TRADE-AFRICA: Libya to Supply Kenya with Cheaper Oil

By Stephanie Nieuwoudt Reprint | | Print |

Stephanie Nieuwoudt

NAIROBI, Jun 21 2007 (IPS) - Kenya is set to receive oil from Libya at preferential rates according to a bilateral agreement signed earlier this month between the leaders of the two countries.

Insiders in the oil industry say this makes it likely that Kenya will award the contract for the establishment of a petroleum facility of 45 million US dollars and a truck and rail loading project worth 22 million US dollars to a Libyan-connected investor.

The projects will be subjected to competitive bidding by foreign investors but the two countries have already entered into discussions about the projects.

Libya has also shown interest in upgrading Kenya’s outdated and badly maintained petroleum refinery. The cost of the upgrade is estimated at 322 million US dollars.

According to a memorandum of understanding between the two countries, Libya may supply up to 60 percent of the 1,6 million tons of crude oil that Kenya needs to make its refinery commercially viable. In total the country needs 2,8 million tons of both crude and refined oil.

‘‘Any opportunity to get cheaper oil into the country is good,’’ Sumayya Hassan Athmani, company secretary of the National Oil Corporation of Kenya, told IPS.

‘‘We are economically on a path of growth and we are reliant on oil for this growth. As we grow the demand for oil is going to rise. About 25 percent of our import bill and 11 percent of our gross domestic product (GDP) goes towards the buying of oil. If we can get oil cheaper, it means that a lot of money can be freed up for use elsewhere,’’ said Athmani.

Exactly what the saving to Kenyans will be is unsure as the government has not yet made public the price of the discounted oil. There has been no indication so far that the savings will indeed be passed on to consumers.

Athmani argued that Kenya needs a strategic investor to upgrade the existing oil refinery. This person may be the Libyan leader Muammar Gaddafi.

James Shikwati, director of the independent policy think tank Inter Region Economic Network (IREN), told IPS that Gaddafi showed his commitment to sub-Saharan Africa with the agreement.

‘‘If Libya comes to Kenya, it will make the market here more competitive. We may see better services at better rates. Western oil companies have for a very long time manipulated oil prices. The competition will be good,’’ said Shikwati.

A US financial investor, Colony Capital, recently acquired the majority shares in the Libyan state-owned oil company Tamoil. This deal followed a week after Libya signed an exploration contract with multinational oil giant British Petroleum (BP). Other multinationals which have returned to Libya are Shell and ExxonMobil.

It seems that Libya is grabbing all possible opportunities to welcome Western investors after US president George W Bush in April this year lifted most trade sanctions against Libya. It was seen as ‘‘compensation’’ for the announcement by Libya that it was abandoning its nuclear weapons programme. The United Nations had lifted its sanctions against Libya in 2006.

The sanctions had been in place since 1986 when countries like the US identified Libya as sympathetic to international terrorist groups. Libya in turn upheld oil embargoes for decades as a political weapon against the West’s support for Israel in the conflict with Palestine.

The opening up of Libya to foreign investors is in line with the government’s privatisation plans. Tamoil has expanded its business interests in Uganda when the company won the tender to operate, build and transfer the Kenya-Uganda oil pipeline.

The pipeline, which will stretch over 320 km, will improve the flow of petrol, diesel, kerosene and Jet A-1 fuel between Eldoret in northwest Kenya and the Ugandan capital Kampala.

The Kenya-Libya deal also comes at a time when players in the oil business are convinced that oil will be found in Kenya. Millions of dollars are being used in oil exploration in this East African country.

‘‘If you look at Kenya’s neighbours like Sudan, it seems that East Africa is rich in oil. And Kenya is part of the region. I believe it is only a matter of time before we strike oil,’’ Athmani said.

Shikwati says that although superficially the entry of Libya as a player in Kenya may seem like a good thing there is always an element of uncertainty. ‘‘On the one hand Kenyans may truly benefit but on the other hand Libya may decide to join the multinational oil cartels that manipulate oil prices.’’

There is also a possibility that the person in the street may not benefit from the cheaper oil because the Kenyan government may decide not to pass on the savings to the consumer.

Kwame Owino, programme coordinator at Kenya’s nongovernmental Institute of Economic Affairs, told IPS that he is not sure how Libya will shave off costs.

‘‘Oil is an international product which is priced in American dollars and sold on international markets. It is unclear how Libya will be able to supply cheaper oil,’’ he said.

‘‘As both countries are part of the Common Market for Eastern and Southern Africa (COMESA), my feeling is that it would have been better to discuss the issue at COMESA. From an economic point of view, COMESA countries would have benefited more if a multilateral agreement was signed,’’ Owino argued.

Libya is not only investing in the oil sector in Kenya. The Kenyan trade minister Mukhisa Kituyi early this month announced that Libya will also invest in the construction of a luxury hotel in Nairobi and an exhibition centre in the coastal city of Mombasa.

Kituyi said that Kenya is looking at Libya as a new market for its coffee and tea products.

***** +Inter Region Economic Network (http://www.irenkenya.com) +Institute of Economic Affairs-Kenya (http://www.ieakenya.or.ke) +TRADE-AFRICA: How to Turn the Curse of Oil into a Blessing (https://www.ipsnews.net/news.asp?idnews=37902)

(IPS/AF/AB/EA/SU/NA/EY/MD/DV/IP/IF/TA/SN/CW/07)