM). He is also a member of the Board of Directors of Industrial development Bank (IDB), an Alternate Director on the Board of Directors of Zep Re (PTA Reinsurance Company) and the Chairman Executive Committee (EXCO) of the Association of Kenya Reinsurers (AKR). He is a Board Member of the Insurance Training and Education Trust (ITET) Board and member of the Finance and Development Committee of the Board of the College of Insurance of Kenya.

Rocky Hitchcock Rocky joined KK Security Group in 1994 and has a Masters Degree in Security Management. He has conducted security Audits in Europe, the USA, Africa and the Middle East and has written emergency evacuation plans for Somalia, Iraq, Kuwait, Nigeria, Mexico & Venezuela. He has produced and practiced crisis management plans for major Oil & Gas Companies with world wide exposure in Houston, Texas. He is a member of the Institute of Occupational Safety & Health.

Sammy Mutua MakoveMr. Sammy M. Makove is the Chief Executive Offi cer of Insurance Regulatory Authority and Commissioner of Insurance. He holds Executive Master of Business Administration degree from Jomo Kenyatta University of Agriculture & Technology, Masters in Psychology from Daystar University and a Bachelor of Commerce-Insurance from the University of Nairobi. He further holds various professional qualifi cations in the Insurance industry which includes; Chartered Insurance Practitioner ( CIP), Associate of the Insurance Institute of Kenya (AIIK), Associate of the Chartered Insurance Institute of London (ACII) and Member of the Chartered Institute of Arbitrators (CIarb.)

Prior to his appointment, Mr. Makove held the position of Commissioner of Insurance in the Department of Insurance, Ministry of Finance. He is also a member of the Board of Retirement Benefi ts Authority, Policyholders Compensation Fund and a trustee of the College of Insurance besides other social responsibilities.


Dr. Patrick NgangaDr. Nganga is the MD and Principal Consultant at Trendstone Holdings Ltd. He is a Geologist whose career spans over 28 years in Kenya, United States of America and Australia. He graduated from the University of Nairobi with an honours degree in Geology and thereafter with a Masters degree in Petroleum Geology and Geophysics and a PhD in Isotope Geochemistry both from Duke University, North Carolina, USA. He taught undergraduate and graduate classes in the USA for more than eight years. He worked as an environmental consultant in Dallas, Texas, before moving to Adelaide, Australia, to work as a Senior Advisor in Waste Management for the Environment Protection Authority (EPA), the State’s regulatory body on Environmental issues. During the last several years, he has been working for several major resources companies in Australia.

Dr. Nganga is a registered Professional Geologist (R. Geol.) in Kenya, Professional Geoscientist (PG) in the State of Texas, USA and with the National Environment Management Authority (NEMA) in Kenya as a Lead Environmental Specialist. He is a member of the Geological Society of Kenya (GSK), American Geophysical Union (AGU) and the Waste Management Association of Australia (WMAA).

Dr. Kioko MangeliDr. Kioko Mang’eli is the Managing Director , Quest Laboratories, and also the Managing Partner at Palmyra Petroleum USA LLC. He is a previous ISO Council member and Chairman, East African Standards Commitee. He is President Emeritus, Africa Organisation for Standardization.

Eng. Stephen MwauraStephen is an Environmental Consultant with World Bank and also the Director and Principal Consultant of EHS Management Consultants Ltd, a company registered in Kenya to offer consultancy services in Environmental, Occupational Health and Safety Management.

Gurjeet Phull JenkinsGurjeet is the Country Manager, Anadarko Petroleum Corporation and is the Chairperson of Kenya Oil & Gas Association (KOGA).

Hazel WangariHazel is the Director, Strategy and Business Development, Trendstone Holdings Ltd.

Kwame Owino Kwame Owino is the Chief Executive Offi cer of the Institute of Economic Affairs (IEA-Kenya), an economics and public policy think tank based in Nairobi, Kenya.

Amar MehtaAmar is a Senior Associate at Coulson Harney. Prior to joining Coulson Harney in 2012, Amar spent over 8 years practicing law in Kenya with some experience in New York. Amar has worked for some of the leading law fi rms in Kenya including spending fi ve years at Walker Kontos where he worked on a number of project fi nancing and energy transactions and over two years at Anjarwalla & Khanna where he worked in the corporate and commercial department. He was admitted as an Advocate in 2007.

His areas of practice at Coulson Harney are banking and project fi nance, energy, mining, corporate, commercial, property, conveyancing, employment, insurance and mergers and acquisitions.

bios

Vidur Dhingra Vidur joined the research team at Kestrel Capital in 2013 from the London School of Economics and Political Science (LSE) where he graduated with a BSc in Accounting and Finance. Vidur has previously interned at State Street Global Advisors (UK), State Street Global Markets (UK), The Coca-Cola Company, Unilever, Colgate Palmolive and Reckitt Benckiser among others. Vidur is currently a CFA level 1 candidate and covers the Banking, Oil and Sugar Industries. He is also involved in Corporate Advisory work.

Ian GachichioIan joined the Kestrel Capital research team in 2013 having worked as the lead fi nancial expert at a web-based fi nance magazine in Nairobi. He holds a Bachelor of Commerce Degree from Strathmore University and is currently a CFA level 1 candidate. Ian covers the banking, insurance and investment sectors and handles Kestrel’s Daily Notes and Weekly Commentary.

Jeremmy OkonjoJeremmy is a partner at Mwagambo & Okonjo Advocates and an advocate of the High Court of Kenya. He specialises in corporate and commercial law, commercial and civil litigation, company law, criminal law and litigation, and constitutional law and governance. He is a member of the Law Society of Kenya (LSK).


Extractives (oil, gas and mining) are going to be highly important in Kenya’s future. The African Development Bank is hosting the Information Centre for the Extractives Sector (ICES). ICES is an initiative that aims to: inform those affected about developments and activities in Kenya’s extractives sector, connect actors in the sector, including Kenya’s citizens, and transform the dialogue and perceptions around the extractives sector.

Based on extensive consultations with stakeholders, ICES was established in 2013 to help gather and share information about the extractives sector in a bid to help Kenya avoid the pitfalls that sometimes arise form a lack of knowledge and understanding.

ICES works with stakeholders drawn from the development partners, the Government of Kenya, civil society organizations, the private sector and industry associations. Different stakeholders each have their own agendas and objectives for the sector. ICES aims to strictly be neural and independent, providing unbiased update and information about petroleum and mining.

The Information Centre is supported by the United Nations Development Programme and governments of the United Kingdom, Canada and Australia. However, ICES acts independently of these partners.

RationaleKenya’s fl agship projects like Base Titanium’s Kwale Mineral Sands project, and recent oil discoveries announced by Tullow Oil and Africa Oil, signal strong potential for the growth of the extractives sector. The extractives sector currently contributes just 1% to Kenya’s GDP, and less than 3% to total export revenues. However, this contribution is set to grow signifi cantly, perhaps to as much as 10% of GDP. There is much anticipation that the extractive sector – oil and gas in particular – will bring transformational economic growth unprecedented social development to the country.

The opportunity to use the sector to accelerate national development and promote economic growth requires reliable information and careful planning at this critical stage. In order to assist all those who will be affected by extractive industries – citizens, civil society organisations, businesses, development partners and donors – the African Development Bank set up ICES in December 2013.

The objective of ICES is to help Kenya avoid the pitfalls so often associated with an abundance of natural resources in the developing world. A major priority for all stakeholders is ensuring good governance, transparency and accountability in the emerging Kenyan extractives sector. However, as expressed by many of the parties involved, to date there has been a shortage of reliable information, resulting in lack of understanding about developments in the country’s extractives industry. ICES aims to provide a platform that fosters knowledge-based stakeholder dialogue in order to promote informed policies for the sector. The Centre is in contact with the main groups affected by the sector; collects, analyses and disseminates information; helps to build capacity; and fosters knowledge and understanding about the extractive sector through electronic newsletters, a website, panel discussions and workshops.

Inform Connect Transform

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Extractive East Africa

contentsEditorial note 4Introduction Smart ExtractionKenya ReAfro Asia Insurance Ser-vicesIRA Smart ProductionProtechting Extractive In-dustriesDelta/MantracKK Article

Publisher Dot Matrix LtdCounty House, 1st Floor

P.O. Box 49541, 00100, Nairobi

Strategy & Business Development Hazel Wangari

Editorial Director Dr. Kioko Mangeli

Editorial BoardMr. William Lay Prof. Daniel OlagoSen. Beatrice ElachiMr. Willie NjorogeMr. George WachiraMs. Ruth Nyambura

PhotographLiberty PhotographersP. O. Box 77-00100Nairobi

Design & ProductionHazel Wangari Tel: 0724 415 8491Nairobi

Extractives East Africa is a copy righted quarterly publication. No part of this publication may be reproduced, stored in a retrieval system, or trasnmitted in any form or by any means electronic, mechanical, photocopying or othersise without prior written permission of the Publisher.All rights reserved.


SECTOR DEVELOPMENT

xtractives (oil, gas and mining) are going to be highly important in Kenya’s future. �e African Development Bank is hosting the Information Centre for the

Extractives Sector (ICES). ICES is an initiative that aims to:

Kenya’s extractives sector,

sector.


ICES works with stakeholders drawn from the development partners, the Government of Kenya, civil society organizations,

stakeholders each have their own agenda and objectives for the sector. ICES aims to strictly be neutral and independent, providing unbiased update and information about petroleum and mining.

�e Information Centre is supported by the United Nations Development Programme and governments of the United Kingdom, Canada and Australia. However, ICES acts independently of these partners. RationaleKenya’s �agship projects like Base Titanium’s Kwale Mineral Sands project, and recent oil discoveries announced by Tullow Oil and Africa Oil, signal strong potential for the growth of the extractives sector. �e extractives sector currently contributes just 1% to Kenya’s GDP, and less than 3% to total export revenues. However, this contribution is set to grow signi�cantly, perhaps to as much as 10% of GDP. �ere is much anticipation that the extractive sector – oil and gas in particular – will bring transformational economic growth unprecedented social development to the country.

�e opportunity to use the sector to accelerate national development and promote economic growth requires reliable information and careful planning at this critical stage. In order

industries – citizens, civil society organisations, businesses, development partners and donors – the African Development Bank set up ICES in December 2013.

E

National VisionAs a new and complex area of national development, Kenya needs to develop a clear vision which addresses and responds to a set of high-level strategic questions set out below, and which ICES will seek address through its platform:

Kenyans? What policies would Kenya need to address this?

addi tion and downstream processing as possible?

neighbours in developing the sector?

skills and expertise among its young people to supply the sector?

to move “beyond oil and minerals”?

sector, and also avoid environmental damage?

engage with local communities and acquire a social licence to operate?












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sector.







E










ICES ActivitiesICES’ virtual Resource Centre (http://ices.or.ke/category/re-

-ers including:

sector

Kenya and other countries

can draw from lessons learned

800 people use this free-of-charge service, having subscribed on the ICES website.

�e ICES calendar (http://ices.or.ke/events) list of events, and documents from past events. As interest in the extractives sector grows, there will inevitably be more and more workshops, consultations, and discussions. ICES aims to provide a thorough record of these events. Events are posted on the ICES website free of charge and the same is mentioned in the news round up. Event details can be sent to [email protected]

ICES will be hosting meetings and presentations on mining, oil and gas, which will be advertised through its mailing list and on the ICES website.

Get InvolvedEveryone can contribute to the work that ICES is doing. Shared reports and publications on the sector which to inform the public on issues around sector can be uploaded on the website’s Resource Centre.O�en people write on topics of interest and post as blogs due to lack of another avenue to further disseminate their written work. ICES encourages those interested in writing about the sector to submit editorials which can be hosted on the ICES editorial page.

Reports and contributions can be sent to [email protected].

Contact Information�e Information Centre is housed in the African Development Bank’s East Africa Resource Centre in Upper Hill, Nairobi.

Information Centre for the Extractive Sector (ICES)East Africa Resource CentreAfrican Development BankKhushee Tower, Longonot Road, Upper HillP.O. Box 4861 00200 Nairobi, Kenya Tel: +254 (0)20 2998276Tel: +254 (0)20 2712925/6/8 E-mail: [email protected] Website: www.ices.or.ke

LEAD STORY

When investors enter new markets or face a rapidly chang-

it is vital for them to know who to deal with, and how the business climate is likely to evolve in the increasingly complex global economy.

�e opportunity costs thereof are very real. O�en, investors

assets, life, intellectual property, and other intricate assets like stocks and securities. Volatile markets, unpredictable economic events, unstable regimes, and tight regulation leave investors in extractive projects dealing with problems

diligence, pre-emptive training and customized controls.

Remedially, the need to address the operational, enterprise, security and local content oriented risks is greater than ever.Operational enterprise risk variablein this context, refers to all the business systems, commercial and/or �nancial aspects of the extractive projects. Local Content & Security component/variable could be viewed like the hidden threads linking the oil gas and mining projects to success. For this success to be realized, these three variables must converge. Project managers in the subject extractive industry need constant and reliable information, analysis and structured systems, to help them to arrive at this convergence. From that informed position, they are able to advise the investors

management solutions for their prospective and existing investments.

To insulate themselves against risks in the key areas of their operations, �rst and foremost, investors in extractive projects need to identify ‘power-maps’ to enable them construct networks across commercial enterprise, insur-ance/reinsurance, local content development and security. From a local content point of view, investors need to strategically engage the communities living where the extractive activities take place. �ey also need to monitor the content and progress of proposed legislation regarding investment. Synergy drawn from these networks, herein referred to as ‘power maps’, will provide real time analysis to enable them evaluate the key in�uencers who can shape their ideal operating environment, to inform their strategic investment decisions.

To inform such strategic investment decisions in the extraction projects, Extractives East Africa commissioned experts drawn from the above mentioned key risk manage-ment landscape, to provide submissions valuable to the

RISK VARIABLES IN EXTRACTION PROJECTS

subject investors and their project managers. Based on their professional pro�les and expertise in their respective businesses, he predictive insight, analysis and citation they provide is informed and authoritative.


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subject investors and their project managers. Based on their professional pro�les and expertise in their respective businesses, he predictive insight, analysis and citation they provide is informed and authoritative. National Vision

As a new and complex area of national development, Kenya needs to develop a clear vision which addresses and responds to a set of high-level strategic questions set out below, and which ICES will seek address through its platform:

• How does Kenya avoid the common resource pitfalls such as the oil curse and Dutch disease?

• How can Kenya ensure that extractives revenues benefi t all Kenyans? What policies would Kenya need to address this?

• How can Kenya guarantee that there is as much value-addition and downstream processing as possible?

• How can Kenya work most effectively with its regional neighbours in developing the sector?

• What does Kenya need to do to ensure it develops the right skills and expertise among its young people to supply the sector?

• What downstream industries are required in Kenya in order to move “beyond oil and minerals”?

• How can Kenya promote waste management within the sector, and also avoid environmental damage?

• How can Kenya ensure that operating companies effectively engage with local communities and acquire a social licence to operate?

• How can Kenya ensure sustainable development in the sector?

by Rob Rudy

ICES ActivitiesICES’ virtual Resource Centre (http://ices.or.ke/category/resources) hosts relevant reports drawn from different stakeholders including:• Civil society organizations’ engagement with

the extractives sector• Donor programmes and studies undertaken

focusing on Kenya and other countries• Extractives in other developing countries from

which Kenya can draw from lessons learned• Government legislation and policy that guide

the sector• In-depth media reports and analysis • Private sector reports

ICES offers a daily news round-up and weekly digest. More than 800 people use this free-of-charge service, having subscribed on the ICES website.

The ICES calendar (http://ices.or.ke/events) offers an up-to-date list of events, and documents from past events. As interest in the extractives sector grows, there will inevitably be more and more workshops, consultations, and discussions. ICES aims to provide a thorough record of these events. Events are posted on the ICES website free of charge and the same is mentioned in the news round up. Event details can be sent to [email protected]


Get InvolvedEveryone can contribute to the work that ICES is doing. Shared reports and publications on the sector which to inform the public on issues around sector can be uploaded on the website’s Resource Centre. Often people write on topics of interest and post as blogs due to lack of another avenue to further disseminate their written work. ICES encourages those interested in writing about the sector to submit editorials which can be hosted on the ICES editorial page.

Reports and contributions can be sent to:[email protected].

Information Centre for theExtractive Sector (ICES) East Africa Resource CentreAfrican Development BankKhushee Tower, Longonot Road, Upper HillP.O. Box 4861, 00200 Nairobi, Kenya Tel: +254 (0)20 2998276 or (0)20 2712925/6/8 eMail: [email protected] Web: www.ices.or.ke


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CONTACT:Murithi, Fredrick or Kioko on +254 (0)725 369503Plessey House, Ground & First Floor. P.O. Box 3097, 00506 Nairobi, KenyaTel: +254 (0)20 551988, (0)700 321464, (0)736 132495.Email: [email protected]

www.agriq-quest.com

Agriq Quest Ltd. specializes in agricultural, environmental and food safety analysis, with the goal of offering a completeintegrated service within the production line by providingsample taking, analysis and advice services. The service realm includes;

1. Soil sampling2. Soil Analysis; physical parameters, chemical and microbiological including soil pathology3. Drinking and Irrigation water analysis; nutrient composition, diseases and microbiology4. Microbiology and Food Safety Analysis; microbial and chemical residues 5. Pesticides Residue Analysis; MRL based on market access requirements

The company was awarded the ISO/IEC 17025 accreditation by Kenya Accreditation Services (KENAS) in June 2012. The objectives of Agriq Quest include quality, staying in the forefront, maintaining rapid response times and offering added value to the sustainable agriculture development services.

Knowledge Management & Offering; Standards & Conformity AssessmentQuest Laboratories is the leading Industrial Quality infrastructure company offering knowledge managementand construction in the following areas: Sustainable Agriculture Development

Agriq Quest Ltd specializes in Agricultural, Environmental and food safety analysis, with

the goal of offering a complete integrated service within the production line by providing sample taking, analysis and advice services. The service realm includes;

1. Standards Training and Standards Implementation for Industries and Service Companies, Consultancy In Engineering for Production Platforms and Plants

1. Soil sampling

4. Testing &Analysis for Industry to Achieve National Standardization Marks and Production System Efficiency

4. Microbiology and Food Safety Analysis; microbial and chemical residues

5. Environmental Systems Development, Assessment and Quantification for County Governments and Industrial Clients Especially In Waste Management (Solid And Effluent), Storm Systems, Oil and Oil Waste, Dump Sites, Noise, Gaseous Emissions Control and General Pollution Control.

5. Pesticides Residue Analysis; MRL based on market access requirements

2. Certification of Companies and Processes In Production and Environment Under The ISO Scheme Management-9001:2008, Food & Hygiene-22000:2005, Environment-14001:2005, ICT 27000, OHSAS 18001:2007; We Also Offer Product Certification For Exports To The EU, North America and Asia Based on Regional and Global Standards Requirements for The Markets and Importer Specifications

2. Soil Analysis; physical parameters, chemical and microbiological including soil pathology

3. Inspection Of Processes and Products 3. Drinking and Irrigation water

analysis; nutrient composition, diseases and microbiology

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The company was awarded the ISO/IEC 17025 accreditation by Kenya Accreditation Services (KENAS) in June 2012.The objectives of Agriq Quest include quality, staying in the forefront, maintaining rapid response times and offering added value to the sustainable agriculture development services.Contact InfoPhysical Address: Plessey House, Ground & First Floor Postal Address: Box 3097, 00506, Nairobi KenyaPortal:www.agriq-quest.com Email:[email protected]: +254 (20) 551988; +254(700)321464; +254(736)132495; Contact Person: Murithi, Fredrick, Kioko (+254725369503)

Setting the agenda for Kenya’s oil and gas resource development - the civil society perspectiveDisclosure of petroleum agreements was one of the key recommendations in a landmark new report on Kenya’s oil boom, “Setting the Agenda for the Development of Kenya’s Oil and Gas Resources” issued by the Kenya Civil Society Platform on Oil and Gas on July 31. Without access to the agreements, civil society watchdogs, the media, and parliamentarians won’t be able to help ensure that the Kenyan government is collecting every shilling it is owed under the contracts from the coming oil boom.

