Kenya Seeks Energy Sources as Power Firm Posts Record Loss

By Tom Osanjo

NAIROBI, Kenya, November 29, 2001 (ENS)- The government of Kenya has signed an exploration treaty with a British firm in a move that will see the world's deepest oil wells drilled off the East African coast. The deal is an attempt to expand the country's fuel supply as Kenya's public power firm announced the biggest loss in its history.

The oil exploration deal is one of the ways the government is exploring as it seeks to disentangle from the mess occassioned by the losses of the Kenya Power and Lighting Company (KPLC). Already, the government has announced it is negotiating to have its power system connected to the South African grid.

The loss of five billion Kenyan shillings (US$63.7 million) posted by Kenya Power and Lighting means that Kenyan consumers will have to dig deeper into their pockets as the utility is expected to pass the costs to consumers.


Dhow cruises the Indian Ocean off the Kenya coast (Photo courtesy Kenya Wildlife Service)
During the agreement signing ceremony earlier this month, the British company Star Petroleum got the rights to explore for oil in an area the Kenyan government has designated block L 11 covering 9,943 square kilometers located in the Indian Ocean offshore of the Kwale District.

The eight year petroleum exploration and production sharing agreement was signed by Energy Minister Raila Odinga and Peter Taylor, the director of Star Petroleum.

Star and its business partner Dana Petroleum will be undertaking exploration 2000-3000 metres beneath the surface, depths Raila said showed the firm's commitment to the Kenyan economy.

"In many regions of the world, oil exploration has yet to move into the deep off-shore, say in water of depths greater than 1,000 metres," the minister said. Under the new agreement, Star will drill two wells at a cost of US $10 million.


Kenyan Energy Minister Raila Odinga (Photo courtesy
According to Raila, Star is also expected to undertake geological and geophysical surveys at an estimated cost of US$270,000. This is the fourth block the British firm is getting from the Kenyan government.

The minister expressed optimism about the prospects for an oil discovery in Kenyan waters, saying that neighboring Tanzania had struck gas reserves off its coast and there is an international oil firm exploiting oil in Kismayu off the Somali Coast.

"Nature cannot be so unfair to Kenya as to give these natural resources to our next door neighbors while leaving us out," he said.

The minister said that there are 14 oil exploration blocks waiting for investors. He appealed to international investors to take up the offers saying that Kenya extends some of the world's most rewarding legal and tax regimes.

In July, the same partners signed agreements covering Blocks L5, L7 and L10, all of which Taylor says show good oil prospects. Taylor cited forecasts of up to 100 million barrels of oil in the areas marked for exploration.

Kenya is paying increasing attention to oil exploration in an attempt to reduce the large amounts of money it spends on importing the fuel. Last year, Kenya's oil import bill was 54 billion Kenyan shillings (about US$689 million)

With Kenya Power and Lighting mired in losses, the Kenyan government is now seeking all possible fuel sources to top up the shortfall. Many activists blame rampant destruction of forests as one of the reasons for the losses by the power firm.

Minister Raila said the government will pump in 2.5 billion shillings (US$32 million) to bail out the company.


Employees of Kenya Power and Lighting (Photo courtesy KPL)
The minister attributed the loss to a searing drought last year which saw KPLC embark on one of the most drastic power rationing measures in the history of Kenya. The drought, the minister said, occasioned losses for the company.

But opposition Member of Parliament Matu Wamae said the KLPC loss is the greatest of any commercial venture in Kenya. He blamed it on mismanagement, corruption, over-employment and destruction of industries and hotels through unrealistic and exorbitant charges.

"The tariff for KPLC is the highest in Africa. It is six times higher than South Africa and Egypt with whom Kenya is expected to compete," the legislator said.

As the debate rages on the future of the country's energy sector, the government is running into more trouble over the planned excision of some 170,000 acres of forest land ostensibly to settle the landless.

The Japanese government, which is funding a 60 megawatt hydro-electric power project, announced this week that they were sending a team to study the effects of the excision.

Japan is funding the Sondu Miriu Hydro electric Project to a tune of more than seven billion shillings (US$90 million). Last week the Japanese signed the papers for the second phase of the project with Energy Minister Raila Odinga in Nairobi.

Charge D'affaires at the Japanese embassy in Nairobi, Ryuhei Hosaya, confirmed the planned visit which is taking place under the auspices of the Japan Bank of International Cooperation.

Environment Minister Katana Ngala has consented to the planned forest clearing to settle the landless, earning the wrath of local environmentalists and other members of the public. Green Belt Movement coordinator Professor Wangari Maathai believes that there is a sinister motive in the move. Past experiences have shown that such excisions benefitted those who already own huge expanses of land, she said.

The Japanese government is said to be particularly interested in the fact that the forest excision will affect the Mau Forest catchment area, from which their hydroelectric project gets most of its water.

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