Thursday, 14 December 2017

Total SA’s foray into east Africa hits rough winds

First flare up test at Hoima

The French oil Major, Total S.A’s foray into East Africa’s oil exploration sector has run into headwinds. The foray itself brought tumult in the sector and the region. Farmed into Hoima Oil fields by Tullow Oil, Total SA soon began maneuvers to elbow out its hosts and take full control of the 1.7 billion barrel fields.
 Tullow oil was the first oil explorer to find oil in Uganda in 2006. It farmed the oil Majors Total SA and the China National Offshore Oil Corporation (CNOOC) for 33 percent stake in Hoima Oil fields in Uganda.  Meanwhile, Tullow Oil together with its Canadian partner Africa Oil had discovered oil in Kenya’s Lokichar Basin.
So Tullow planned to export its crude through the proposed Lamu Port in Kenya. For this both governments in Uganda and Kenya agreed to set up a special purposes vehicle to build an oil Pipeline through Kenya.
 But then Total, secretly contracted a US company, Gulf Interstate, to do a feasibility on the Uganda-Kenya route which they found unfeasible, recommending the Pipeline be built through Tanzania’s to the Port of Tanga.  Uganda bought the idea and re-routed her planned oil pipeline.
This angered Tullow who off-loaded 22% of its 33.3 per cent stake to Total SA in a US$900 million deal. Tullow moved to Kenya.
 It also poisoned diplomatic relations between Kenya and Tanzania that are still chill. Now Total S.A appears set for her own tumult.
First, it appears that Total, buoyed by her success in elbowing Tullow out of Hoima Fields also began to bully CNOOC out of the fields too. CNOOC is not about to be bullied to sell her stake for she represents wider Chinese interests than just oil.
 She also represents the interests of Chinese construction companies who were eyeing the deal to construct the Pipeline. So she resisted all manoeuvres by Total SA to control the business.
 Either by coincidence or at China’s behest, some skeletons began coming out of Total SA’s cupboard. It emerged that despite the seemingly cordial relations with Tanzania, there were undercurrents. President Magufuli of Tanzania developed misgivings about Total, which had disagreed with his technocrats on parts of the deal. He advised his friend President Museveni to go slow on Total.
 It also emerged that, Gulf Interstate, the firm that carried the feasibility that badmouthed the Kenya route, may not have been competent in that line after all. Museveni had based his decision to re-route the oil Pipeline south on this feasibility study.
The re-route that Cost Kenya the Pipeline
 Further, Equatorial Guinea has cautioned President Museveni to be weary of Total.  The firm had defrauded Equatorial Guinea of Euros 73 million worth of crude exports between 2010 and 2012. And E.Guinea is demanding a refund. 
Tullow, according to Uganda’s the independent Magazine, sold its stake due to frustration by the Uganda government over the Crude oil pipeline route. Tullow favored the Lamu Port, because of her interests in Kenya’s Lokichar Oilfields. The pipeline from Hoima to Lamu through Lokichar would have enabled Tullow to export the Kenyan oil on the same Pipeline.
 Now, the disagreement is said to be so intense that the partnership could collapse if not resolved, further delaying Uganda’s entry into the oil exporters club. This is why the Uganda government has been roped into the dispute. Both Total SA and CNOOC are lobbying Uganda President to get an advantage over the other but the Chinese are said to be gaining the upper hand.
In November, both sides visited the Uganda President but the Total delegation, sources say, left “unhappy”. The Chinese, led by the Ambassador in Uganda, and the CNOOC vice-President, had met the President earlier and are said to have raised concerns about Total.
To the east in Kenya, where Total SA acquired 25 percent through a buy-out of Maersk Oil from the firm’s parent company, A.P. Moller-Maersk, things do not look rosy either.  
The National Oil Corporation, the industry regulator in Kenya, plans to float shares in both NSE and LSE in 2019 in an IPO to raise US$1 billion for 33 percent stake buy-in in Lokichar Oilfields ahead of Production.
Lokichar, boasts of 750 million barrels but new wells are being discovered. The basin which extends to Ethiopia is thought to hold 23 billion barrels of the black gold.
The government’s entry into the oil sector will whittle down the stakes of the other partners. The partners in Lokichar are Tullow 50%, Africa Oil 25% and Total SA 25%. The presence of the government will whittle down Total SA’s potential influence, reducing it to a spectator. The firm had expressed its desire to lobby Kenya to allow Kenya’s crude to be exported south through the Tanga Port in Tanzania.
Such a move would have killed the US$2.1 billion Lokichar- Lamu Oil Pipeline. It would also have killed the proposed 120,000 barrels a day oil refinery in Lamu. With the entry of the Kenya government into the industry, such a dream is effectively killed.
Assuming each partner cedes 11 percent stake, then Kenyans will be the second largest stakeholder after Tullow which will control 39 percent, Kenyans 33 percent, Africa Oil 14% and Total 14 %.
Since oil price is recovering in the international market, frontier sources such as East Africa will become the ground for intense battles among the oil Majors. Total SA’s stated goal is to be the first on the ground.
However, others-including the Chinese -are also seeking to increase their stock of crude oil, and this means bare-knuckled battles. According to Uganda’s The Independent Magazine, the Chinese appear set to stay put. And the government, it says, appears lukewarm towards Total S.A.
This places the oil major between a rock and a hard place. Should it continue with its bullying ways, governments could step in to scuttle its schemes.  Uganda, sources indicate, has not entirely abandoned its plans to ship oil through Kenya nor did Tullow dump all its stake on Total’s hands.
Uganda is the cradle of Total SA’s presence in East Africa. Should it slip through its hands, even the Pipeline through Tanzania will be in jeopardy. 