A growing number of countries are disclosing their petroleum and mining agreements as a matter of course, including Peru, Liberia and others. Niger has included disclosure of mining agreements in its constitution. Guinea and Mozambique have also disclosed important resource deals. There is a growing focus on contracts in the extractive industries and in public procurement more generally as witnessed by the Open Contracting Partnership and other initiatives.

While it is not well known, one petroleum agreement signed by CAMAC Energy in Kenya is already publicly available on the U.S. Securities and Exchange Commission database. The Government of Kenya, Tullow, and all other companies that have contracts with the government in the extractive industries now need to agree on the disclosure of their agreements and contracts in Kenya so that citizens have a true understanding of these important commercial deals involving public resources.

As Pres. Kenyatta said at the Brookings Institute event:“With the kind of civil society that we have in the country, with the kind of media, freedoms that we currently have in the country, we are not going to be able to take a single step without Kenyans at every single level, demanding to see what is tied in those agreements. So I think for Kenya anyway, and I don’t want to speak for anyone else, but for Kenya, the era of being able to do anything without scrutiny, is literally over.”

Let’s hope that this will indeed be the case. With its new “agenda setting report” and growing number of members, the Kenya Civil Society Platform on Oil and Gas is sharing a comprehensive set of recommendations and making good strides to ensure that there is a credible, collective advocacy/watchdog voice on the growth of the oil and gas sector. Civil society groups must build on their President’s words in Washington, DC and continue to demand the full disclosure of these agreements for the benefi t of all Kenyans.

There was one lasting highlight for me from last month’s US-Africa Leaders Summit in Washington. But it wasn’t during the billion dollar deals between US corporations and African nations, nor in celebrity-attended state dinners.

In a small group discussion at the Brookings Institution on August 7th, “Kenya’s Domestic, Regional and International Priorities: A Conversation with President Uhuru Muigai Kenyatta,” I was able to ask President Kenyatta whether his government would back full disclosure of petroleum agreements in his country.

Before the round of questions was over Pres. Kenyatta jumped in to answer my question, “Absolutely!”

The country is experiencing an oil boom with a signifi cant discovery by Tullow Oil in remote Turkana County in the north west of Kenya. As in other emerging and current oil and gas producers, concerns about access to key information by citizens – such as the contracts showing how much money Kenya will receive – are top of the list for civil society organizations such as those organized in the Kenya Civil Society Platform on Oil and Gas.

“Absolutely!” the president responded to me. He continued, “In fact, the bill that is before Parliament is seeking to address precisely that so that it is quite clear, from day one, what is in those agreements. And we’re even going a stage further, to include public participation in the development of that draft bill, so that we ensure maximum transparency…

“We have all seen the problems that are in many parts of the African continent as a result of that lack of transparency and we want to ensure that we get it right from square one…”

This is good news as often extractive industry contracts remain hidden from public view. The government so often says the oil company doesn’t want them disclosed. The oil company says it is the government that is keen on secrecy. In the case of the Turkana fi nd, Tullow Oil has already stated that they are committed to full disclosure of petroleum agreements where the government gives its consent. (In Ghana, Tullow has already disclosed its agreements.) While most petroleum agreements have confi dentiality clauses, the contracts can usually be discussed with the consent of both parties. Such confi dentiality clauses are also not an obstacle to disclosing payments to governments as required by new US and EU laws since it’s standard practice to allow for disclosures of resource extractions required by regulators.

President Kenyatta supports keydemand of civil society onextractives contracts

President Uhuru Kenyatta at the Brookings Institute on August 7, 2014. Photo: http://bit.ly/1rya4Rn

Ikal Angelei, director, Friends of Lake Turkana; Charles Wanguhu, coordinator, Kenya Civil Society Platform on Oil and Gas; Ndanga Kamau, Oil and Gas Adviser, Oxfam Kenya. Photo: Ian Gary/Oxfam America

Author bio: Ian Gary is the Senior Policy Manager for Extractive Industries at Oxfam America and the author of Oxfam America’s report “Ghana’s Big Test: Oil’s Challenge to Democratic Development.” He previously worked at the Ford Foundation and Catholic Relief Services.

He has been quoted in major media outlets and has testifi ed twice before the US Congress.

industry news


industry news

Kenya Re-insurance Corporation (Kenya Re) becomes the most recent shareholder of the African Trade Insurance Agency (ATI). It was confirmed that Kenya Re paid and subscribed to 10 shares valued at Ksh 87.5 million.

By virtue of their respective continental presence and business networks, ATI and Kenya Re will increase the geographical and business penetration in the insurance industry in the field of political & trade credit risks. This announcement comes in the wake of growing international interest in Africa with initiatives such as the recent US - Africa summit that saw the US commit to $33 billion in investments in Africa.

This is expected to result in greater demand for investment and trade insurance as the volumes of projects and transactions are likely to spike. The ATI and Kenya Re announcement is thus a major development for the industry as it will enhance ATI’s capacity in the volume of business it underwrites.

ATI’s CEO, Mr George Otieno, welcomed the news commenting “ATI vision is to transform Africa into a prime trade and investment destination. With partners such as Kenya Re, we are happy that our underwriting capacity has grown, making ATI better armoured to provide investment and trade insurance for the multi-billion projects expected in Africa. In Kenya, for instance, the National Treasury announced an approval for 59 projects that the government plans to execute through public/private partnerships, and we anticipate covering some of these projects.”

Since ATI became profitable two years ago, new and existing shareholders have indicated their intention to increase their equity. “Kenya Re is delighted to be in partnership with the African Trade Insurance Agency as this will not only increase our investment and business portfolio but also increase our credibility in East Africa and the entire continent.

With the emergence of reinsurance needs around Africa and our eagerness to capitalize on these demands, this partnership will create a platform through which we can strengthen our capacity to reach these untapped and potential markets in Africa,” said Kenya Reinsurance Corporation Managing Director Jadiah Mwarania. ATI’s shareholding currently totals to $179.5 million, a 1% increase compared to last year. Before Kenya Re, the African Development Bank was the last investor having injected equity worth $15 million in 2013. Other corporate shareholders include the African Reinsurance Corporation, Atradius Group of Ireland, COMESA, PTA Bank, PTA Re (Zep Re) and SACE of Italy.

Somalia files case againstKenya with ICJSomalia instituted proceedings against Kenya at the International Court of Justice (ICJ), the principal judicial organ of the UN, with regard to a dispute concerning maritime delimitation in the Indian Ocean. In its application, which is accompanied by three sketch-maps, Somalia contends that both States disagree about the location of the maritime boundary in the area where their maritime entitlements overlap. It asserts that diplomatic negotiations, in which their respective views have been fully exchanged, have failed to resolve this disagreement.

The maritime border in question is seeing exploration by international firms who were awarded access to the acreage by Kenya. Somalia has long maintained that the blocks awarded were in its portion of the Indian Ocean.

Somalia went on to request that the ICJ determine, on the basis of international law, the complete course of the single maritime boundary dividing all the maritime areas appertaining to Somalia and to Kenya in the Indian Ocean. This includes the continental shelf beyond 200 nautical miles. Somalia also asked the ICJ to determine the precise geographical coordinates of the single maritime boundary in the Indian Ocean.

The Somali government believes that the maritime boundary between it and Kenya in the territorial sea, exclusive economic zone (EEZ), and continental shelf should be established in accordance with, respectively, Articles 15, 74 and 83 of the United Nations Convention on the Law of the Sea (UNCLOS). Somalia explains that, accordingly, the boundary line in the territorial sea should be a median line as specified in Article 15, since there are no special circumstances that would justify departure from such a line and that in the EEZ and continental shelf, the boundary should be established according to the three-step process the Court has consistently employed in its application of Articles 74 and 83.

Kenya Re invests Ksh 87.5 million into ATI

Mr. Mwarania (L) and Mr. Otieno (R)

Uranium caution in TanzaniaOil and gas draft mining policy has been a success but the government has been advised to ensure it has in place a comprehensive safety policy on uranium that will guide the extraction, storage and transportation of the mineral. This comes as the government is encouraging investment in the mining sub-sector.

Aidan Mhando, a mineral extraction inspector, said mining of uranium is very dangerous and it is vital that the government ensures that it has in place safety measures to guide activities at every level in the extraction. The views came up during a stakeholders meeting held in Arusha. He added, there is need to have in place all required safety measures and response mechanisms before beginning the mining project.

Tanzania Atomic Energy Commission (TAEC) and other players carried out a series of training sessions for local people and media practitioners as it emphasized raw uranium is not harmful to a person’s health though there is still need to ensure the public is well informed of the potential dangers, specifying that uranium enrichment will not be carried out in Tanzania. Mantra Tanzania Limited is the company commissioned to extract uranium resources in Mkuju River, under the Mkuju River Project (MRP).The first production of uranium is expected to start before the end of this year, 2014, for the export market.

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Uganda’s oil refinery controversy

The Civil Society Organizations (CSOs) in Uganda have expressed concerns that even before Uganda’s oil discoveries become commercially viable, conflicts surrounding the compensation of people who have been displaced by the oil refinery project hover over the extractive industry. Addressing journalists, Beatrice Rukanyanga of Kwatanisa Women’s Group, a Community Based Organization (CBO) in Buseruka noted that the entitled people have not received their compensation.

Benon Tusingwire the Executive Director, Navigators of Development Association, a CBO in the area said that compensation has both not been fair and has been delayed. He also added that there is lack of guidelines to guide the process of payment. Rukanyanga and Tusingwire were part of the CSOs members who addressed journalists from Ghana, Tanzania and Uganda during a study tour in Hoima and Buliisa.

The study was conducted by African Centre for Media Excellence and Natural Resource Governance Institute, formerly Revenue Watch Institute. The excitement that came with the discovery of oil and economic boom has caused land prices to increase.

The Ugandan government which is at an advanced stage of procuring a lead investor for the project will own 40 percent of the refinery and private investors will own 60 percent. The refinery project situated along the shores of Lake Albert, bordering the DR Congo has displaced over 7000 persons living in 13 villages. The Government hired a consultancy firm, Strategic Friends International, to implement the Resettlement Action Plan (RAP) on behalf of the Ministry of Energy. The consultant had to evaluate the value of land and property before reimbursement or resettlement took place and the outcome was contested by the beneficiaries who reckon the final valuation as insufficient and undervalued.

86 affected persons supported by Africa Institute for Energy Governance (AFIEGO), an NGO, filed a civil suit in the high court alleging continued violations of their human and land rights. They demand the termination of all oil activities in the area until residents are fully and fairly compensated. 96 households who opted for resettlement have not yet been allocated new land and are now homeless.

This compensation saga casts a dark cloud over the way government and partners are managing the affair of the oil and gas industry. However, experts believe the country has time to put in place the right regulations to benefit the people and industry.

Dennis Kamurasi, vice chairman Association of Uganda Oil and Gas Service Providers believes Uganda has the opportunity to learn from slip-ups made by other oil and gas producing countries. “We are lucky we have seen mistakes of others and a range of experiences to learn from,” he said.

Rig Rates Slip a BitAccording to Transocean, day rates for ultra deepwater rigs have come down a bit compared to last year. In a presentation to attendees at an industry event in Oslo, the company said day rates for these rigs are now around $375,000-$500,000 per day, depending on specification. Last year ultra-deepwater day rates peaked around $650,000 per day. The firm added that rates for deepwater rigs are seen around $300,000-$400,000 per day in the near-term.

CAMAC Energy to acquire 2Dseismic in KenyaCAMAC Energy, an independent oil and gas exploration and production company focused on energy resources in Africa announced that its wholly owned subsidiary, CAMAC Energy Kenya Limited, awarded seismic contracts for the acquisition of 2D seismic surveys on Block L1B onshore Kenya, and Block L16 partly onshore and partly offshore Kenya. The contract awards are each subject to negotiation and signing of a definitive agreement for the provision of seismic services.

BGP Kenya Limited has been engaged to conduct a 2D seismic survey covering 170,000 acres (700 sq. km.) within Block L1B onshore Kenya while Polaris Seismic International Limited has been engaged to conduct a 2D seismic survey covering 125,000 acres (506 sq. km.) within Block L16 partly onshore and partly offshore Kenya.

The objectives of the seismic surveys are to identify the geologic prospect elements that could lead to a commercial hydrocarbon discovery and meet the obligations of the work program. There are five broad play types in the area that may extend onto CAMAC Energy’s acreage: the pre-rift Permian, Lower Jurassic Karoo equivalent sequences in tilted fault blocks, Jurassic to Lower Cretaceous synrift sediments in drape and roll-over anticlines, Upper Cretaceous fans, and the post-rift Tertiary sequences that include stratigraphic plays and carbonate build-up/reef targets.

Further, CAMAC Energy had acquired 2D seismic covering offshore Blocks L27 and L28 in March 2014. These survey results are currently being processed by WesternGeco, a division of Schlumberger.

Segun Omidele, CAMAC Energy’s Senior Vice President of Exploration and Production said, “In addition to the environmental and social impact assessment that has been completed, and the airborne gravity and magnetic survey data that has been acquired, these 2D seismic surveys will continue to advance our work program and our understanding of the petroleum resource potential in these blocks,”

CAMAC Energy’s asset portfolio consists of nine licenses across four countries, including current production and other projects offshore Nigeria, as well as exploration licenses offshore Ghana, Kenya, and Gambia, and onshore Kenya.

Following the award of the contracts for the 2D seismic in blocks L1b and L16 in Kenya, BGP has started the initial field equipment mobilization and shooting of seismic is expected within the next four weeks. Mobilization for L16 is expected in Q4 2014.

The processing of the recently acquired 2D data on L27 and L28 has now been completed and the processed data delivered to the Company and initial interpretation of the data has commenced.

industry news


The opportunity costs are very real. Most of the time investors in the extractive industry have suffered losses of physical assets, life, intellectual property, and other intricate assets like stocks and securities. Volatile markets, unpredictable economic events, unstable political regimes, and tight regulation leave investors in extractive projects dealing with problems that could have been prevented by compliance, effective due diligence, pre-emptive training and customized controls.

Remedially, the need to address the operational, enterprise, security and human capital oriented risks is greater than ever. Operational enterprise risk variables in this context, refer to all the business systems, commercial and/or fi nancial aspects of the extractive projects. Human capital and security component variable could be viewed as the hidden threads linking oil, gas and mining projects to success. For this success to be realized, these three variables - enterprise, security and human capital - must converge.

Project managers in the extractive industry need constant and reliable information, analysis and structured systems, to help them to arrive at this convergence. From that informed position, they are able to advise the investors on the most likely networks and relationships to offer risk management solutions for their prospective and existing investments.

To insulate themselves against risks in the key areas of their operations, investors in extractive projects need to identify ‘power-maps’ to enable them to construct networks across the business communities and government agencies of the host countries.

From a local content point of view, investors need to strategically engage the communities living where the extractive activities take place. They also need to monitor the content and progress of proposed legislation regarding investment. Synergy drawn from these networks, herein referred to as ‘power maps’, will provide real-time analysis to enable them to evaluate the key infl uencers that can shape their ideal operating environment.

Expert opinions have been drawn from the above mentioned key risk management landscape to provide submissions that would be valuable to the extractive industry investors and their project managers.

Risk variables to consider in extractives’ project planning By Tabitha Muthoni

When investors enter new markets or face a rapidly changing regulatory landscape likely to affect existing operations, it is vital for them to know who to deal with or how to establish the next step.

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Project managers in the extractive industry need constant and reliable information, analysis and structured systems, to help them make informed decisions.


Case is a division of CMC Motors Group Ltd - a member of the Al Futtaim Automotive Group

CASE Construction Equipment is a trusted advisor and long-term professional partner to the construction business since 1842. Its equipment is known for productivity, fuel efficiency, operator comfort and serviceability.

At CASE we have the full range of construction equipment, offering more than 90 models, all capable of meeting the toughest construction challenges from mining projects to paving roads.

Using advanced design and engineering, CASE ensures consistent powerful performance and maximum uptime, while maintaining fuel efficiency.

With concern for operator comfort, CASE uses ergonomic layouts that offer enhanced visibility, low vibration, and minimum noise levels. Since CASE knows customers require more than just great equipment, all equipment is backed by full-service solutions, expert advice and fast turnaround in service.

Through CMC Motors Group Ltd , the appointed dealers in the East African Region, CASE customers have a trusted advisor to help maximise their machine uptime – and profitabiity. CASE Construction Division is determined to satisfy all customer’s requirements through customised service solutions based on equipment use and appropriate application.

From our extensive Branch Network in Kenya and our Subsidiaries in Uganda and Tanzania, coupled with the CASE global parts network and factory-trained dealer technicians, the customers will enjoy the critical support they need to get the right equipment, the right support and the flexible commercial options they require.

In the year 2011 and 2012, CASE Construction renewed up to 90% of its construction equipment lines, providing customers with increased productivity, lower fuel consumption and reduced emissions. These includes the new T-series Backhoe Loaders, the new F-series Wheel Loaders and the new B-series Motor Graders and Excavators.

CASE Motor Graders are built with powerful engines, rugged A frames and moldboard design, industry-leading flip up rear hoods, best inclass

serviceability and outstanding visibility. It makes the customer more productive on the toughest jobs and longest days.

The Case Crawler Excavators are durable and have a redesigned upper structure, new boom and dipper design with forged brackets. It has three working modes which tailor the machine to every application. The Advanced Auto mode and Super Power mode offer increased digging forces, greater swing speeds and higher swing torque, resulting in faster cycle time and increased productivity.

The strong rugged looks of the new cab and upper structure contribute to increased operators satisfaction. EMS bushes increase durability and reduce servicing costs, keeping the machine working in the most arduous conditions. High performance hydraulic filter increases component life and extends maintainence schedules resulting in minimal downtime and maximum productivity.

The new T SERIES BACKHOE LOADERS have increased fuel efficiency, reduced downtime, easy maintenance and best-in-class support.

The WHEEL LOADERS have faster acceleration, reduced cycle times, higher travel speed, up to 10% increased fuel efficiency. Not to mention the great comfort and wide range of attachments, which make CASE wheel loaders suitable to different market sectors.

The CASE Dozer is a heavyweight designed to push whatever Mother Nature deals on any given day. It has outstanding pushing power, maximum maneuverability, excellent comfort.

The CASE Skid Steer loaders have the strength to perform. Whatever the task, CASE has a skid steer to meet the need. New cab with up to 25% more internal width, engine outputs well above the competition, best-in-class bucket breakout force. It is the most powerful skid steer outside and the most comfortable one inside.

The brand having established a heritage of leadership, innovation and reliability over the years, CASE celebrated its 170th anniversary last year. Our customers know our products, the dealership and our competitive advantages.

Come visit us at our premises on Bunyala Road for a magical experience.

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Although the prospects for Africa as a whole are brighter than they have been for many decades, it is essential to distinguish between individual countries. Geographically, the continent of Africa is roughly as large as Western and Eastern Europe, the United States of America, Mexico, China, India and Japan combined. Unsurprisingly, there is a huge variation in the prospects, risks and opportunities of the continent’s countries.

Trade fl ows According to the World Bank, Sub-Saharan Africa’s economy grew by 4.7% in 2013 (or 6% if you exclude South Africa) compared to average growth globally of 2.4%. Increasing political and economic stability in many African countries could help to accelerate growth further.

At the same time, Africa’s trade fl ows have undergone a profound change over the past decade. According to the OECD Fact Book, trade between Africa and non-OECD countries – most notably China, India, and Brazil – rose from 26% in 2000 to 39% in 2009. Nevertheless, the US and Europe remain key trading partners for the continent and trade volumes between them and African countries have continued to grow.

Economic growth and greater stability are changing the region’s trade fl ows, boosting infrastructure spending and increasing the importance of export credit agency and multilateral support, stands in contrast to much of the rest of the world. While many countries are still recovering from the fi nancial crisis and economic uncertainty persists, Africa is increasingly becoming the focus for the world’s fi nancial institutions, multinational corporations and investors.

Investing the Citi way By Yusuf Ali Khan

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Citi has also developed a unique risk sharing framework with OPIC enabling Citi to fund its top tier local corporate clients as well as private sector financial institutions and address their liquidity and capex financing requirements.


Power Africa is a US government initiative announced following President Obama’s visit to Africa in 2013. It involves a coordinated US government effort to provide support for up to US$ 7bn in direct loans and guarantees from the Export-Import Bank of the United States, Overseas Private Investment Corporation (OPIC) and USAID working closely with the African Development Bank and private investors, to improve access to electrical power in Sub-Saharan Africa.

Power Africa provides direct loans, grants and guarantees and is currently focused on six countries – Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania. Meanwhile, despite the rapid growth of China, India and Brazil as trade partners, Europe and the US remain important for Africa. The European Union remains Africa’s largest export market, followed by China, the USA and India. Brazil is ranked sixth.

In 2012, African imports from Europe totaled US$ 203bn while exports were US$ 21bn. In comparison, African imports from China were US$ 73bn while exports were US$ 93bn. Large USA and European companies see huge opportunities in Africa.

Capping fi nancial risk for oil, gas and mining projects As Africa’s trade fl ows have changed in recent years, a number of trends have emerged among the region’s trade partners. For example, Chinese trade fl ows have been with the mineral rich countries of Africa, in line with the state’s strategy of securing energy supplies such as oil and coal, and other commodities.

Consequently, Chinese investment in Africa has focused on Nigeria, Zambia, Kenya, Tanzania, Cameroon and Ghana.

In contrast to China’s model, India’s commercial expansion in Africa has been largely driven by private sector companies. Many large investments have been made in Africa in oil and gas sectors by diversifi ed conglomerates such as Reliance Industries of Mumbai.

The region’s economic growth has prompted increased support by a number of other countries. In 2011, India pledged to extend lines of credit worth US$ 5.4bn until 2014 to support the developmental requirements of its African partners. Further commitments were made by the Export Import Bank of India in 2013.

Similarly, the Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance (NEXI) announced measures in March 2013 that could prove supportive to trade with Africa. Historically, Japanese Export Credit Agencies (ECAs) have only provided funding to local companies that purchase Japanese-made goods. However, JBIC and NEXI now offer products that enable local companies in Africa with strategic commodity fl ows to Japan to access support.

Other ECAs, such as Germany’s Euler Hermes, France’s Coface and Export Credits Guarantee Department of the United Kingdom (ECGD), which is now known as UK Export Finance, have also increased their African activities. Citi

acted as a mandated lead arranger for a deal that helped to replace unfi t district hospitals in Ghana.

Ghana’s Ministry of Health signed an export contract with the UK Company NMS Infrastructure for the design and construction of seven district hospitals. The US$ 192 million term facility was split between a 13-year US$ 163million tranche, 100 per cent guaranteed by ECGD, and a fi ve-year US$ 29 million local currency tranche.

Citi has worked with the Export Credit Insurance Corporation (ECIC) of South Africa to support a seven-year funding to Gabon and a 15-year funding to Ghana.

Citi extended a US$ 16.15 million ECIC guaranteed buyer’s credit facility to the Ministry of Economy of the Gabonese Republic to fi nance a contract to supply and implement an integrated security system in Libreville, Gabon’s capital city, as part of efforts to reduce petty crime. Citi was also sole mandated lead arranger for the fi rst ECIC-guaranteed transaction in Ghana, arranging a 15-year US$ 101.3 million term facility for a rural electrifi cation programme in the Upper East region of Ghana. The deal led to signifi cant job creation in Ghana while providing electricity to over 500 villages.

Two recent transactions in the power sector involved support from the World Bank through its Partial Risk Guarantee (PRG) program and the issuance of long-term

Standby Letters of Credit (SBLC) by Citi for Kenya Power & Lighting Company (KPLC) and Tobene Power in Cote d’Ivoire.

The Kenya deal required the issuance of a SBLC with a more than 15-year tenor in relation to monthly payments for capacity and energy charges, as well as fuel charges for KPLC.

In the Cote d’Ivoire deal, the SBLC was issued to support the oil and gas drilling and exploration operations of that country’s Ministry of Finance. The project ensured the availability of clean natural gas for low-cost power generation.

Citi has also developed a unique risk sharing framework with OPIC enabling Citi to fund its top tier local corporate clients as well as private sector fi nancial institutions and address their liquidity and capex fi nancing requirements.

These structures also have the added benefi t of streamlined execution and approvals, making them more effi cient from a timing perspective.

As Africa’s trade flows have changed in recent years, a number of trends have emerged among the region’s trade partners. For example, Chinese trade flows have been with the mineral rich countries of Africa, in line with the state’s strategy of securing energy supplies such as oil and coal, and other commodities

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However, just like any other fi nancial sector in the economy, the Kenyan insurance industry has been caught unprepared in terms of ability to provide local solutions that will help manage the risks in these highly capital intensive and high risk extractives projects.

The only level of participation currently by the industry has been limited to the extent of issuance of locally admitted insurance policies to the operators involved in the upstream energy projects without any signifi cant retention of the risks.

Information from the Insurance Regulatory Authority (IRA) on the various industry players who have sought permissions for overseas placements of covers for these operators reveals that insurance premiums in excess of 25million USD have been generated by the current covers for the explorations activities in the country.

It is however discouraging to note that over 90 per cent of these premiums are held by foreign insurance companies especially the Lloyds of London to whom the covers have been fronted. This has resulted to massive loss of capital for the industry and the Kenyan economy in general.

The Insurance Act Cap 487, Laws of Kenya, requires insurance covers for policies issued in Kenya to be placed with local insurance companies. However, this only applies to the extent that there is availability of local technical and fi nancial capacity to underwrite any given risk.

In order to address this gap, the Authority has formed a taskforce comprising representatives of the various

insurance industry associations and the relevant government ministries. The broad objective of the taskforce involves assessing and strategizing how the insurance industry in Kenya is placed to handle the underwriting of the emerging risks related to oil and gas sector including the creation of fi nancial & technical capacity to enhance local retentions and provide an enabling regulatory environment.

This taskforce has been mandated to recommend appropriate regulatory policies, where required, that will enhance and grow the Kenyan insurance industry capacity to handle oil and gas insurance by facilitating the development of a policy paper in this respect and overseeing drafting of an appropriate regulation.

Besides, the unit is expected to recommend any amendments to the insurance laws to support the growth of oil and gas insurance.

Currently, the taskforce is gathering information and comparing scenarios in different countries in Africa and beyond. Among these are the countries that have had challenges and successes in enactment of laws and regulations aimed at improving their capacities to handle the insurance of the oil and gas sector.

The results of the above will inform the development of a Kenyan oil and gas insurance policy paper together with appropriate regulations to manage insurance for this important sector in Kenya.

Oil & Gas:Are Kenya’s insurers ready?By Samuel Mutua Makove

The ongoing exploration activities for hydrocarbons in Kenya has created an emerging energy sector and renewed hope towards the achievement of Kenya Vision 2030 considering that the energy sector is an infrastructural enabler to this long-term development blueprint.

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SMART EXPLORATION

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AAIS is a Lloyd’s broker. Lloyds of London is the world largestcapacity insurance and re-insurance market provider. Such as it is, insurers cannot deal directly and require Lloyd’s accredited intermediaries to access the specialist products and services like the complex insurance products for the oil, gas and mining.

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makes it particularly high risk. It requires strong capitalization, and specialized expertise to coin up the complex industry’s product and services to meet the needs at all the stages of exploration and production. With experience spanning over 25 years in the insurance and re-insurance industry, AAIS has grown to build reputation and capacity to advise on solvency and stability of organizations.

ance underwriting, reinsurance underwriting, actuaries and investment bankers, to impart advisory for such decisions as local partnerships, Farm-ins, divestiture and a host of other services, in oil, gas and mining space.

Exprience

Mr Dhruv Pandit Director Saham Assurance withMr. Christian Ramamonjiarisoa, Director

Afro Asia Insurance Services

Given that oil, gas and mining projects are quite time intensive, this team shares synergy with local and regional insurers to de-sign tailor made solutions for investors with multi year projects.

Hallmarks

instrumental in the placement of re-insurance of non-traditional risks including the coverage that resulted in the Nakumatt Westgate Terrorism claim, collaborating with Lloyd’s, Mayfair Insurance of Kenya and other local stakeholders.

to also extend their portfolio on the oil and gas exploration and

demands.

Mrs Vinita Lotlikar, Executive Directror, Afro Asian Insurance Services


SMART EXPLORATION

are:

AAIS is a Lloyd’s broker. Lloyds of London is the world largestcapacity insurance and re-insurance market provider. Such as it is, insurers cannot deal directly and require Lloyd’s accredited intermediaries to access the specialist products and services like the complex insurance products for the oil, gas and mining.

multinational organizations can be assured of authenticity of the providers of insurance and re-insurance services. With

are:Regulation by the Financial Conduct Authority of the U.K.Member of the British Insurance Brokers AssociationMember of the African Insurance OrganizationMember of the London and International Insurance Bro-kers’ Association (LIIBA)

Complex Insurance ProductsOil, gas and mining organizations grapple with vast capital and

infrastructure, exploration, and production, and other ‘in between’ activities, which also contribute to the production and trading processes of these commodities. Afro Asian Insurance Services’ product

activities of the oil, gas and mining space.Infrastructure related:

Construction All risksInternational contractors for infrastructure Mobile equipments

MarineOperators of deep sea vessels, ferriesPorts and cargo handling terminalsRejection cover

Exploration & Production relatedPolitical Risks including expropriation and

nationalizationNon honoring of contractsStrikes & Riot Business Interruption

development to satiate conceptual risk factors in the regional market. Investors can now cushion themselves using such products as

Trade creditPolitical Violence and Terrorism

Kidnap & Ransom

-

-

Broker at LLOYD’S

Afro-Asian Insurance Services Ltd. (AAIS), is a UK based organization, with presence in Pakistan, India, and in various

backed by compliance to international standards and ratings, they have built exceptional reputation re-insuring mega and special risks in the oil, gas and mining industries.

The Afro -Asian Professional excellence

makes it particularly high risk. It requires strong capitalization, and specialized expertise to coin up the complex industry’s product and services to meet the needs at all the stages of exploration and production. With experience spanning over 25 years in the insurance and re-insurance industry, AAIS has grown to build reputation and capacity to advise on solvency and stability of organizations.

ance underwriting, reinsurance underwriting, actuaries and investment bankers, to impart advisory for such decisions as local partnerships, Farm-ins, divestiture and a host of other services, in oil, gas and mining space.

Exprience

Mr Dhruv Pandit Director Saham Assurance withMr. Christian Ramamonjiarisoa, Director

Afro Asia Insurance Services

Given that oil, gas and mining projects are quite time intensive, this team shares synergy with local and regional insurers to de-sign tailor made solutions for investors with multi year projects.

Hallmarks

instrumental in the placement of re-insurance of non-traditional risks including the coverage that resulted in the Nakumatt Westgate Terrorism claim, collaborating with Lloyd’s, Mayfair Insurance of Kenya and other local stakeholders.

to also extend their portfolio on the oil and gas exploration and

demands.

Mrs Vinita Lotlikar, Executive Directror, Afro Asian Insurance Services

All eyes are set on east Africa following the discovery of oil in Uganda and Kenya, and discovery of gas along the Mozambique and Tanzanian coast. Kenya has discovered oil in two out of the current 46 gazetted commercial blocks. This means that in the long run the country will join other oil and gas producing countries and this will form part of the economic activity for the country. The discovery of oil and gas and the enormous fi nancial windfall that accrues to the respective governments brings with it attendant challenges and opportunities.

Critical issues that governments of oil producing countries, particularly those in third world countries, have to grapple with include the following:• The need to translate the oil and gas wealth into sustainable, equitable and human-centered

development.• The need to build transparency and encourage open debate among all stakeholders so as

to build a broad consensus on the effi cient management of the wealth resulting from oil and gas.

• Developing appropriate pro-active and environmental integrity of the communities affected most directly by the oil and gas operations.

OpportunitiesThere are numerous opportunities and benefi ts that one will expect to accrue to nations endowed with oil and gas resources.

• Improved balance of payments and reduced fi scal and budgetary disequilibrium in national fi nancial affairs

• Reduced dependence on donor budgetary support with its often stringent conditions.• Increased availability of fi nancial resources for investment in infrastructure for education,

health, transportation, etc.• The potential for the judicious and effective harnessing of the gas reserves that can help

solve the perennial power supply shortages which hamper industrial development and negatively impact on the quality of life of the population in general.

• Improved rating by international rating agencies which can allow governments to borrow relatively easily on the international capital markets, and consequently diminish undue reliance on donor funding.

• Improving private sector access to credit on the local market since the crowding out effect of government borrowing would have diminished somewhat; This can be a strong catalyst for vibrant private sector growth and expansion, thus creating employment opportunities for the population at large.

Reinsuring extractives projectsBy Jadiah Mwarania

ISO 9001:2008 CERTIFIED

1970Establishedunder an Act of Parliament

OLDESTreinsurerin Kenya

OWNERSHIP

60%GOVERNMENT

40%PUBLIC through NSE.

REINSURESover 160 companies

in over 45 countries inAfrica, Middle East & Asia.

BRANCH

Abidjan,Ivory Coastfor Francophone markets.

OWNSReinsurance Plaza,Anniversary Towers,

Kenya Re Towers in Nairobiand Kenya Re Plaza in Kisumu.

2013 after tax profi t

Kshs. 3Ban asset base of

Kshs. 28.2B

RATEDB+(Good) by AMBest, and,

AA(Double A) by Global Credit Rating (GCR) Agency of South Africa.

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Mr. Jadiah Mwarania, Managing Director,Kenya Re-insurance Corporation


• Financial intermediation can be expected to improve, which in turn can enhance access to capital for SME’s

• A vibrant economy anchored on a strong financial inflows from oil exports can provide the budgetary support for poverty alleviation programs.

ChallengesWhile the benefits of any oil based economy are numerous, there are equally serious challenges that governments of these countries cannot afford to ignore.

The greatest challenges for third world oil producing economies have been:• That oil wealth often erodes democratic accountability and good

governance.• That oil wealth increases corruption and wastefulness in public

spending.• That oil wealth often exacerbates existing inequities in wealth

distribution among the population.• Social unrest, most often among affected communities in the

oil and gas producing areas can create security problems for governments.

• The oil economy often can lead to the neglect of other primary export commodities as well as even food production leading to heavy dependence on food imports to augment reduced local production; the net effect may be higher prices for imported basic consumables which situation further aggravates the poverty of the vulnerable segments of society.

Without adequate safeguards energy production can often lead to serious environmental degradation affecting the health and livelihood of the immediate indigenous populations. It is a known fact that the oil and gas industry is arguably the most capital intensive industry there is. Huge investments in technology, equipment and human resources are deployed to undertake the various phases of the oil and gas production chain which includes:• Seismic investigation.• Drilling of exploration well.• Testing and evaluation of exploration well to determine the exact

nature of hydrocarbons.• Drilling of additional appraisal wells to evaluate field size/

reserveand the viability of the development.• Development of permanent production installation at those

locations where the more favorable hydrocarbon bearing formations can be reached.

In addition to these core activities in extracting the oil and gas and processing them into the final products, there are other support services that together constitute the broader oil and gas industry. Any business that requires the investment of huge financial resources and is at the same time inherently fraught with tremendous risk of loss of property and/or life as is found in the oil and gas industry should make risk management in general and insurance in particular, an integral part of their financial planning and management systems.

UncertaintyGas and oil operations represent an economic activity in which many decisions involve risk and uncertainty. In order to adequately respond to the challenge of designing appropriate risk management systems for the oil and gas industry the Reinsurance industry has had to address the following issues:

• Identification and understanding of the nature of the hazards for which risk management solutions need to be designed.

• Identification of the assets to be insured, expertise in properly estimating potential loss exposure, as well as the type of insurance cover appropriate for the assets;

• Identification of the key parties (i.e. investors/owners, joint venture partners, contractors, sub-contractors, operators, etc.) with insurable interest in a particular oil/gas project.

• The capacity of the local insurance market, both financially and in terms of technical expertise, to underwrite what is arguably a very complicated risk to rate.

• The availability of adequate safeguards to ensure appropriate levels of local participation in all insurance cover to minimize premium flight from the local market.

• Designing appropriate training programs to transfer technology and knowhow to local underwriters.

Emerging MarketThis being an emerging risk, the insurance sector has a perfect opportunity to tap into this wealthy resource that is expected to bring economic stability and create employment. Currently, various insurance covers are available to cover hazards and risks encountered at each phase of the oil and gas activities though most are being offered by international insurance companies resulting to capital flight in terms of premiums.

The reinsurance market has not been left behind. It has provided capacity to the insurance enabling insurance companies to absorb more risks which are then transferred to the reinsurer. Reinsurance arrangements are provided through Treaty arrangements or on Facultative basis. The reinsurance market is also providing the necessary technical capacity to assist in the development of the oil and gas markets.

Kenya Re has taken lead in providing reinsurance capacity and technicalexpertise to both local and the international markets. This improves the product and service component of the local insurers and instills confidence to the investors who in most cases procure oil gas insurance from foreign insurers due to lack of satisfactory local content.

The Corporation has put in place strong retrocession programs to protect its balance sheet against large and catastrophic losses emanating from oils and gas risks which include:• Construction Erection “All Risks”,• Delay in Start Up, Operational “All Risks”,• Business Interruption / Operators Extra Expenses,• Sabotage and Terrorism,• Marine Cargo Insurance,• Directors’ and Officers’ Liabilities,• Employers Liability,• General Third Party Liability,• Environmental Impairment Liability• Automobile Liability

As a national Reinsurer, Kenya Re has continued to work with the local insurance industry to provide reinsurance cover to the insurance companies that provide insurance cover to major government projects.

The Corporation has therefore continued to increase retention capacity thus reducing the need to purchase reinsurance cover from external reinsurers.

Reinsurance industry has also looked at the capacity of the local insurance market, both financially and in terms of technical expertise, to underwrite what is arguably a very complicated risk to rate and also identification of the key parties with insurable interest in a particular oil/gas project.

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Lloyds of LondonAfro Asian Insurance is a Lloyd’s broker. Lloyds of London is the world largest capacity insurance and re-insurance market provider. Such as it is, insurers cannot deal directly and require intermediaries to access the specialist products and services at Lloyds, like the complex insurance products for the oil, gas and mining. Through high securitization, and stringent regulatory regime at Lloyds, multinational organizations can be assured of credibility of the providers of insurance and re-insurance services. With their regional office in Nairobi, Afro Asian Insurance and Re-insurance Brokers are among the top LLoyds accredited brokers in Africa.

Their other accolades are:-• Regulation by the Financial Services

Authority of London• Member of the British Insurance Brokers

Association• Member of the African Insurance

Organization• Member of the London and International

Insurance Brokers’ Association (LIIBA)

Complex insurance productsOil, gas and mining organizations grapple with vast capital and time intensive projects. These projects spread across upstream, midstream and downstream extractive activities, which also contribute to the production and trading of oil, gas and minerals. Afro Asian Insurance Brokers’ products offering caters for all the exploration, production and trading activities of the oil, gas and mining space.

Infrastructure related:-• Construction All risks• International contractors for infrastructure

• Mobile equipements• Marine• Operators of deep sea vessels, ferries• Ports and cargo handling terminals• Rejection cover

Exploration & Production related• Political Risks including expropriation and

nationalisation• Non honoring of contracts• Strikes & Riot • Business Interruption

AAIS have brought significant capacity to innovation through product development to satiate conceptual risk factors in the regional market. Investors can now cushion themselves using such products as:- • Trade credit• Political Violence and Terrorism• Directors and officers Liability • Kidnap & Ransom

Professional excellence The uncertainty inherent in the oil, gas and mining space makes it particularly high risk. It requires strong capitalization, and specialized expertise to coin up the complex industry’s product and services to meet the needs at all the stages of exploration and production.

With experience spanning over 25 years, in the insurance and re-insurance industry, AAIS has grown to build reputation and capacity to advise on solvency and stability of organizations. The team comprises insurers, re-insurance underwriters, actuaries and investment bankers, to impart advisory for such decisions as local partnerships, farm-ins, divestiture and a host of other services, in the oil, gas and mining space.