It remains to be seen how Total S.A wades through the waters it muddied.

Sunday, 3 December 2017

Kenya Gearing for robust growth in 2018


Kenya is revving for faster growth in the coming year, all things remaining the same, we can report. The country, whose growth is among the fastest in the continent, is expected to register slow growth in 2017 compared to 2016.  Last year, national wealth grew by a robust 5.8 percent but is expected to slow down to 5.0 percent or below.
However, all fundamentals for a fast turnaround are in place: the short- rains have been adequate and well distributed, inflation has turned south and will continue to do so as food supply increases, oil prices still look low and the political climate is cooling off albeit with pockets of noise.
The short run headwinds namely; the uncertainties arising from a prolonged electioneering is well behind us, the economic tremor caused by the invalidation of the presidential vote on September 1st is also behind us. The tide is turning in favour of economic prosperity.
 Prolonged drought since the second half of 2016 coupled with poor long rains were the drawback to wealth creation this year, says the Second-Quarter GDP report published by the National Bureau of statistics
There were shortages of all agricultural products including Maize, Sugarcane, coffee, and milk leading to low activity in the agro-processing sector. Shortages mean that someone is not producing and therefore making money and employing others.
Completion of some mega infrastructure projects also slowed down activity in some sectors. Both slow-downs led to layoffs which increased unemployment in the country. However, the resurgence of activity in mega- infrastructure projects including the Thwake Dam, the Lamu- Isiolo highway and the second runway at the JKIA are expected to boost cement consumption and activity in the construction sector.  
These shortages resulted in inflationary pressures that saw overall inflation rise to 8.04 in August before declining to 4.73 in November 2017.
The shilling, which was suffering the ravages of political uncertainty has appreciated to 102.95/103.10 on December 1st from Shs103.75/103.90 in November 14th when the Supreme Court upheld President Kenyatta’s re-election.  It is expected to appreciate further as political risk retreats and investors troop back to the local financial market.
The decline political risk, coupled with increased output in the agricultural sector and the 50 % reduction in electricity tariffs for the manufacturing sector, during the night, has set the stage for robust growth next year as investors dust their shelved investment plans.
There is one potential drawback though, Oil prices are turning north sending a clear signal of a raid into our pockets in the new year. A barrel of crude has hit $64 per barrel which translates into higher pump prices.
 However, the good rains are expected to dampen the pressure as the Hydro-dams levels rise, increasing the amount of cheap-green- energy in the market. 

Experts see a 5.9-6.0 growth rate next year. They see a higher rate in 2019 other things being the same.