Given that oil, gas and mining projects are quite time intensive, this team shares

synergy with local and regional insurers to design tailor made solutions for investors with multi year projects.

HallmarksIn the course of their first two years in Nairobi, AAIS was very instrumental in the placement of re-insurance of none traditional risks including for the Nakumatt Westgate claim, collaborating with Lloyds, Mayfair Insurance of Kenya and other local stakeholders.

The newly opened office in Nigeria and Zimbabwe seeks to also extend their portolio on thegas exploration and mining activity. Other new offices are opening soon, as the market demands.

Afro AsianRe-InsuranceServices (AAIS)Afro Asian Insurance and Re-insurance Services,is a UK based organization, with presence in Pakistan, India, and in various country in Africa including Kenya. With a unique profile, backed by compliance to international standards and ratings, they have built exceptional reputation re-insuring mega and special risks in the oil, gas and mining industries.

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Mr. Christian Ramamonjiarisoa, Director AAIS with Mr. Dhruv Pandit of Saham Assurance during the launch of the AAIS Nairobi office.


East Africa, long famed for its safaris and wondrous animal and bird life has until now, relied on agriculture and tourism as the main stays of its economy, with Kenya as the central economic hub for the region.Kenya, Tanzania and Uganda all border Lake Victoria, the largest fresh water lake in the world. Kenya is possibly best known for its international success in long distance running while Uganda with its incredibly fertile land has also earned the sobriquet as the Pearl of Africa. Tanzania, in the O&G world for the Songo Songo gas field that came on stream ten years ago is also famed for Tanzanite, a type of precious gemstone that is found only in Tanzania.

The Rift Valley, starting in Israel and extending southwards, runs through all three countries before continuing southwards until it fades out in Zimbabwe, It is at its most impressive in Kenya but from an geologist’s perspective is more important as it is the ‘rift’ between the Nubian African Plate and the Somalian African Plate in the tectonic map of the world.

Oil seepages have been common and sporadic exploration has taken place in the region since the 1930’s but with little commercial success. New technology, especially in seismic techniques, has reawakened interest in the area and with an estimated 3.5 billion barrels of heavy crude discovered on the Eastern shore of Lake Albert in Uganda

and an estimated 30 trillion cubic feet of gas found offthe coast of Southern Tanzania and Northern Mozambique, the scene is set for exploration on an unprecedented scale.

Cynics have said that there are two curses of Africa apart from corruption, Bureaucracy and Barrels (of oil) and a concerted effort is needed to ensure that the potential wealth of the region is not frittered away by politicians for their own self aggrandizement or for their own personal wealth. It is after all only four years ago that Nigeria, after 55 years of oil development and ten years of discussion, passed a Local Content Act, emphasizing that a systematic development of capacity and capabilities through the deliberate utilization of Nigerian human and material resources and services in the country’s oil and gas industry was required.

Ghana, a much newer player in the business, passed a Local Content Act in November 2013, stipulating that Ghanaian citizens should be prioritised in terms of employment in the petroleum industry, and should benefit from the country’s resources. The implementation of this new law is expected to ensure that Ghana’s natural resources benefit Ghanaians, while the foreign oil companies also get fair returns on their investment.

As yet, none of the East African countries where oil or gas has been, or is expected to be, discovered have produced similar legislation. The Petroleum Act of 2008 in Tanzania expressly excludes exploration for oil from the legislation and the Petroleum (Exploration, Development and Production) Bill, 2012 in Uganda makes no provision for the training or utilization of Ugandan or, for that matter, East African citizens. In Kenya, there is provision in the Petroleum (Exploration & Production) Act of 1984 (reviewed in 2012), for the provision of atraining fund for the purpose of training Kenyannationals in petroleum operations but as yet there is not much evidence that it is being enforced.

East Africa is blessed with an intelligent and, in the main, well-educated population but without the infrastructure or ability to find employment for the work force. The educated Kenyan, for example, looks for employment abroad with an estimated 37,000 working in the UAE; over 200,000 in the UK and some 100,000 in the USA. Similar proportions, but less numbers, come from Uganda and Tanzania.

The oil industry in East Africa needs local employees, not just out of the goodness of its heart but because it makes sound economic sense. An expatriate worker typically costs about six times that of a local employee with the same skill sets, not just in wage costs but also in life support

Honing human capitalfor African resourcesBy Rocky Hitchcock

The discovery of potentially large reserves of oil in Kenya, coupled with commercial reserves established in Uganda and sizable quantities of natural gas off the Tanzanian and Mozambique coastlines has focused the attention of the world’s oil companies – and their service providers – wonderfully.

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travel and training costs. Reports vary but it is estimated that there will be a requirement for up to 20,000 locally sourced jobs in Kenya alone by 2018.

The question then arises; where are the trained workers going to come from? KK Security, the leading security service provider with over 22,500 employees in East Africa, realized some time ago that, generally speaking, people only went into the manned security business because they were unable to find a job elsewhere even though they may hold qualifications that, if the opportunity existed, they could be suitable for. They conducted a trawl through their personnel records and discovered that not only did they have a large number of graduates working for them as security officers, manning barriers and gates etc., but also over 500 welders in their Nairobi operations as well.

From here, came the germ of an idea: If they could identify the skill sets required to work in the oil industry and train them to OPITO standards, they could offer advancement to their employees which would materially improve their standard of living and offer a quality of life that they cannot get now. As a security company, KK had bid for and won the contract to provide manned guarding for Tullow Oil in North West Kenya in Turkana and, in line with Tullow’s local content requirements, recruited local Turkana to fill the positions. They were assisted by having some Turkana already in the workforce employed in Nairobi and elsewhere and who had been with the company for some time in supervisory positions. Bringing the new recruits from Turkana to Nairobi for training increased their enthusiasm for their new jobs.

A new division of the company was formed; KK Oil & Gas and incorporated in that, was an existing division KK Training, that previously had concentrated on purely security training. The remit was to provide internationally certified Health & Safety Training through the UK’s Institution of Occupational Safety & Health (IOSH) and the International Association of Drilling Contractor’s (IADC) Rig Pass scheme. Managers were NEBOSH (National Examination Board of Occupational Safety & Health - UK) trained and an expatriate Kenyan, working for Saudi Aramco who was a Chartered Member of IOSH was brought back to head up the H&S training. The company has also the only invigilation centers in sub-Saharan Africa for IMIST training on-line.

Germs breed - even benign germs breed – so the next stage was to team up with a world renowned center of Oil training expertise, Cape Breton University in Nova Scotia through their commercial training arm, LearnCorp International (LCI) and plans are currently under way to open a dedicated O&G training facility on the outskirts of Nairobi, Kenya, to service the region.

LCI will provide the trainers and eventually, train the trainers as well. The curriculum will include the full spectrum of basic oil field requirements such as: Knowledge and skills in handling equipment; Mud circulation systems; Bottom hole assembly makeup;Tools;Inspection and quality checks; Drillstring makeup; Sampling; Equipment handling; Draw works;Power systems and loads.

So what does this mean for the industry? Most major international players have their own training establishments located in Houston; Aberdeen; The Gulf or the Far East. They are all centres of excellence but they are far from the next oil frontier in Eastern Africa and the cost of sending ‘local content’ to them is almost (but not entirely) prohibitive. On present estimates, the cost of sending potential workers to an East African training centre that can provide local artisans with the same qualifications as expatriates is roughly half the amount of the current spend excluding the cost of travel and accommodation in Europe or America.

At the moment, investment is being done by the relatively minor players, such as Tullow Oil; Ophir; Bowleven and others. If, as is likely, really significant finds are discovered, the ‘grown ups’ of the industry, the majors and the super-majors, will want a slice of the action and it is only they who have the financial resources to make the aspirations a reality. KK Oil & Gas may be taking the first steps to achieve this but there is no doubt that a whole new service industry will develop, serviced by Africans, for Africans.

Initially assistance from the international community may be needed to achieve this but it must make not only economic but also social sense, as it gives the potential oil industry workers of East Africa a genuine sense of ‘owning’ the resources under their land and a means of empowering themselves, in order to develop their countries without having to rely on foreign aid be it through loans, grants or the use of more qualified expatriates.

EXPLORATION & DRILLING PRODUCTION PROCESSING STORAGE, SHIPPING, PIPELINES REFINING & SALES

Ongoing with expected increase in activitybetween 2014 – 2020

Potential for early stage well testing and production2017 onward

Following successful production

2018 onward

Ongoing infrastructure required to support production

2018 onward

Regional refining capacity required

2018 onward

KK Training Simulated Drill Rig in Kenya

The chart above outlines the progression for Kenya but this can be replicated across the region

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Information on the award of the 960mw Lamu coal power project by Fred Murimi

1. Is the Gulf Energy/Centum consortium price competitive?The total energy cost by the Gulf Energy/Centum consortium is 7.56 US cents/kWh. The Gulf Energy/Centum Consortium tariff is the lowest compared to other forms of power generation in Kenya: approximately 9.5 US cents/kWh for geothermal power and approximately 27 US cents/kWh for medium speed diesel power plants. For public sector geothermal generation, such as Kengen, the subsidized tariff is 7.5 US cents/ kWh, which has been subsidized by US 2 cents/kWh through Government concessions.

Once complete, this coal project will be the cheapest independent power producer in Kenya.

According to studies by International Energy Agency in 2009, tariffs for similarly sized coal plants range around 11 US cents/kWh for countries importing coal such as Kenya, which she will do initially.

2. What was the tender process?An Independent Technical Evaluation Committee was formed comprising 14 senior offi cials from Ministry of Energy & Petroleum (“MOEP”), Kengen, Kenya Power, GDC, PPP Unit and AG’s offi ce.

There was a two stage process in evaluating the bids - technical and fi nancial. The three respective bids of Gulf Energy/Centum consortium, HCIG and Shanghai Electric were submitted to technical evaluation and thereafter the fi nancial bids were opened on 22nd May 2014.

We write on behalf of the Gulf Energy/Centum consortium that was the successful bidder for the development and operation of the 960MW Lamu Coal Power project to provide the following information on the tender process and on the project itself:

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The fi ndings by the Independent Technical Evaluation Committee were then submitted to the PPP Secretariat, which agreed with the fi ndings of the Committee. The PPP Secretariat comprises Principal Secretaries from 5 ministries, 4 private sector representatives and the Attorney General.

3. Was the change in consortium members proper?Gulf Energy on February 25, 2014 wrote to MOEP seeking approval to reconstitute its consortium pursuant to Section 46(7) of the Public Private Partnership Act 2013 (PPP Act).

On March 14, 2014 MOEP in consultation with the PPP secretariat acknowledged the request and stipulated requirements to be satisfi ed by Gulf Energy and the proposed new members in order to confi rm eligibility of the proposed replacing members. The consortium complied with the requirements on 31 March 2014.

On 15 April 2014, MOEP wrote to Gulf Energy approving the change in consortium members, which letter was copied to the PPP Unit and the Attorney General’s offi ce, with whom MOEP had consulted concerning the approval to reconstitute the consortium.

Accordingly, the reconstitution of the consortium occurred before the bids were submitted on 23 April 2014 and was in accordance the law.

4. Was the RFP document clear?The RFP, which is a 365-page document, had very clear provisions on the calorifi c value (or energy content) of coal to be used for design of the plant and evaluation of bids. These provisions were repeated severally including in Addendum No. 1 (Annexed hereto is Addendum No. 1) as follows:

(i) Section 1.7.3 of the RFP provided that “For the purpose of preparation of the bid, the reference coal is the Eskom (general), whose characteristics are indicated in sub-section 2.2.3.2 of the RFP Document”.

(ii) Section 2.2.3.2 of the RFP on Fuel, provided a table with the complete characteristics of design coal - Eskom Coal. The Lower Calorifi c Value there is 21,000kJ/kg.

(iii) Section 5.4 on Fuel Charges stated “For purposes of evaluation the Fuel Price (FP) per MT shall be US$50/ MT and the Lower Calorifi c Value shall be 21,000 kJ/kg”.

Bidders were required to quote the same with their Financial Proposal, which each of them did and counter-signed on the fi nancial bids opening date.

(iv) Addendum No. 1 to the RFP dated 14th March 2014 at Section 9 re-emphasized the LCV of Coal as 21, OOOkJ/kg. In addition, Section 2.1.4 of the RFP and Annex 4 of the RFP provided that all Bidders were free to seek clarifi cation over any unclear provisions or to request additional data, as late as fourteen (14) days prior to the Bid Submission Date of 23rd April 2014. The RFP having been issued to Bidders on 27th January 2014, if there was any lack of clarity over the LCV, Bidders had at least three months to seek clarity from MOEP.

The Reference Coal is a critical component of design. It is not possible to design a plant with a design coal 29,307.6 kJ/kg to operate within the range of 16,000-21,000 kJ/kg, which is the range for Kitui Coal and South African Coal as required by the RFP.

5. Was the basis of evaluation clear?The RFP was clear on the formula to be applied in fi nancial evaluation, which sought to establish the lowest cost of energy, and this would be determined by a fi nancial .comparison based on a discounted energy cost calculation for a term of 25 years.

Annexed hereto is the relevant section of the RFP dealing with evaluation of bids for your ease of reference. The Evaluation Committee did not at any time change the basis of evaluation of bids. The fi ndings of the Committee in respect of Bidders 4 and 5 was follows:

Bidder 4In respect of Bidder 4 (HCIG Energy), the Committee found that there was a discrepancy between the fuel charge rate read out at the opening of fi nancial proposals (USS0.0299/kWh) and the fuel charge rate computed using the formula in the RFP and the fuel consumption specifi ed by the Bidder (USS0.0155/kWh).

The Committee sought a clarifi cation from Bidder 4 on this discrepancy. Bidder 4 responded and indicated that the Committee should use the fuel charge rate computed using the formula. This however did not address the discrepancy.

In a second response by Bidder 4, it explained that the disparity was as a result of using a price of coal of US$96.45/MT. This contradicted Bidder 4’s fi nancial proposal, which stated, “For purposes of evaluation the Fuel Price (FP) per MT shall be US$50/MT ... “

The second response did not also clarify a discrepancy between the heat rates (rate of conversion of energy to power) observed in the technical proposal and the Specifi c Fuel Consumption (“SFC”) (amount of fuel that is required to produce a unit of power) that was read out in the opening of fi nancial proposals. They stated that it was not possible to give a fi rm SFC or Heat rate. This effectively made their offer variable.

On 30 June 2014, Bidder 4 sent an unsolicited clarifi cation to the effect that the Bidder’s read out SFC of 0.310kg/kWh contained a typographical error and the SFC should have been 0.4310kg/kWh. The Committee found that this clarifi cation was unsolicited (contrary to the RFP), was received after the evaluation had been completed and amounts to change of price and substance of the bid.

Bidder 5In respect of Bidder 5 (Shanghai Electric Power), the Committee found that there was a discrepancy between the fuel charge rate read out at the opening of fi nancial proposals (USS0.022/kWh) and the fuel charge rate computed using the formula in the RFP and the fuel consumption specifi ed by the Bidder (USS0.01575/kWh).

The Committee sought a clarifi cation from Bidder 5 on this discrepancy. Bidder 5 responded and indicated that the discrepancy was caused by use of coal of a calorifi c value (or energy content) of 29,307.6kj/Kg instead of 21,000kj/Kg, citing failure of the RFP to provide clarity.

In a second response, Bidder 5 explained that it was impossible to achieve the SFC of 0.315kg/kWh mentioned in its bid using coal of a calorifi c value of 21,000kj/Kg. This clarifi cation contradicted the bidder’s fi nancial proposal where they stated “For purposes of evaluation the Fuel Price (FP) per MT shall be USS50/ MT and the lower calorifi c value shall be 21,000kj /Kg.

Bidder 5 also stated that they applied a “Calorifi c Factor” of 1.3596, which effectively adjusted their SFC from the tendered 0.315 to 0.4396kg/kWh.

The Committee found that these clarifi cations amount to a change in price and substance of the proposal contrary to the provisions of the RFP.

The fi ndings of the Independent Technical Evaluation Committee are contained in a report that was circulated at a press conference on Monday 1sr September 2014.

6. What is the implication of cheaper power?The Lamu Coal power plant is integral to attaining the country’s objective of increasing generation capacity and signifi cantly reducing the cost of power. This power plant will assist in meeting additional demand from Iron & Steel smelting (2000 MW), Standard Gauge & Light Rail (1, 171 MW), ICT parks (675 MW) and LAPSSET (350 MW).

The introduction of Lamu Coal Power Plant into the country’s energy mix is expected to reduce power tariff signifi cantly. This is because under the Least Cost Power Development Plan (LCPDP), the Coal Plant would

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entirely displace the High and Medium Speed Diesel Plants which make up 622MW of the current effective power generation capacity of 1664MW, due to the fact that the cost of the High and Medium Speed Diesel Plants ranges between USS cents 26 - 36 per unit, as compared to USS cents 7.56 for the Coal Plant.

Accordingly, the savings to the country will be immense. Specifically, in order to provide affordable electricity for these activities which are expected to sharply transform Kenya’s economy, MOEP developed a roadmap to raise the generation capacity by 5000 MW from the current 1664. 1 MW to slightly over 6, 700 MW by 2016. Through this road map, the Government of Kenya made public commitments to lower the generation cost of electricity in USS cents from 11. 30 to 7.41, to lower the commercial/industrial tariff from USS cents 14.14 to 9.00 and to lower the domestic tariff from USS cents 19.78 to 10.45. This will be achieved in large part by the development of Lamu Coal Power Plant.

The effect of delivery of this project will be to electrify communities, spur and enhance industry and create a notable number of jobs to significantly impact youth employment.

The project will create several thousand direct jobs during construction, and indirect jobs in several multiples of thousands. The delivery of the project would have a huge impact on the Kenyan economy by increasing the availability of affordable power, which will be a catalyst for Kenya’s economic growth and successful industrialization by enhancing the country’s competitiveness.

The award to a consortium led by local companies is a vote of confidence for the capacity of reputable local companies to lead, fund and own the development of large infrastructure projects within the country in partnership with experienced world class companies. It will also give local investors an opportunity to participate in this important power project.

Centum is a Kenyan publicly listed company with over 36,000 shareholders. The Government of Kenya, through ICDC, is a 23% shareholder in Centum.

7. Does the Gulf Energy/Centum consortium have capacity to deliver this project?The project will cost approximately USD 2.0 billion, of which approximately USD 500 million will be funded by equity and the balance of approximately USD 1.5 billion will be funded through

debt. The consortium has the proven capability to raise such funds and has already received significant interest from several major international lenders and export credit agencies.

Centum will play the role of lead equity sponsor in the project which will ensure the longterm economic benefits of the project vest with the people of the Republic of Kenya.

Centum seeks to be Africa’s foremost investment channel providing investors with access to a portfolio of otherwise inaccessible, quality and diversified investments in Energy, Financial Services, Real Estate, FMCG, Agriculture, Healthcare, Education and ICT sectors.

As at 31 March 2014, Centum Group had assets under management of Kes.29 billion of its own funds and an additional Kes.116 billion of third party funds.

Gulf Energy is an indigenous energy company that focuses on the energy sector. In the petroleum industry, Gulf specializes in the import, export, distribution, wholesale and retail of petroleum and petroleum products within Kenya and the East Africa countries plus South Africa. It is a significant energy sector player ranking amongst the largest petroleum sector investors in Kenya, as well as the only indigenous private investor with proven power sector experience. Gulf has developed an 80.32MW Independent Power Plant in Athi River, making it the first local company to successfully venture in the power generation sector.

The Consortium also includes two wholly owned subsidiaries of Powerchina, which is a Fortune 500 company with vast experience in power project development having installed capacity in excess of 43,000MW worldwide in nuclear, coal, thermal and hydro including the Three Gorges Dam which is the world’s largest hydro-power dam.

In conclusion, the conditions in the RFP were very clear and contained a transparent basis for evaluation of the bids. The Gulf Energy/Centum consortium looks forward to delivering this important national project that stands to benefit the economy and people of this country.

We are available to provide any further information or clarification that may be sought.

commentary

Knowledge Management Offering: Standards & Conformity AssessmentQuest Laboratories is the leading Industrial Quality infrastructure company

offering knowledge managementand construction in the following areas:

1. Standards training and standards implementation for industries and service companies, consultancy in engineering for production platforms and plants.

2. Certification of companies and processes in production and environment under the ISO scheme management-9001:2008, Food & Hygiene-22000:2005, Environment-14001:2005, ICT 27000, OHSAS 18001:2007. We also offer product certification for exports to the EU, North America and Asia based on regional and global standards requirements for the markets and importer specifications.

3. Inspection of processes and products.4. Testing & analysis for industry to achieve national standardization marks and production system efficiency5. Environmental systems development, assessment and quantification for county governments and industrial

clients especially in waste management (solid and effluent), storm systems, oil and oil waste, dump sites, noise, gaseous emissions control and general pollution control.

All our work is based on the in-house resourced laboratory system, accredited both nationally and internationally. The competencies in testing and analysis from the laboratory system complements

the knowledge center in the service and knowledge offering.

CONTACT:Kioko Mang’eli on +254 (0)728 537567, Plessey House, Ground & First FloorsP. O. Box 3097, 00506, Nairobi, Kenya. Tel: +254 (0)20 551988/(0)700 321464/(0) 736 132495Email: [email protected] Web: www.questlaboratories.co.ke

Knowledge Management & Offering; Standards & Conformity AssessmentQuest Laboratories is the leading Industrial Quality infrastructure company offering knowledge managementand construction in the following areas:

1. Standards Training and Standards Implementation for Industries and Service Companies, Consultancy In Engineering for Production Platforms and Plants

4. Testing &Analysis for Industry to Achieve National Standardization Marks and Production System Efficiency

5. Environmental Systems Development, Assessment and Quantification for County Governments and Industrial Clients Especially In Waste Management (Solid And Effluent), Storm Systems, Oil and Oil Waste, Dump Sites, Noise, Gaseous Emissions Control and General Pollution Control.

2. Certification of Companies and Processes In Production and Environment Under The ISO Scheme Management-9001:2008, Food & Hygiene-22000:2005, Environment-14001:2005, ICT 27000, OHSAS 18001:2007; We Also Offer Product Certification For Exports To The EU, North America and Asia Based on Regional and Global Standards Requirements for The Markets and Importer Specifications

3. Inspection Of Processes and Products

All our work is based on the in-house resourced, nationally and internationally accredited laboratory system. The competencies in testing and analysis from the laboratory system complements the knowledge center in the service and knowledge offering.Contact InfoPhysical Address: Plessey House, Ground & First Floor Postal Address: Box 3097, 00506, Nairobi KenyaPortal: www.questlaboratories.co.ke Email: [email protected]: +254 (20) 551988; +254(700)321464; +254(736)132495; Contact Person: Mang’eli, Kioko (+254728537567)

GEOEACE2014

1st Geo EastAfrica Conference & Expo

Exploring and Exploiting Geo potential

expo in the field of Geology in AfricaDate : OCTOBER 2 nd - 4 th, 2014 venue : Intercontinental Hotel Nairobi Kenya

Endorsed by ;

The Ministry of Environment, Water and Natural Resources,

KENINVEST.For more information contact us through:email:[email protected] www.gsk .or.ke(+254) 0775 09 88 95, Elaine (+254) 0727207008

Geological Society of Kenya

Ge

ological Society

of Kenya

Introduction

Ministry of Energy & Petroleum,

As the Geological Society of Kenya celebrates 40 years of Geology in Kenya:-

Join the region’s leading geologists and discover technological advancements in the Geology �eld.

Take advantage of our onsite recruitment

Network with opinion and business leaders in the East African extractive industry.

Indulge in the mineral wealth

For more information on how you can be a part of this exciting opportunity kindly visit our website

2003.

total o of 2D sei at overing Blo

an as

Woo etween A st an O to er

Between 2000 an seven ro tion S aring Contra ts were signe an Woo

o plete of 2D

La Basin. I itio

o plete w

potential so r an reservoir ro its in t e area

as well as petro stpla t e s asins.

B t ere were 12 oil ploratio o panies op

erating in t o ntr wittotal o nse loI ition to t is over

oil in Ugan welpe to rej venate t e

sear Ken n o ag

ploration in Mo a ian Ta ania ooste

2012 wit Apa e en o ntering gas in M a well (Blo

rior to t e entr of T low Oi t of t e 33 wells

rille t o ntrs owe gns of ro ar

on t none were

(After Ronald F. Broadhead, 2002, http://geoinfo.nmt.edu/faq/energy/petroleum)

GEOEACE2014

1st Geo EastAfrica Conference & Expo

Exploring and Exploiting Geo potential

expo in the field of Geology in AfricaDate : OCTOBER 2 nd - 4 th, 2014 venue : Intercontinental Hotel Nairobi Kenya

Endorsed by ;

The Ministry of Environment, Water and Natural Resources,

KENINVEST.For more information contact us through:email:[email protected] www.gsk .or.ke(+254) 0775 09 88 95, Elaine (+254) 0727207008

Geological Society of Kenya

Ge

ological Society

of Kenya

Introduction

Ministry of Energy & Petroleum,

As the Geological Society of Kenya celebrates 40 years of Geology in Kenya:-

Join the region’s leading geologists and discover technological advancements in the Geology �eld.

Take advantage of our onsite recruitment

Network with opinion and business leaders in the East African extractive industry.

Indulge in the mineral wealth

For more information on how you can be a part of this exciting opportunity kindly visit our website

2003.

total o of 2D sei at overing Blo

an as

Woo etween A st an O to er

Between 2000 an seven ro tion S aring Contra ts were signe an Woo

o plete of 2D

La Basin. I itio

o plete w

potential so r an reservoir ro its in t e area

as well as petro stpla t e s asins.

B t ere were 12 oil ploratio o panies op

erating in t o ntr wittotal o nse loI ition to t is over

oil in Ugan welpe to rej venate t e

sear Ken n o ag

ploration in Mo a ian Ta ania ooste

2012 wit Apa e en o ntering gas in M a well (Blo

rior to t e entr of T low Oi t of t e 33 wells

rille t o ntrs owe gns of ro ar

on t none were


The foregoing seems to have removed the knowledge management aspect of the industry - and especially the governmental role—from being in charge now and in the future. It has been left to those in the business to ply proposals and the governments to accept and grant the permitting. This is true for Uganda, Kenya and other oil and gas producing countries so far.

The other critical system that will impact on the hydrocarbons sector is the Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) Corridor programme. The national government has an obligation to inform and arouse interest in the project. It is incumbent upon those managing the process to lead and educate the citizens to reflect and state what dangers or tidings the project can bring to our country and region.

Does the government or do Governments involved in the project need to see the international commodity side of the development and tag development on it?

Do we need to set up our own global reach trading system - private, public or both - to step into a secure future? Or are we interested in transiting into drill, exploit for export crude for those that do find the treasure? Does it suffice to borrow drills, money and expertise, drill, extract, construct infrastructure and wait to pay for the emergent system based on simplistic economic analysis?

Kenya’s hydrocarbons market walks on a tight ropeby Dr. Kioko Mang’eli

The clamour for new oil and gas wells and the multinationals’ endeavours to strike commercially viable resources is in earnest.

opinion


opinion

The LAPSSET programme as conceived should interest the government (especially Kenya) to put into place a knowledge management system (maybe consultancy or any other operable knowledge system) and direct the development from the concept to a phased out development of petrochemical industry complex.

The first and second phases are tied in intent and purpose. As the pipeline and inland storage system is put in place, the seaside development of a floating terminal and storage facility expandable seaside shall also be initiated. Phase II within phase I shall see the development of a modern pipeline with feeds from the region and storage facilities midway and at sea.

The particular development allows trade in crude to start on two levels; regional crude pumps directed to the regional pipeline and delivery to sea terminal for export. In this development, the region starts establishing trade systems, benchmarks and a financial system through orders, quotes and deliveries.

The knowledge and practice comes into play. The third phase will come with crude processing/storage facilities midway creating a regional point of commodity contract delivery laying the foundation for an East African commodities market with reliable delivery system in oil and gas sector. A similar model is found in Rotterdam and Cushing, Oklahoma in the United States.

Furthermore, by a vertically integrated development plan the engineering will be contiguous and with a vision to support the refinery, rather than a collection of disassociated petroleum complexes that do not complement each other.

This way the government, the member states and stakeholders will have a vision for the future beyond the refinery and associated complex. Judging from the global experience, we can tell that Kenya is poised to become the next global marketplace for commodity contract settlement and the establishment of a Kenya Mercantile Crude Contract similar to Brent, or West Texas contacts.

The midway terminal, refinery and the financial system may

be developed through a PPP format just like the NSE. In this scenario, the midway terminal developed will be the point of delivery and settlement for all petroleum contracts for the East Africa Common Market and thus establishing a new (yet to exist) traded crude contract.

The development will cement Kenya’s position as point of delivery and leader in the East African hydrocarbon marketplace.

Will the governments and their bilateral partners allow for the development of this project as a PPP process with the private parties supplying the debt financing from the international marketplace?

If they are in congruence in the thinking and process, then those offering leadership in this aspect will assume certain tax considerations, accommodations and Government licensing.

The private parties will not offer the support to the project in the absence of relevant feasibility studies and planning documents allowing for analysis and prospectus development of the project. The knowledge prospects and consultancies are core to this development as earlier on discussed in this article.

The government should put into place the knowledge laboratory to churn out the prospect design operational system and subsequently allow private parties participation. The process towards attaining the goal of a mercantile EAC hydrocarbon marketplace becomes a reality.

Such arrangements must be designed such that the private parties have respective stakes and can realise gains from the investment and efforts deployed.

The parties interested should be granted an avenue by Government to forward formal requests and receive relevant information in their preparation and engagement with the government. The scheme so designed can swiftly bring into play the relevant parties and structures for discussion, negotiation and an agreeable final actionable proposal culminating in successful project work.

EHS Management Consultants Ltd is a company registered in Kenya to offer consultancy services in Environmental, Occupational Health and Safety Management. The company is also registered with the National Environment Management Authority (NEMA – Ministry of Environment, Water & Natural Resources) as a Firm of Experts to carry out Environmental Impact Assessments and Environmental Audits as per the Environmental Management & Coordination Act, EMCA 1999 and EIA/EA Regulations Legal Notice No. 101. The company is also registered with the Directorate of Occupational Health and Safety Services (DOHSS – Ministry of Labour, Social Security and Services) as a Training and Auditing Institution on Occupational Health and Safety as per the Occupational Safety and Health Act, OSHA 2007.

The company can also offer the following services;• Environmental,OccupationalHealthandSafetyAuditing• ManagementofWaterResources&WastewaterTreatment• EnvironmentalImpactAssessments• Environmental&OccupationalHealth&SafetyDueDiligenceAssessments• Technical&InformationServiceonLandFarming,Bioremediationand Rehabilitation Projects• Euro-gapAssessmentandManagementSystems

EHS Management Consultants Ltd., Milimani Flats, Milimani Road, off State House RoadTel: +254 (0)729 377629, (0)711 175131 or (0)729 080250Email: [email protected]

UGANDA KENYA

TANZANIA

WELCOME TO OIL AND GAS COUNTRY

Prepare Yourself Now

For The Oil and Gas

Industry

Oil & Gas and

Health & Safety courses are offered

at this new state of the art facility.

Occupational Safety & Health (IOSH)OPITO/IMIST Global Safety

orientation

contacts: [email protected]

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UGANDA KENYA

TANZANIA

WELCOME TO OIL AND GAS COUNTRY

Prepare Yourself Now

For The Oil and Gas

Industry

Oil & Gas and

Health & Safety courses are offered

at this new state of the art facility.

Occupational Safety & Health (IOSH)OPITO/IMIST Global Safety

orientation

contacts: [email protected]

Lore

m

Ipsu

m D

olor

In

tege

r ege

stas

orc

i qui

s lo

rem

fe

ugia

t ad

ipis

cing

.

Oil

& G

as

Co

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es

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llin

g T

rain

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H

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h &

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es

IAD

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SE

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PA

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Dat

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28th

– 2

9th N

ovem

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2013

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With recent discoveries of oil and natural gas in Northern Kenya and in the East African region in general, investor appetite for exploration has been whetted. Exploration companies, both in the mining and oil & gas sectors, must wade

through major overhauls in the respective industry’s regulatory infrastructure, in addition to drilling through Kenya’s volcanic turf.

CAREFUL... let’s not kill our

‘golden eggs’ goose!By Rainbow Field and Amar Mehta

policy


The Government of Kenya (GOK) has introduced progressive policies to encourage exploration in both the mining and oil and gas sectors over the past decade. However, with a burgeoning mining sector, coupled with discoveries of oil and natural gas in Kenya in 2012, the incumbent GOK has introduced and is debating particular legislation that could, in effect, shift the goal post and compromise investor confidence.

MiningThe Mining Bill, that is currently being vehemently debated, has created further uncertainty in the extractive industry in Kenya. Some key concerns that stem from provisions in the 2014 draft of the Bill include local equity participation and State owned free carry interest. The Mining Bill is surrounded by much controversy and it is unclear when it will be enacted in this latest iteration. Conversely, the Mining Bill 2014 does provide a more comprehensive guideline for the application and transfer or any mining licences.

The invasive Mining (Local Equity Participation) Regulations of 27 September 2012 (the “LE Regulations”), currently in place, impose a thirty-five per cent (35%) minimum local equity participation in ‘mineral rights’ over which a licence is granted, as a requirement for every ‘mining licence’ falling under the Mining Act. For starters the terms ‘mineral right’ and ‘mining licence’ are not defined in the Mining Act. However, ‘mineral right’ is defined in the Mining Bill which provides some clarification for the future.

The LE Regulations have been heavily criticised by industry players, financiers and legal practitioners for their arbitrariness and lack of clarity over a number of critical issues not to mention exacerbating red-tape in the industry. The only guidance given to date by the GOK on the exact play-out of the local equity requirement is an informal statement by the Ministry for Environment and Mineral Resources that the equity requirement is to be determined on a case-by-case basis. It is also reported that the Attorney-General has issued an unpublished formal statement that only licences issued after the date of coming into force of the LE Regulations are required by law to comply with the local equity ratio.

In general the guidance provided by these statements may imply that the equity participation requirements are to be met through negotiated terms between Government and prospective licensees. Lack of any official statement to this effect

leaves the precise legal position as largely inconclusive.

Similarly, the Mining Bill is ambiguous about local equity participation. This is governed by section 47 of the Bill, which provides that companies that exceed the capital expenditure prescribed by the Cabinet Secretary must off-load 20% of their equity at the local stock exchange. Such an obligation infringes upon private enterprises and is likely deter investors from the Kenyan market.

The Mining Bill also provides that the State is entitled to hold a 10% free carry interest in the share capital of mining companies, through a National Mining Corporation. It is arguable that such a requirement is a breach of the provisions of the Constitution.

A number of foreign investors have been left with the unpleasant choice of either pulling out their investments altogether, or engaging the Government through protracted court actions, such as the petition challenging the Mining Bill brought forward by members of the Kenyan African Minerals Association.

Oil & GasThe existing regulatory regime governing the oil and gas sector is to be superseded by the Energy Bill 2014 (once enacted) and the Petroleum Exploration, Development and Production Bill (once enacted). The Energy Bill is very broad and covers electricity, regulatory bodies, wind, hydrocarbons and oil and gas. It may sound counter-intuitive but such depth is likely to present challenges in terms of making the Bill difficult to manage and regulate.

A new model Production Sharing Contract (“PSC”) is also being made available which is likely to be more favourable to the Government compared with the PSC under the Petroleum (Exploration and Production) which dates back to 1986. These changes are likely to test investor confidence in Kenya’s ability to be an attractive emerging market investment destination.

TaxThe Finance Bill 2014 proposes radical changes to the taxation framework for the extractive sector, including a complete overhaul of the Ninth Schedule to the Income Tax Act, proposed to be titled ‘Taxation of Extractive Industries’ (formerly limited only to ‘Taxation of Petroleum Companies’) providing extensively for the manner in which the industry is to be taxed. Were the Finance Bill 2014 assented to in its current

form, there will no longer be withholding tax on the sale of property or shares in oil, mining and mineral prospecting companies. In this context the ‘sale of property or shares’ includes the assignment of rights, sale of companies and businesses, and takeovers or any other non-inventory assets.

Instead, the Finance Bill 2014 proposes a tax on a ‘natural resource income’, which includes the consideration paid to take any natural resources from the land or sea in Kenya. It additionally proposes a withholding tax on the net gain from disposal of an interest in an entity, if the interest derives part of its value directly or indirectly from a mining right or an interest in a petroleum agreement.

Regulatory EnvironmentWith the new devolved system of government in Kenya, both national and regional governments will play a vital role in the oil and mining industry licensing authorisation policies, standardisation, and conflict resolution. Potential areas for investors to watch in the coming months also include increased controls on inter-company transactions across borders and transfer pricing, and the introduction of the sale of mineral locations, oil and gas exploration blocks through competitive public auction.

Despite the tight-rope balance between nationalisation and protection of national and constitutional values versus the compelling market forces driving investors, it is every local and foreign investor’s desire that the legal regulatory environment, though providing for strict requirements, remains transparent and relatively stable. Ultimately, the country and its citizens must benefit from their natural resources, which can be done through investment and interest in the expansion of and exploration into Kenya’s extractive industry.

Coulson Harney is able to provide comprehensive advice in relation to the regulatory regimes applicable to the mining and oil and gas industries to any companies already engaged in the extractives industry in Kenya or East Africa or to companies wishing to establish operations in East Africa going forward.

We are currently acting for a number of players in the extractives industry.

Get our contact details on:http://www.coulsonharney.comYou can contact Rainbow Field on:[email protected] Amar Mehta on:[email protected]

Breaker - The Mining Bill, that is currently being vehemently debated, has created further uncertainty in the extractive industry in Kenya. Some key concerns that stem from provisions in the 2014 draft of the Bill include local equity participation and State owned free carry interest.

policy


Kenyan media has been surfeit with news of discoveries of deposits of crude petroleum, coal and rare earth minerals in various parts of Kenya. These announcements followed closely passage of a new constitution which made real changes to Kenya’s political and policy environment. While the idea is not potently stated today, the constitution intended and largely achieved the reduction of the asymmetrical power between the three arms of government, created two equal levels of government and explicitly expanded political, social, economic and cultural rights of the citizen in person or in groups.

Ideally, this state of public affairs should place Kenya in a respectable position in terms of ensuring the exploitation of the mineral resources be they gas, coal, titanium or petroleum. That notwithstanding, the nascent democracy brings risks that policy makers, investors and citizens must bear in mind. The fi rst among them is that Kenya has an economy that is more highly diversifi ed than the income levels of its citizens suggest. This is because it has a stable manufacturing sector of a reasonable size and a mixture of high value and other lower productivity services and an agriculture industry with mixed performance.

Kenya’s rating in government transparency and use of public resources as measured by the Corruption Perceptions Index (CPI)1 and the Fragile States Index (FSI)2 show that the country has levels of dishonest public management and other pressures that suggest fragility of the state. Putting these together, it is evident that discovery of mineral resources with a high fi nancial value could place enormous stresses on a state. The reality of the trends in the CPI and the FSI respectively should lead to an honest and dispassionate analysis of the implications of these fi ndings to the lives of individual citizens, prospects for stability and economic growth.

This state of affairs presents four imperatives for Kenya’s policy makers. The fi rst is in line with the country’s constitutional journey. Political pressures are bound to increase because some of the areas in which the discoveries have been made have recorded consistently low socio-economic indicators. For instance, the County of Turkana in the northwestern part of Kenya is large, bereft of infrastructure and many other public services. This state of affairs has created a level of mistrust of the national government and any private institution working on licenses and permissions issued by the national government. Because the constitution preserves the right of people to be involved in public affairs at all levels, it is critical to accommodate the voices of the diversity of people in this county and accord it suffi cient attention.

This is essential to ensure that a society with a poor population that is prone to drought and famines understands that any investors making visits to the place will respect their views and will make no aggressive claim to the land in that county. In short, the skills of persuasion must be elevated above the ability or intent to coerce cooperation of people. Being that this county is home to the most indigent people in an already poor country, the test of the ability of county and national governments to resolve doubts and suspicion without resort

1 The CPI is an annual publication by Transparency International measuring perceived levels of corruption in the public sector in countries around the world.

2 The Fragile States Index (FSI) is an annual measure produced by the Fund For Peace to indicate the level of political and other pressures that states face and highlight the likelihood of state collapse or failure.

Can Kenya’s

democracy survive

discovery of mineral

wealth?By Kwame Owino

policy


to executive authority or through legislative fi at will be tested a great deal.

The second requirement is related to government’s good faith and that is to ensure utmost transparency in all fi nancial and transactional matters around exploration, extraction and revenue accumulation and use. As implied from consistently poor ranking on the CPI, mismanagement of public funds is partly the result of incomplete disclosures and insuffi cient transparency in public affairs. This environment not only creates opportunity for extortion and protects corrupt people but it also reduces public trust in disclosures on spending that the government makes. Because crude petroleum, rare earths minerals and natural gas are considered high value resources, their extraction and export will exacerbate distrust and hostility to public sector unless the confi dence of all citizens is built regarding transparency of public transactions and disclosures.

It is therefore incumbent on the Kenyan legislature, meaning both the Senate and National Assembly, to insist on high levels of more transparency by strong and uncompromising legislation in that regard. It is to be expected that some fi rms or departments in the executive will claim the need to protect business transactions from full disclosure. The legislative bodies in Kenya must not yield to any laws that intend to keep the transactional details on mineral wealth hidden from the public. This is important to ensure that the public can confi rm details of payments and to anchor realistic expectations about the

income that is generated from export of commodities.

The third policy imperative around the extractives industry is the manner of distribution of the benefi ts of extraction. The constitution of Kenya anticipated that discovery of deposits could lead to confl ict and provided a clause to ensure that proceeds from mineral exports or marketing are shared equitably between the communities that inhabit the land on which minerals are extracted, the county and the national government. While this principle is broadly accepted, Kenyans have been confronted with complicated formulas drawn up by the bureaucrats in the executive branch of government who assume that the decision can be drawn from a technocratic calculation.

There is no suggestion in the constitution that this decision was intended to be made outside public and political discourse. There is real danger in letting this decision to be made without involvement of Kenyans because there is no sacred rule regarding the ratios that apply but what is critical is for people with views to be accorded opportunity to place them for consideration. This is an issue about sharing public revenues and must therefore be subject to democratic discourse. The executive branches at both national and county level should have no bigger claim than the legislature or Kenyan citizens.

The fourth imperative is to develop an innovative mechanism for ensuring that citizens benefi t directly from the resource rents. And one of the proven methods for

ensuring that benefi ts of mineral wealth reach citizens is through direct cash transfers. Todd Moss of the Centre for Global Development (CGD) proposes a simple and transparent method of doing this3. In essence, it would require passage of a law that predetermines what portion of the money paid to government from sale of gas or petroleum is distributed evenly among all adults after being subjected to taxation. This is a superior method to what exists in the continent because it ensures that the public is aware of the total amount received by the government at all levels. It creates opportunity for citizens to determine the private goods that they would purchase from their share of revenue.

There’s no doubt that the majority of Kenyan citizens would welcome this opportunity to meet private needs through this fund. The benefi t of this approach is that it dissipates the monopoly that the state organs have in resource rents and thereby strengthens Kenya’s democracy. In sum, Kenya has the singular opportunity to strengthen both its democracy and economic development by making choices on management of discovered resources. There’s no magic wand except going through the detailed avenue of democratic engagement and constitutional road.

Kwame Owino is the Chief Executive Offi cer of the Institute of Economic Affairs (IEA-Kenya), an economics and public policy think tank based in Nairobi, Kenya.

3 Moss Todd (2011). Oil to Cash; Fighting the Resource Curse through Cash Transfers (Working paper 237)

policy


The interface in more than one aspect and quest from both sectors gives rise to the resultant economic activity and development seen in the respective countries. The East Africa economies are reaping from this interface, evident from the technocrat opinion from the helm of Kenya Oil and Gas Association (KOGA).

The emergence of Africa as the next frontier for natural resources is a result of elaborate feasibility studies and subsequent prospection, dating back to more than a decade ago.

Exploration and production companies like the British BP Shell, French Total, Australian Woodside and Apache discovered the crude and gas reserves in the larger African region, and pioneered the exploration activities.

This led to an increase in investment opportunities for international players. At the beginning of the millennium, other Exploration and Production companies (E&Ps) from all over the world, including Canada, Australia and China, took to the tab and set up in Africa to further utilize these opportunities to discovery resources.

OutlayExploration is a capital and time intensive engagement, which means organizations have to be calculative before deciding to engage in this business. All factors being constant, offshore and onshore exploration activities must drive their businesses to strike a balance between the capital outlay and return on investment.

Take for instance the outlay involved to sink an offshore well. The project fetches between 120 and 170 million dollars, while onshore well will be in the range of 30 to 50 million dollars. The exploration activity which will begin with a feasibility study and then a seismic survey is a gamble, given that oil or gas plays may or may not be found in those wells. If no play is found, it translates into a sunk cost. If found, there is the subsequent expenditure, to establish whether the amounts found are commercially viable.

To this end, pioneer operators in exploration and production and members of KOGA, as industry stakeholders, would endorse the necessity to engage the relevant government arms to dialogue, with a view to address certain issues such as waivers of duty and value added tax, national sensitization and procedures with import especially during drilling.

Other issues that KOGA seeks to streamline for success of oil and gas sector in Kenya are security mobilization and support, delays with customs, vessel management, expectations management gap and procedures tied to importation during drilling.

Business ModelsThe uncertainty inherent in the oil, gas and mining industry requires a conscious effort for the investors to formulate business models that will benefit their respective shareholder value and implications on cost recovery.

The business models must seek to spread the risk of enterprise and uncertainty by developing structures that alleviate the impact of these risks. Secure Out/In agreements are popular in this industry, aimed at offloading risk and harnessing the power and goodwill of stronger partnerships.

Product Sharing ContractsThe rule book by which the good news of exploration and production of oil, gas and mining must be spread is the Production Sharing Contracts (PSC).

In many African economies, the crossover between the energy and mining sectors is a reality, given that the earth sciences thereof inform both disciplines.

KOGA on collective energy

industry profile

KOGA Chairperson, Gurjeet Phull Jenkins


The emergence of Africa as the next frontier for natural resources is a result of elaborate feasibility studies and subsequent prospection, dating back to more than a decade ago.

InvitationThe host countries and drawers of the PSCs need to showcase the African markets as a safe and viable investment destination. Issues around security, immigration and work permits need to be addressed so as to interest participation by investors in the oil, gas and mining sectors.

Freedom and authorityThe ease to do business is one key criteria by which the development of economies is rated. The whole process from registration, licensing, taxation and general oversight needs to be friendly to the investors, so that oil, gas and mining economies can develop exponentially.

SanctityBy virtue of the fact that exploration and production is time intensive, the contracts need to be inviolable. They should be acceptable across board up to and including during times of trade and/or political system changes. This goes a long way into enhancing and giving direction on concerns like cost recovery.

InclusionRealistic local content requirements are a noble way to attain mutual business benefi ts by improving balance of trade and contributing considerably into responsible social investment. The social license to operate is crucial in ensuring commitment made by companies to helping local communities stay within reason and is sustainable.

The journey to discover oil and gas in Africa has been long and expensive but the collective energy of KOGA has just began to make it worthwhile.

6932494/ 0722789448 / 0733536701 Em

ail:caseconstruction@cm

cmotors

Associated Motors Ltd, Tel: (020) 650560, Nairobi. Tel: (041) 2490504-6, Mombasa. Tel: (064) 31214/30091, Meru. Tel: (053) 63938/43, Eldoret. Central Farmers Garage, Tel: (020) 3522435/8, Nairobi, Tel: (020) 3522434, Kitale.Kenya Coach Industries, Tel: (020) 554390/3, Nairobi. Ryce East Africa Ltd, Tel: (020) 6531787/89, (020) 2627444, Mobile: 0735985858. Nairobi Showroom, Tel: (041) 315566/7, Mombasa. Thika Motor Dealers, Tel: 0721-726654, 020-2321605, 067-30078/30789/22854/22262. Africa Commercial Motor Group Ltd, Tel: 0721 736 464, Nakuru. 0733 636 183, Kisumu. General Motors East Africa Ltd, Tel: (+254) 0703 013222/111

[email protected]

VERSATILEThe 6th Generation Isuzu Pickup. The Perfect Fit for the Oil & Gas Business.

industry profile

Respresentatives from various E&P Companies KOGA Members

Our Mandate:Encouraging geoscienti�c education,

Collaboration and cooperation in Kenya and across the continent.Assisting and improving geological activities and processes;

Championing for the rights, welfare and needs of members and the Geological fraternity at large.

Our Pride: Establishment of a Scheme of Service for Geologists

Bill of Registration of Geologists leading to the Geologists Registration ActEstablishment of the Kenya Chamber of Mines.

And now, for our

Strategic Intent:To encourage and improve qualitative exploitation of our natural resources in Kenya:

Watch this space for:

THE LAUNCH OF OUR STRATEGIC PLAN&

THE GEOLOGY DRAFT BILL

GEOLOGICAL SOCIETY OF KENYA

www.gsk.or.co.ke

Page 1 of 1http:/ / nationaloil.co.ke/ site/ 3.php?f lag= upstream&id= 3

Kenya Basins Structural Framework Map Upstream Activities

Quick Links

Management TeamCorporate StrategyHuman Resource DevelopmentCorporate Social Responsibility

Board of Directors

National Oil C orporation

Opportunities for Oil ExplorationBasins Structural Framework MapProduction Sharing ContractUniversity of Nairobi - Geology

Oil and Gas Exploration

Ups tream A c tivities

Order Processing ProceduresLiquefied Petroleum GasFuel BusinessPartnerships

Fuel Card

Downs tream Ac tivities

Box 58567-00200,Nairobi,Kenya.Tel: +254-20-695 2000

AON Minet House, 7th floor Off Nyerere Road

Mobile:+254-734 333 000, +254-722 203 747

C ontac t Us

1,216,358

SearchAbout-Us Upstream Downstream Procurement Communication

Our Mandate:Encouraging geoscienti�c education,

Collaboration and cooperation in Kenya and across the continent.Assisting and improving geological activities and processes;

Championing for the rights, welfare and needs of members and the Geological fraternity at large.

Our Pride: Establishment of a Scheme of Service for Geologists

Bill of Registration of Geologists leading to the Geologists Registration ActEstablishment of the Kenya Chamber of Mines.

And now, for our

Strategic Intent:To encourage and improve qualitative exploitation of our natural resources in Kenya:

Watch this space for:

THE LAUNCH OF OUR STRATEGIC PLAN&

THE GEOLOGY DRAFT BILL

GEOLOGICAL SOCIETY OF KENYA

www.gsk.or.co.ke

Page 1 of 1http:/ / nationaloil.co.ke/ site/ 3.php?f lag= upstream&id= 3

Kenya Basins Structural Framework Map Upstream Activities

Quick Links

Management TeamCorporate StrategyHuman Resource DevelopmentCorporate Social Responsibility

Board of Directors

National Oil C orporation

Opportunities for Oil ExplorationBasins Structural Framework MapProduction Sharing ContractUniversity of Nairobi - Geology

Oil and Gas Exploration

Ups tream A c tivities

Order Processing ProceduresLiquefied Petroleum GasFuel BusinessPartnerships

Fuel Card

Downs tream Ac tivities

Box 58567-00200,Nairobi,Kenya.Tel: +254-20-695 2000

AON Minet House, 7th floor Off Nyerere Road

Mobile:+254-734 333 000, +254-722 203 747

C ontac t Us

1,216,358

SearchAbout-Us Upstream Downstream Procurement Communication

1

Among the favourable conditions for oil exploration in the country are political stability with positive investment climate, large frontier (Onshore/Offshore) acreage, competitive commercial terms, acceptable balance of risk/reward, previous exploration data readily available, low entry cost, no signature bonuses, award focuses on work programme and investor growth opportunities.

BP and Shell were the pioneers of oil explorati on in Kenya during the 1950s. They started exploring in 1954 in the Lamu Embayment where drilling of fi rst well occurred in 1960. None of the wells were, however, fully evaluated or completed for production despite evidence of oil staining and untested zones with gas shows.

Subsequently, over the years other companies have undertaken exploration work both onshore and offshore including Exxon, Total, Chevron, Woodside and CNOOC. For instance, in 1975, several consortia acquired acreage in the Lamu Basin, drilled and encountered oil and gas shows in the Cretaceous and in 1976, Chevron and Esso drilled in the Anza Basin and discovered suspected hydrocarbons and microfossils.

The review of petroleum exploration and production legislation in 1986 provided incentives and fl exibility to attract international exploration companies. Indeed between 1985 and 1990, ten wells were drilled by Amoco and Total. Although the wells were dry they had clear indications of hydrocarbons. For instance the Loperot-1 well, which was drilled by Shell in 1992 encountered good Tertiary reservoirs and found source rocks with up to 7% Total Carbon and 29o API.

In 1991, National Oil initiated an in-house study of the Lamu Basin as part of a long-term strategy to re-evaluate the existing geological, geophysical and geochemical data relating to each of the sedimentary basins in Kenya. The Lamu Basin study was completed in 1995. Based on the above reports Kenya subdivided the Lamu embayment (both onshore and offshore) into ten (10) exploration blocks, each with a specifi c exploration play. Two (2) more exploration blocks have been created since the year 2001.

Promotion efforts generated new interests in the offshore Lamu Basin, and resulted in the signing of seven (7) Production Sharing Contracts covering blocks L5, L6, L7, L8, L9, L10 & L11 between 2000 and 2002. A total of 7884 km of 2D seismic data covering Blocks L5, L6, L7, L8, L9, L10, L11 and L12 was acquired offshore Lamu Basin by Woodside between August and October 2003.

Between 2000 and 2002, seven Production Sharing Contracts were signed and Woodside completed 7,884 km of 2D seismic study of the offshore Lamu Basin. In addition, the Tertiary Rift Study was completed in 2001, which led to the quantifi cation of potential source and reservoir rock units in the area as well as petroleum system play in the sub-basins.

By 2011, there were 12 oil explorati on companies operati ng in the country with a total of 24 licensed blocks.

In addition to the discovery of signifi cant quantities of oil in Uganda in 2006, which helped to rejuvenate the search in Kenya, encouraging reusults from offshore exploration in Mozambique and

Oil & Gasexplorationin Kenya:A historical perspectiveby The Geological Society of Kenya

Kenya’s Oil and gas potential exists in four major geological sedimentary and structural basins, which are situated in different parts of the country. These are Lamu, Anza, Mandera, and Tertiary Rift basins as shown in the following map. Map of Kenya showing potential oil and gas basins

(National Oil, 2010).

industry profile


Tanzania boosted industry confi dence and in 2012 with Apache encountering gas in Mbawa-1 well (Block L8).

Prior to the entry of Tullow Oil in 2012, out of the 33 wells drilled in the country, 16 showed signs of hydrocarbons, but none were considered commercial. Out of these only 4 had been drilled offshore prior to 2012 and only 1 (in Block L5, drilled by Woodside in 2007) was in deep water.

In 2012 Africa Oil Corp and Tullow embarked on exploratory drilling in Kenya. In Block 10BB (Kenya), they completed drilling the Ngamia-1 exploration well to a total depth of 2,340 meters and reported a signifi cant light oil discovery on 26th March 2012. The Ngamia-1 well encountered over 100 meters of net light oil pay in the Upper Lokhone Sand section and an additional 43 meters of potential oil pay in the lower Lokhone Sandstone section.

On 22 November 2013 Tullow Oil announced a discovery of oil at Agete-1 exploration well drilled to a total depth of 1,930 metres in Block 13T and sampled moveable oil with an estimated 100 metres of net oil pay in good quality sandstone reservoirs.

On 15th January 2014 Tullow Oil plc announced oil discoveries at the Amosing-1 and Ewoi-1 exploration wells in Block 10BB. Based on results of drilling, wireline logs and samples of reservoir fl uid, the Amosing-1 well intersected net oil pay of between 160 and 200 metres, The Ewoi-1 well intercepted net pay of 20 to 80 metres.

With these latest successes and recently reported discoveries at Ekales-1 and Agete-1, Tullow updated its estimate of discovered resources in this basin to over 600 mmbo with a projected overall potential in excess of one billion barrels of oil.

Figure 6. A discontinuous layer of sandstone that forms a stratigraphic trap. From Broadhead1.

COALBED METHANE

Coals can act as both a source rock of natural gas and as a reservoir rock. When

this is the case, coalbed methane "coal gas" can be produced8. The gas is generated from

the woody organic matter that forms the coals. At shallow burial depths, relatively low

volumes of gas may be generated by bacterial processes within the coals. At greater

burial depths where temperatures are higher, gas is generated thermally (like in


industry profile

Earthview Geoconsultants Ltd. is one of the leading natural and earth resources management consultancy services in Kenya and most recently Somaliland. Formed in 1998 upon the realisation of the need for an interdisciplinary approach to research issues and consultancy services, the company has since offered its expertise services with a focus on six core areas; Environmental Impact Assessments and Audits, Socio-economic Surveys and Assessments, Natural Resources Management, Geo-surveys, as well as Project Management, Evaluation and Monitoring.

The company is registered with NEMA-Kenya as an environmental fi rm (NEMA Registration No. 0195) and the Kenya Chamber of Mines. The competent team of experts are also individually registered Environmental Impact Assessment experts. The principal participants in the company

have vast training and experience in research and consultancy services that have been undertaken to international standards.

We strive to provide our clients with high quality research and consultancy services in earth resources investigations, exploitation and management while ensuring that sustainability of the resources and environmental cleanliness is maintained at all times to the satisfaction of our stakeholders including clients and potentially affected communities. Some of our major clients in Oil and Gas include Tullow Oil Kenya B.V, Africa oil B.V., CAMAC Energy in Kenya, Ophir Energy, Genel Energy and DNO in Somaliland and, in Mining, African Diatomite Industries, Athi River Mining Company, Kenya Fluorspar Company and Cabroworks EA Ltd. For more information on our activities, clients and projects visit our website:

Your partner in sustainable resource management

Before an ore is deemed fi t for mining, a lot has to be done lest the miners come and end up digging for empty mines. This is the task of an exploration geologist.

The exploration geologist starts by conducting mineral exploration, the process of fi nding ores that are viable for commercial purposes. Here, the main purpose is to generate large concentrations that are ideal for large-scale exploitation.

Target generation involves investigations of the geology through mapping, geophysics, geochemistry and drilling for resource evaluation and eventually reserve defi nition. The day to day activities of an exploration geologist are guided by the exploration stage of the programme.

The minerals exploration relies on the expertise of an exploration geologist to design exploration programmes, prepare a detailed budget, set up fi eld logistics and implement the exploration programme. Each of these activities require the geologist to interact with others both internally, within the exploration company and outside with contractors.

An exploration geologist needs to have good project management skills. The main reason here is to be able to complete the programme within the stipulated time and budget irrespective of whether a discovery is made or not.

The design of an exploration programme is normally undertaken by a senior exploration geologist. Depending on the mineral of interest, the geologist will fi rst gather all pertinent information including all previous geological, exploration work previously undertaken in the area and Geographic

Information Systems (GIS) information that may reveal regional scale features that could be of interest. The geologist then integrates and synthesizes all data and information to determine the most likely mineralisation style as well as the most effective approach to generate a prospect.

The exploration geologist manages the fi eld exploration team which will normally comprise of a contracted drilling company and the geological fi eld assistant. The drilling rig is under the care of the driller who is assisted by two or three offsiders. The role of the offsiders is to attach and detach the drill stem rods and catch Reverse Circulation (RC) samples or extrude cores in core trays.

It is the role of the exploration geologist to conduct pre-start meetings every morning. These meetings are mandatory and focus mainly on occupational health and safety of the crew and everyone else associated with the programme. The geologist routinely reviews with the crew conditions of approval pertaining to environmental protection and other regulatory requirements.

Safety drills are also conducted in the fi eld on a regular basis. The geologist maintains daily communication with the head offi ce with regard to information discussed in the pre-start meetings and provides geological updates.

The pivotal stage in most minerals exploration programmes is the drilling stage

during which rock cutting are extracted through RC drilling or core samples are obtained through diamond drilling.

RC samples are obtained every metre, held in plastics bags and poured on the ground in rows of 20 metres. The fi eld assistant then samples and washes each metre pile of rock cuttings before passing them to the exploration geologist for logging. The geologist obtains and stores a subsample of every metre drilled in a chip tray.

Geological logging information is stored in a tough book computer equipped with geological logging software. The fi eld assistant samples the metre piles on the ground into calico bags or composite the samples depending on the programme design. Field standards and sample duplicates are obtained during this stage. Samples are later sent to a designated laboratory for analysis.

Samples are normally analysed in an approved laboratory incorporating the required Quality Assurance/Quality Control (QA/QC) systems. It is the role of the exploration geologist to ensure safety and communication procedures are maintained at all times and data and sample management are always current. A typical day starts with the pre-start meetings and fi eld programmes are usually conducted on a two weeks on and one week off. Schedules however vary from company to company.

The exploration geologist by Dr. Patrick Nganga

Mineral exploration relies on the expertise of an exploration geologist to design exploration programmes, prepare a detailed budget, set up field logistics and implement the exploration programme.

The author exploring for mineral sands in the Eucla Basin, South Australia

industry profile


Different countries in the world have near similar provisions regarding environmental protection and this is predicated on the fact that the countries and the world in general have come to the conclusion that if we do not take care of the environment, we just will have ourselves to blame.

Concurrently, it is also significant that countries undergo economic development to largely cater for the needs and livelihoods of their citizens. The GDP of a lot of countries like Libya and most countries in the Middle East and even Congo though with undesirable consequences, is principally hinged on mining and extraction economic activities.

Economic development that is coupled with environmental protection results in sustainable development. This means development that meets the needs of the present generation without compromising the ability of future generations to meet their needs by maintaining the carrying capacity of the supporting ecosystems.

In Kenya, the Environmental Management and Coordination (EMCA) Act of 1999 that was assented on January 6th 2000 was promulgated and took effect on January 14th 2000. The Act lays very succinct provisions for the management of the environment and sustainable development.

Like many other environmental legislations in the world and in the region, EMCA 1999 lays emphasis on the polluter-pays and precautionary principles. The polluter-pays principle means that the cost of cleaning up any element of the environment damaged by pollution, compensating victims of pollution, cost of beneficial uses

lost as a result of an act of pollution and other costs that are connected with or incidental to the foregoing, is to be paid or borne by the person convicted of pollution under this Act or any other applicable law.

One of the general principles in this Act, not unlike other legislations in the world and in the region, is that every person is entitled to a clean and healthy environment and has the duty to safeguard and enhance the environment. In its Second Schedule, EMCA 1999 has delineated projects that are to undergo Environmental Impact Assessment before execution. An Environmental Impact Assessment encompasses a systematic examination conducted to determine whether or not a programme, activity or project will have any adverse impacts on the environment.

This examination also includes a systematic identification of the impacts of the project to its environment and an assessment of the proposed mitigation strategies and activities of the identified impacts to ensure that their effect on the environment is minimized or completely eliminated.

Under the Second Schedule, any project or activity that is generally out of character with its surroundings, or any structure of a scale not in keeping with its surroundings or involves major changes in land use need to undergo an Environmental Impact Assessment before implementation.

This applies to mining and extractive industries or activities. Specifically, the Schedule has clearly delineated that mining activities, including quarrying and open-cast extraction of precious metals, gemstones, metalliferrous ores, coal, phosphates, limestone and dolomite, stone and

John Elkington, a world authority on corporate responsibility and sustainable development, coined the triple bottom line - people, planet and profit - calling them the “three pillars of sustainability”. He had seen the environmental destruction caused by mining and other human activities.

Min ing the environment

stakeholders

by Eng. Stephen Mwaura


slate, aggregates, sand and gravel, clay, exploration for the production of petroleum in any form and extracting alluvial gold with use of mercury as activities that require Environmental Impact Assessment before the activities can commence.

Processing and manufacturing industries including mineral processing, reduction of ores and minerals, smelting and refining of ores or minerals, brick and earth ware manufacture, cement works and lime processing, glass works, explosive plants, oil refineries and petro-chemical works, chemical works and process plants, plants for the manufacture of coal briquettes all require Environment Impact Assessments before they are implemented.

All such activities as above also require periodic, usually annually or as directed by countries’ environmental authorities, Environmental Audits. This implies the systematic, documented, periodic and objective evaluation of how well environmental organization, management and equipment are performing in conserving or preserving the environment.

This Schedule also categorizes management of hydrocarbons including their extraction, and storage of natural gas and combustible or explosive fuels as activities requiring Environmental Impacts Assessments before these activities can commence.

The aforesaid is a requirement of the local legislation in most countries and proponents of mining and extractive activities are required by this legislation and regulatory frameworks existent in those countries to abide by the laid down environmental laws.

In this regard, and this applies in most countries, an environmental license has to be issued to the proponent once the Environmental Impact Assessment report has been satisfactorily reviewed before commencement of the mining or extractive project.

Human beings are considered to form a critical component of the environment and any persons involved in the mining and extractive industries should be adequately covered by the Occupational Safety and Health Administration (OSHA) legislation that is prevalent in most countries. For instance, OSHA Act in the United States of America has been in existence for over forty years and has played a critical role in helping to save many thousands of lives and reducing occupational injury and illness rates by more than half during its existence.

Turning our attention to Kenya, this Act that was initially the Factories and Other Places of Work Act was reviewed in 2007 to become OSHA 2007. This Act’s Vision in Kenya is to have a healthy worker in a safe working environment and its primary responsibility is to promote a safe and healthy workplace by implementing effective systems to prevent occupational diseases and accidents, ill health, and damage to property in order to reduce the cost of production and improve productivity.

For mining and extractive activities, the Act requires that these activities are well guided by proper management of occupational safety and health policies. The mining and extraction industries have to remain cognizant of their obligations regarding ensuring adequate workplace safety, health and welfare conditions.

On safety, machinery safety, chemical safety, plant safety, electrical safety, fire safety and construction safety have to be ensured during the mining, extraction or processing.

Additionally, during the mining or extraction as well as the manufacturing or processing activities, sufficient Personal Protective Equipment (PPE) has to be availed to all the workers, as necessary. This is in addition to ensuring adequate ventilation, even in the mine shafts, improved housekeeping, lighting, handling of materials and controlled noise, vibration, radiation, thermal conditions and pressures with no overcrowding.

Proper general conditions of ergonomics, storage and handling of materials and welfare facilities (sanitary conveniences, changing rooms, running water, and wholesome drinking water among other welfare provisions) need to be provided for the workers involved in the mining and extraction activities.

It is also required by this Act that workplaces including the mining and extraction areas are audited for occupational health and safety by registered safety and health advisers who are registered with the relevant government departments.

Mining and extraction activities have contributed significantly in supporting the economies of various countries or regions. However, it is more important that these activities are carried out sustainably, taking cognizance of environmental protection and occupational health and safety.

stakeholders


Towards responsible mining by Hazel Wangari

The mining industry has taken up the challenge of identifying and mitigating environmental and social sustainability challenges. However, there is considerable opportunity for mining projects to add value, build capacity and strengthen social fabric of the communities in which they operate, hence contribute to sustainable development.

stakeholders


Ideally, system thinking should endeavor to provide a clear structure and a process through which the interconnected and all round nature of aspects affecting mining communities can be honoured.

The other tier of system thinking is the technical dispensations through the processes of exploration, mine site development; extraction mining; primary processing (if any) that is completed on sit and end of life closure of the operation.

InvestorsThrough their various business functions, projects and actions, they must contribute to maintaining the health and robustness of these systems within mining projects for future generations. Mining projects exist within complex social system in which they contribute to barriers that undermine the ability of people to meet their needs. Innovation, constructive collaboration with relevant stakeholders are areas the investors should focus on, to add value to society without degrading the systems it depends upon.

Mining companies must adapt to the fact that their contributions and interdependencies within this systems are all towards common good, and that utmost adherence to the sustainability of these systems will cause them to achieve many business benefits, including improved reputation, increased transparency and stakeholder trust. Legislative contributionThere is a strong component of the social dimension that resides within the purview of governments. Nonetheless, the most important thing to remember is that the main theme is people and how sustainable development can contribute to their lives and their opportunities to make the present and the future better.

The intentions of the legislature are good, seeking to integrate economic, environmental and social dimensions of development. However, too many actions are being implemented simultaneously. They are not held together by loyalty to strategy, neither are they guided by a realistic and principled vision of success for achieving that sustainability we require so desperately. Consequently our communities have to grapple with undesirable results impacted on pertinent issues

Health and SafetyHealthy communities are necessary for the good functioning of the mines. Health care includes access to services, access to health education, preventive measures, and access to mental health services. It may also be noted that it is necessary for mining companies to be involved in dealing with the HIV/AIDS crisis which is not restricted to mining communities.

Women Arguably women constitute the larger group of any mining community, and they come with specific needs. They are known to see alcohol and drug abuse as leading to strained relationships, family breakdown, violence, lost job opportunities, and financial stress.

Health care assistance linked to family disruptions and substance abuse should be made accessible to the women

and their families. This assistance needs to be dispensed in remote locations, not just at the mine site but also to other sections of communities affected by a mineral development.

Encouraging women to take jobs across the board in the mining industry would give them increased economic power and can change relationship dynamics in a positive way.

Religious and Cultural ValuesMining companies with the help of the local communities, need to first identify any sites or areas that hold special religious or cultural importance like burial grounds, ceremonial sites, and religious structures. Then they should preserve them as they are of sentimental value to mining communities.

Education The level of education of individuals in most mining communities is often not high enough to fill all the possible jobs within the mine. Replacing outsiders with local people means that individual workers have to be trained and encouraged to advance their education and improve their skills. Mining companies should seek to provide basic education programs and extend educational assistance to youth through scholarships for higher and specialized education.

EmploymentEqual opportunity employment creates generation of income for all, and can lead to a rise in the standard of living of individuals, families and therefore communities. It is also the source of security of livelihood for individuals and families. Economic development all round is the eventual result of quality education.

Displacement of populations Displacement can result in the loss of physical and non-physical assets for local populations, including homes, productive land, access to traditional lands, resources, cultural sites, social structures, and income-earning assets. There is a risk that local populations may find themselves jobless, homeless, marginalized, and without access to traditional food sources.

There is evident loss of social cohesiveness and having to deal with the disruption of educational and cultural activities. Populations are often resettled by the mining company, in cooperation with county and national governments.

Access/InfrastructureIn areas that are difficult to access, roads, railways and airstrips can become important instruments of economic diversification. The presence of a road can make it possible for mining exploration and production to intensify.

Furthermore, such roads can result to development of other economic resources and in lower prices for food and essential goods.

Economic diversificationMining companies can successfully help to diversify the economy of a region by assisting in the development of local enterprises. Mining companies can also support

stakeholders


community economic development through the development of cooperatives or other economic venues.

As incomes rise and more money is available to individuals and families, the demand for a variety of goods and services will expand. New services and goods providers may be needed locally. Mining companies, through information distribution and business support, can help local people acquire the skills to deliver new goods and services.

OutsidersAlthough it is difficult to prevent some of the negative influences that occur from the presence of outsiders, some of the impacts can be diminished by increasing in the proportion of local workers. Social inclusive systems enhance cohesiveness and give room to development.

Community involvement The involvement of stakeholders and communities in mining development is evolving towards their participation in decision-making. For a mining company, this means that all voices should have a chance to be heard and that appropriate methods of participation need to be devised for each community. Such methods may include systems which create consultation channels within the community, appointing clearly defined accountability and decision-making organs.

Foundations Mining companies have created foundations to deliver social programs to individuals and communities. Such foundations have had many successes and have become

involved in the support of local schools, scholarships, sporting and cultural events, health care, and many other local activities. The host mining communities and the investors should consult and develop systems that can easily depict deliverable parameters that can be measured and reviewed.

Mine ClosureSustainability means that, as a mine closes, the community does not become a ghost town or become severely limited with regard to socio-economic opportunities. A more sustainable strategy, for both the industry and the community, is for the mining company to work with local and other interests at developing the local capacity to provide social services and to ensure an easy transition when mine closure occurs.

Through the internationally adopted framework for strategic sustainable development, legislature should agitate for investment and work with respective communities to route that development into areas of good understanding of the systems which drive the mining projects. It is by informing our mining communities about the need to accept these socio-economic systems right at the outset of exploration, building upon innovation throughout each phase of the mining project.

The earlier this is undertaken, the greater the chances are of building trust within our mining communities and making the projects attractive to them. It will also provide a good basis for the local community to exercise their free, prior and informed consent to accept the mining project.

Mining companies must adapt to the fact that their contributions and interdependency within socio-economic systems are all towards common good, and that utmost adherence to the sustainability of these systems will cause them to achieve many business benefits, including improved reputation, increased transparency and stakeholder trust

stakeholders


The main problems that prevent small-scale miners in Kenya from developing lucrative and sustainable mining activities are lack of capital investment and high operating costs. Although small-scale mining in developing countries provides employment and source of income, health hazards and risks are very high. Most miners work without personal protective equipment or use worn out safety gear in mines with unstable hanging walls, poor ventilation and lighting. The working conditions can thus be characterized as hazardous.

The author had an opportunity to visit several small-scale gemstone miners in the eastern region of the country. In more than 10 shallow mines examined, men were working in shafts and pits as deep as 20 meters. The mining operations consisted of fi rst blasting rock with explosives, followed by size-reduction using pneumatic drills, jackhammers and pick axes. After blasting and drilling, the rocks were removed manually by hands and loaded into sacks that were then carried to the surface for sorting using buckets pulled up manually. This made it extremely diffi cult to continue mining below a depth of about 15 meters. This has lead to rampant mine abandonment.

Mine expansion appears to be hindered by lack of coordination and insuffi cient expertise. As a result there has been uncontrolled extraction of minerals and the use of unsafe mining methods which has caused severe environmental damage and appalling living conditions in the mining communities.

MechanizationIn existing mines, introduction of mechanization would best involve shift of mining techniques with mine development. As a surface mine depth increases, so does the diffi culty and the cost of excavation. Given the poor fi nancial capabilities of most of the miners, the whole mining operation becomes unsustainable and closure becomes inevitable. The manual hauling of waste rock to the surface could, for example, be replaced a simple bucket and pulley system.

The main issues that hinder mechanization and environmentally friendly mining in Kenya appear to be;

• Lack of access to appropriate technology, proximity to maintenance plants and support services,

• Low level of training and know-how to use new technology and equipment, and

• Cost of establishing and maintaining security in mine sites.

The geological, geomorphologic and hydraulic characteristics of the deposit, infl uences the viability of mechanization. However, the hardness and composition of the host rock, the thickness and character of overburden, the groundwater table, the availability of surface water, the level of groundwater during rainy and dry seasons are all enormously important in determining which mining process is optimal.

An assessment of the area needs to defi ne points at which alternative equipment could be introduced, and what types of equipment might be suitable. But the mechanization potential also rests on who the miners are and why they are mining.

Appropriate mechanization processes most applicable in small-scale mining are;• Use of excavators (front loader and a back hoe) for

stripping of the overburden, clearing rock fragments and if need be, fragmenting boulders.

• Controlled blasting of host rock. This becomes quite challenging where the ore strata are vertically dipping. Some rock types are highly susceptible to weathering and therefore there is the risk of caving in.

In order to promote growth in the mining sector, both the National and County governments need to introduce appropriate regulatory framework by integrating environmental and social concerns into mineral extraction processes. The Government’s policy should be to reduce or eliminate the adverse environmental effects of mining, improve health and safety conditions in mining areas, and address social issues affecting local communities. The private sector should take the lead in exploration, mining development, mineral benefi ciation and marketing.v

Although small-scale mining in Kenya and in all developing countries provides employment and source of income, miners face a myriad of challenges that not only hinder their growth but also subject them to numerous health hazards and risks.

Artisanal miners’ bottlenecks by Dr. Patrick Nganga

In existing mines,introductionof mech-anization would best involve shift of mining techniqueswith minedevelopment

stakeholders


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The NSE equity market’s performance in 2014 has been characterized by robust market turnover, overall price appreciation and increased foreign investor participation.

NSE indicates strong market performance in 2014by Vidur Dingra and Ian Gachichio

market makers


The benchmark NSE All-Share Index (NASI) Index has gained 13.7% year-to-date to 155.39, while the NSE 20 Index has risen 2.4% to 5,042.90. Market capitalization has grown by the same margin year to date to KES 2.2tn (USD 24.7bn).

The main driver of the market’s performance and consequently the appreciation in the NASI index has been the rise in the prices of large cap companies with Safaricom, Equity Bank and KCB having risen 17.1%, 48.0% and 19.6% respectively year-to-date.

Foreign investor participation at the NSE has also increased in 2014 and positively affected its performance. In the fi rst 6 months, foreign investors accounted for 54.2% of total equity turnover, compared to 48.9% for the same period in 2013.

On a sectoral basis, the insurance sector has recorded the highest year-to-date weighted average price return (+36.2%) followed by the manufacturing & allied sector (+33.7%) and the agricultural sector (+23.1%).

There has also been capital raising and M&A activity in the market. The NSE launched its IPO in July, Diamond Trust Bank conducted a KES 3.6bn Rights Issue and CMC Holdings was acquired by the Al-Futtaim Group and de-listed.

Listed companies which provide exposure to the extractives industry include the Bamburi Cement, ARM Cement and E.A. Portland Cement, petroleum companies KenolKobil and Total Kenya, infrastructure investment company TransCentury, carbon dioxide mining companies BOC Kenya, Carbacid and banks that lend to the oil and gas sector.

It has not been a particularly good year in the market for companies in the cement industry. Both Bamburi Cement and ARM Cement’s prices have declined 16.7% and 8.3% respectively year-to-date, due to lower than expected fi nancial performances for 2013 and the fi rst half of 2014.

Recent new entrants in Kenya’s cement sector have increased the competitive landscape resulting in loss of market share and margin pressure for the established

TransCentury, the parent company of Civicon, a leading local engineering contractor in the extractives sector, has seen its price decline 22.6% year-to-date. The company’s market performance is the result of an anticipated loss from the sale of its 34.0% shareholding in Rift Valley Railways.

market makers


players. However, the local demand for cement is increasing, with cement consumption having risen 24.8% from the previous year to 2.0m metric tonnes in the 5 months to May.

Both KenolKobil and Total’s prices have declined 18.3% and 6.0% respectively year-to-date although this is not reflected in their earnings performance as both returned to profitability in 2013 following operating challenges prior to that. Following the closure of the aging KPRL refinery in October 2013, the downstream oil marketers are expected to continue recording better margins and efficiency in their operations going forward.

TransCentury, the parent company of Civicon, a leading local engineering contractor in the extractives sector, has seen its price decline 22.6% year-to-date. The company’s market performance is the result of an anticipated loss from the sale of its 34.0% shareholding in Rift Valley Railways.

Civicon is currently engaging in contracts for Tullow Oil and Total which are exploring for oil and gas in Kenya and Uganda. BOC Kenya and Carbacid which produce carbon dioxide gas have recorded a mixed performance. BOC Kenya has gained 16.8% year to date while Carbacid has declined 49.0% year to date.

The decline in Carbacid’s price has been attributable to reduced investor demand on the stock following a share split and

subsequent speculative rally in the second half of 2013. Notably, Carbacid is replacing its old plant with a new more efficient plant in 2014 which will improve its Carbon dioxide quality (purity) and reduce its manufacturing costs.

Going forward, Kenya’s medium-term economic growth prospects are favourable. Fitch Ratings has projected average GDP growth of 6.0% over the medium-term. The favourable economic growth will support the performance of listed companies and the equities market.

Also, in June 2014 the weighting of Kenyan companies on the benchmark MSCI Frontier Index increased to 4.8% from 3.0%. This will positively affect foreign investor participation going forward. As foreign and local investment in the local extractives industry continues, the sector’s contribution to Kenya’s GDP is expected to increase and support economic growth.

The Government of Kenya appears keen on implementing policies to ensure local content in the extractives industry, ahead of the sector’s future growth. These policies will ensure the participation of both listed and unlisted local companies in the extractives industry.

Apart from the aforementioned listed companies, Barclays Bank, CFC Stanbic Bank and NIC Bank have been noted for their lending activity in the local oil and gas sector. In addition, local insurance and re-insurance companies including Kenya-Re

aim to form a joint pool to insure risks in the oil and gas sector.

The NSE initiated the Growth Enterprise Margent Segment (GEMS) sector in 2013 and Home Afrika was the first listing on this market segment. The GEMS market was started to attract SMEs to the market and accommodate newly emerging sectors of the economy including the extractives sector.

The GEMS sector will be particularly important for extractives industry companies who are seeking to raise capital locally with the goal of having a more localised shareholding structure.

We expect more equity listings in the next 12-18 months, including UAP Holdings, a regional financial services company and Mayfox Mining, an indigenous gold exploration company. Kestrel Capital is currently advising Mayfox Mining on its private placement and subsequent GEMS listing.

Mayfox Mining will be the first of its kind to list on the NSE and will use the proceeds for its exploration activities in Turkana County which will enable it to develop the identified target areas and identify and confirm other minerals.

Kestrel Capital also advised Stockport Exploration, a Toronto listed gold explorer on its capital raisings in Kenya in 2013 and is the financial advisor to KenolKobil on its Commercial Paper financing programme.

TOP GAINERS AND LOSERS IN 2014:

market makers

Counters with exposure to the extractives industryCounter Sector Price (31 Dec

2013) (KES)Price (05 Sept

2014) (KES)% Change

Bamburi Cement Cement 210.00 163.00 -22.4

ARM Cement Cement 90.00 86.00 -4.4

E.A. Portland Cement Cement 69.00 73.00 +5.8

KenolKobil Petroleum 10.10 8.45 -16.3

Total Kenya Petroleum 25.00 23.50 -6.0

Trans-Century Infrastructure 28.75 20.50 -28.7

CFC Stanbic Bank Banking 87.00 126.00 +44.8

NIC Bank Banking 60.00 71.00 +18.3

BOC Kenya Carbon dioxide 125.00 140.00 +12.0

Carbacid Carbon dioxide 51.50 25.25 -51.0

Top LosersCounter Price (31 Dec

2013) (KES)Price (05 Sept

2014) (KES)% Change

Carbacid 51.50 25.25 -51.0

Uchumi 19.45 11.90 -38.8

Mumias Sugar 3.25 2.25 -30.8

Trans-Century 28.75 20.50 -28.7

Kenya Airways 13.05 9.90 -24.1

Top GainersCounter Price (31 Dec

2013 ) (KES) Price (5 Sept

2014) (KES)% Change

Kenya Orchards 3.00 20.00 +566.7

Unga Group 18.00 34.75 +93.1

Express Kenya 3.90 7.00 +79.5

Britam 15.15 26.75 +76.6

Kakuzi 95.00 161.00 +69.5


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Q&A

Banking on mining...Modest foreign direct investment activity has been taking place in the East African extractives sector over the past two decades. As the region and Africa at large graduates into a sought after natural resources frontier, countries have continued to liberalize trade, reduce debt, and develop better and more friendly regulations around the natural resources.

Still, governments and the regional business community must do more: they must device more pragmatic solutions to meet the inherent challenges of this emerging market.

Extractives East Africa sought to examine the intricate art of forming and growing indigenous businesses. We engaged an African entrepreneur, now living in Canada, to insight into some of the ways in which Africa can increase foreign direct investment and create more value for communities affected by investment activities. We also had a chat with his business partner, a lead stock and securities market maker, on how to develop better functioning financial markets.

Extractives EA: Please share with us your professional and entrepreneurial profile:-

Charles Field-Marsham (CFM): My entrepreneurship traits started quite early. As a young boy, I sold used books and lemonade on the street. In high school I started a promotional clothing business. I ran it successfully through University and sold it when I graduated.

My parents were professionals. My father was a banker and my mother was a lawyer.

While at University I met a Kenyan girl, who I fell in love with, and later married. After graduation from University I took my first job on Wall Street at Credit Suisse First Boston Investment Bank. Soon, it was time for her to return to her home country after her studies. My decision to accompany her back, and our settling in Kenya in 1993, opened for me a whole new entrepreneurial experience.

The Kenyan economy had slumped at the time, the interest rates were astronomical, while treasury bills were well over 85%. Given my experience and interest in the stock market, I visited one of the leading stockbrokers in Nairobi. I was surprised to discover that there were no research reports and that buy and sell decisions were based on price movements, not fundamental analysis or valuations. Fortunately at that time the newly formed Capital Markets Authority was licensing new stockbrokers to introduce competition and innovation. I partnered with a Singaporean based investment bank and together we formed Kestrel Capital (East Africa) in 1995.

Immediately, we started writing the first research ever on Kenya’s leading listed companies and on the Kenyan economy. We travelled to London and New York to market not only Kenyan companies but also Kenya as an investment destination. We also provided corporate finance advice to companies in Kenya and helped them

Mr. Charles Field-Marsham with one of the beneficiaries of the Charles & Rita Field-Marsham Foundation


Q&A

source Capital from not only international but also local institution investors. Under the leadership of Andre Desimone Kestrel Capital is Kenya’s leading investment bank and stockbroker.

EEA: Give us a glimpse into the evolving profile of Kenya Fluorspar

CFM: In 1996, the government privatized Kenya Fluorspar, which had been in operation since the 1970’s. I acquired Kenya Fluorspar in 1997 through the Government of Kenya’s privatization program. In the 1970’s when the mine was started the fluorspar industry was globally very profitable. However, in the late 1980’s the Chinese began dumping fluorspar in the European and American markets thus dramatically reducing the global price of fluorspar. As a result, Kenya Fluorspar was a loss making entity for many years before its privatization. When I took over the company in 1997 we had to go through a sustained re-organization to try and make the company profitable. This took over five years. Business was running well until the financial crisis hit in 2008, which forced us to close the mine for two years because of crashing demand and prices. In 2010 we reopened the mine. In 2011 and 2012 we had good years but, as with commodities globally, 2013 and 2014 have seen again a reduced demand in pricing and economically challenging times for Kenya Fluorspar. Mining is cyclical and challenging and we continue to persevere for we believe in the long-term demand for fluorspar. My single biggest lesson learnt from fluorspar is that mining in Kenya, like everywhere in the world, is a three way partnership between the mining company, the local community and the government.

In the early years I did not partner with the community to the extent that I should have out of not only my lack of experience but also lack of funds. However, over the last ten years I have invested heavily in supporting the surrounding community. Kenya Fluorspar spends approximately 3% of its revenue on community projects. They include building a nursery; a state of the art medical center and primary school also fully equipped with advanced information technology; building a modern taekwondo martial arts center. These facilities are used 50% by the mine’s employees and their families and 50% by the surrounding community at a heavily subsidized cost. The taekwondo facility is run as a charity and teaches over 1,000 students for free. We also built and fully equipped 5 school libraries outside of our mine lease area and build several school classrooms for them as well.

I realized that my wife and I are very uniquely positioned to add value, and impact lives more positively through our businesses and familiarity with local issues. So together, my wife and I set out to develop sustainable programs in education, knowledge exchange and health to transform lives. We formed The Charles & Rita Field-Marsham Foundation to focus our efforts and have donated to more that 40 charities in Africa and Canada through it. Our work with established organizations compliment our skill set. Our direct contact with stakeholders and communities ensures effective and accountable execution of projects. Ultimately, we believe that through the multiplier effect of the initiatives we are involved in, we can meet basic needs of families and we can develop globally minded learners and leaders.

EEA: Forming indigenous companies has been your reserve. How do you manage to keep them on a profitable course?

CFM: My approach is inspired by the fact that Africa is receptive to investment and its people are tremendous. Success is attainable by identifying an opportunity and marshaling up finances to attract the right expertise and human capital to act on it. I am passionate about bringing together the right

networks and the most passionate and best qualified people for the work.

For instance as a result of our extensive business network, we were able to form our Panafrican Group company, which distributes and maintains Komatsu mining and construction . In this spirit, we were able to develop this business and establish offices for it in Sierra Leone, Ghana, Nigeria, Kenya, Tanzania, and its head office in Dubai.

Notably Kestrel Capital Ltd, Kenya Fluorspar Ltd and the Panafrican Group employ over 900 people - 97% of our employees come from Africa.

We continue to expand our businesses and carry on our authentic advocacy, promoting Africa in North America, Europe and Asia as a frontier where investors are able to garner better rates of return than anywhere else in the developing world.

It is encouraging to see that the mining bill is pragmatic about addressing the concerns that have beleaguered the mining industry in the past. East African economies should integrate trading processes and liberalize their market to increase their potential for prosperity.

EEA: Share your thoughts on mining sector development

CFM: Throughout history, mining has been a pivotal part of growing economies and democracies in Europe, Latin America, North America and Australasia. It is incumbent upon African governments to be proactive in exercising policies that encourage investment in mining. Where that has happened, in democracies like South Africa, Ghana, and Tanzania, mining activities are quite developed and foreign investment there is exponential.

It is encouraging to see that the new mining bill in Kenya is pragmatic about addressing the concerns that have beleaguered the mining industry in the past. East African economies should integrate trading processes and liberalize their market to increase their potential for prosperity.

Mining is capital intensive, and it is quite different from other economic activities, which are essentially driven by domestic market dynamics like manufacturing, telecommunications or banking. Mining is also very technical in nature and the human resource skills required are not generally available in Kenya. Mining is driven by global economic forces of demand, supply and thus pricing. Mining companies do not sell their products in Kenya and there are other countries with natural resources. Therefore it is incumbent upon the Government of Kenya to attract mining investors to Kenya. Bureaucracy and politics are counter to development. More emphasis should be put to improving local expertise and developing sustainable socio-economic systems.

Charles Field-Marsham is a Canadian entrepreneur with more than 20 years of experience in building businesses in Africa between 1993 and 2003. He returned to Canada and formed Kestrel Capital Management Group, which provides strategic, investment and management consulting services to his businesses outside of Canada. Charles is dedicated to fostering strong communities where he lives and works and is involved with numerous charities and not-for-profit organizations.

It is encouraging to see that the mining bill is pragmatic about addressing the concerns that have beleaguered the mining industry in the past. East African economies should integrate trading processes, to liberalize the market and increase their potential for prosperity.


Extractives EA: Having grown the Kestrel Capital brand in the Nairobi Securities Exchange over the past ten years, please share your thoughts in this regard.

Andre De Simone: Foreign and institutional investment via the NSE and/or cross listing in East African bourses

While viable cross listings and trading of shares amongst East African bourses awaits harmonization of regulations and technology, international mining companies could cross list on the NSE via an offering of new shares or depository receipts. While cross listings currently exist in East Africa, lack of harmonized regulations and technology do not allow for active trading of shares across borders or within the cross listed markets.

As local institutional investors study and learn the risks and potential rewards of investing in the mining industry, we expect their participation to grow over time. Initially, it will be high net worth retail investors and private investment companies which will support share offerings by start-up mining companies in East Africa. This was demonstrated recently by Kestrel Capital’s successful USD 1.6 million private placement capital raise in Kenya for TSX listed company Stockport Exploration which is exploring for gold in Western Kenya.

As the Toronto, London and Australian stock exchanges demonstrate, there is potential for very active investment and trading of shares on stock exchanges. Also, the shareholding structure of many international mining companies comprise institutional investors. There are specialized natural resource funds that could take interest in NSE listed mining companies.

Wealth/Fund managementSimilar to above, high net worth individuals who are interested or possibly already familiar with the mining industry are the most likely initial investors in any mining venture. Fund managers will take time to understand the industry and would initially probably only invest in more mature, profi t making listed mining companies, preferably listed on the NSE.

Growth Enterprise Market Segment as an ideal tool for capitalization especially for junior players in the extractives industry.

Similar to the TSX Venture board (‘TSV’) in Toronto, the new GEMS board on the NSE is ideal for small companies to raise capital. The listing requirements are much less stringent than the main MIMS board or the AIMS board, including only requiring one year of audited accounts. Kestrel Capital is currently working with

Mayfox Mining, a Kenyan gold exploration company, on a planned capital raising and subsequent listing on the GEMS board.

EEA: Investors in the extractive industry usually have stocks quoted in various global stock/commodity exchanges. With those investors now acquiring assets in the East African extractive industry, there is apparent need for players in regional capital markets to explore the possibilities of modifying the structures at the bourse(s) to facilitate trading oil, gas and mineral commodities.

ADS: LSE listed Africa Barrick Gold has already cross listed on the DSE in Tanzania, but as mentioned above there is need for harmonization of regulations and technology to allow for easy cross border trading of shares to allow for easier capital raising and cross listing of international mining companies. The Capital Markets Authority and Nairobi Stock Exchange might have to consider allowing depository receipts or modify the structure (regulations and technology) to allow for viable cross listings. On the other hand, international mining companies could specifi cally list their East African subsidiaries on the NSE or another regional exchange which would probably be the most attractive option for local investors who may not want exposure to the companies’ operations outside East Africa where they do not understand the risks and rewards as well as they would in East Africa.

EEA: Or should capital markets fi nd it more pragmatic to begin conversation around the establishment of a regional derivative exchange?

ADS: The NSE has already invested in a derivatives trading system and training has begun with NSE brokers like Kestrel Capital. This does not really relate to the mining industry, at least not initially, as derivatives would probably initially comprise currencies, bonds and shares, and possibly commodities like maize.

Andre was Chief Executive of Kestrel Capital in 1995 and played a pivotal role in developing the research tradition now associated with the fi rm. Prior to this, Andre worked for Blackstone Group L.P. in New York as Vice President specialising in acquisitions and restructuring. Between 1997 and 2001, Andre was a portfolio manager at Zurich Scudder Investments in New York where he co-managed a Global Emerging Markets Equity Fund. From 2001 to 2003, Andre was at Kenol/Kobil Petroleum where he was responsible for new acquisitions and oversight of subsidiaries outside Kenya. Andre has returned to Kestrel Capital as Executive Director. He holds a BSc in Management Science from the Massachusetts Institute of Technology.

Financial markets cannot be left out in the macro global economics. Regional stocks and securities exchanges need to create the environment to rise to the occasion of satiating needs of the emerging extractives industry. Cross listing in the regional bourses, market capitalization and harmonization of systems in the capital markets are key quests for the investment community.

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LEADING DISTRIBUTOR OF HYDROCARBON CHEMICALS IN AFRICA


For more details, Contact our Nairobi Office, Kenbelt Industrial Park, Old Mombasa Road Tel:- 254 20 2107202/81 Cel:- 0715 444816 Web: www.ldcom.com

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LEADING DISTRIBUTOR OF HYDROCARBON CHEMICALS IN AFRICA

Derivatives are here with us. Today they are no longer viewed as the ultimate speculation tool but they are accepted as risk management tools, be it to hedge positions, to replicate positions generically, to assure deliveries in the futures or to simply facilitate portfolio management.

Derivatives are an integral part of any well-established market. The needs of market participants are no longer restricted to buying and holding a product, but also to secure their forward needs, being able to buy protection, receiving additional income and of course to play the markets. Before the launch of a derivatives market it is critical to have a functioning under-lying market. This means proper liquidity, market structures, legal and compliance surroundings as well as customer acceptance.

Derivatives are fi nancial instruments that derive their value from an underlying asset and are a natural evolution of the cash markets: fi rst you trade the cash products, and then a forward market develops (either as a non-standardised forward market or as a standardised futures market). Once that market works one can add an option market, again either non-standar¬dised (over-the-counter) or standardised. They include futures and

commodities such as currencies, oil, gold, wheat, soy beans etc. These fi nancial instruments require a platform where they can be traded in an open market called an exchange.

Setting up a derivatives exchange requires a lot of pre-work on the legal environment, proper regulatory set-up and supervision, capacity building of all market participants, technical set-up, connectivity to the global market, information dissemination, market making just to name a few. In essence, there is need to create a system that will link up the buyers and sellers in the market, take care of the hedgers, speculators and arbitrageurs and still deliver with integrity consistently.

There well might be a push to get going quickly as these markets are the rage of time. This should not be done, however. Success of an exchange is just like reputation: it takes a long time to build it but only a short time to tear it down!

In the second part of this series, we will be looking at the signifi cance of emerging markets in global derivatives trade where we will be evaluating the impact of derivatives exchanges in emerging markets.

A derivatives exchange - the wayto go...by Jeremmy Okonjo

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AFRIDEX is seeking to establish a multi-asset transnational demutualized Derivatives Exchange in Nairobi, Kenya, enabling the trading of financial and commodity derivatives across the African continent and globally in a secure, regulated and transparent trading ecosystem.

AFRICA FUTURES AND DERIVATIVES EXCHANGE

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Shimoni• Cliffplotalmost3.5acres10.5 mil • Smallbeachplot1and¼acre5 mil 44meterbeachfront• Bigbeachplot2acres7 mil 54meterbeachfront

FunziFunziviewisacompanyinclusive2acresbeachfrontplot60meterbeachbighouseforstaffwithfourrooms.Luxurioustent,solarpower,andboatwithtwo50hpenginesallforonly9.5m .

Twoplotsoceanviewwithdilapidatedbuilding4acreseach 4 mil each,Idealforacampsite

Ramisi Kinondo• Plot193,3acres,40meteroceanfront,12 mil• Plot114,3acres,40meteroceanfront,12 mil• Plots182/183/184/185,thirdrow,2acreseach,2 mil each• Plots160/162/164/165mangroveplotsandsecondrowfromthebeach.Each between3/4acreand1acre,40metersmangrovefront.Goingfor 2 mil each.• Plot142secondrowplotof2.3acresgoingfor3.6 mil

Kinondo• Plot34,neighbourCalisto,60meterbeach,2acresgoingfor26 mil

Diani• Plot152isbeingsubdivided,theplotis5acresforthrowfromthebeach behindChandarana.Closetotheairstrip.subdivisionwillcontain7plots- 1plotofoneacreand6plotsof0.65acres.Theoneacresgoesfor 3 mil andthe0.65acresgofor1.8 mil

All title deeds are free hold except the Shimoni cliff plot which is a lease hold with 96 years lease remaining.

For enquiries, please contact: Tel: +254 (0)20 4231505

Hailed by many people as “The best plot, on the best part, of the best beach in Kenya ”. Not just because of its position, but because it also contains some very interesting features.

The plot is approximately seven acres and is particularly beautiful, with an 83 metre beachfront and powder white sand extending right into the ocean. So it is extremely safe and comfortable for swimming. The topography is such that the front portion of the plot is a gently sloping lawn stopping just before a stunning, natural coral shelf which then drops down to a lower area of lawn leading directly onto the beach. There are also many mature trees, both exotic and indigenous including Tamarind, Mango, Flamboyant, Lecaniodiscus, Pandanus and Coconut Palms.

The remainder of the plot is all natural forest and contains abundant local wildlife. In addition to the Colobus, Sykes and Vervet monkeys which we see almost daily, the forest is home to many Suni Antelope, a flock of indigenous Crested Guinea Fowl, Tortoise, Bush Baby and a wide variety of birds. It also boasts an enormous and unusual Baobab tree which measures 18.5 metres in circumference and is host to numerous wild orchids.

Additional benefits are that we enjoy clean water and have existing single and three phase power.

Much time has been spent, effort and money in creating the gardens. The cottages and out buildings which were originally here had been demolished by the then owner and the coral stone, concrete and rubble had been spread all over the plot. The only building left standing was a dilapidated staff house and store which has since been converted into the house shown. There is a small guest cottage on the edge of the forest for family and friends who visit. The plot had remained empty and undeveloped for years and was almost completely overgrown. It took almost two years just to clean up the plot, and create the garden and lay the foundations and infrastructure for a stunning and beautiful tropical paradise.

All-in-all, this is a prime plot and one of, if not the best in Diani. What’s more it has clean title deeds. So the price has been determined by current market value as well as all the above factors and the plot’s overall desirability.

Plot 1357, Beachfront, 7 acres: GBP 2.6 million.

Plot No. 1357, Diani Beach

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