Kenya Drops Budget Cap to Reach Oil-Cash Deal, Lawmakers Say

(Bloomberg) -- Kenya agreed to drop budget-allocation limits for oil-rich counties in order to break a deadlock in passing a revenue-sharing law that’s delayed production.

The Petroleum Exploration, Development and Production Bill, which was presented to lawmakers in February and later withdrawn, proposed giving communities 5 percent of revenue and county administrations receiving 20 percent provided those amounts did not exceed budget allocations by the national government. The local community’s share was initially capped at 25 percent of the county’s revenue.

President Uhuru Kenyatta said on May 19 leaders from the northern Turkana county agreed for the central government to receive 75 percent of the oil income, while 20 percent will be earmarked for regional governments and 5 percent for the local communities. While lawmakers from the region originally wanted a 70:20:10 ratio, they dropped their demands after the government agreed not to peg normal county budget funding to the oil revenue.

“We reached a compromise to support the bill,” Turkana South Member of Parliament James Lomenen said by phone. “The caps have been removed. The only remaining hindrance to the early-oil program now is that the road has not been fixed.”

The president’s spokesman, Manoah Esipisu, confirmed the deal.

Initial transport of the early oil that’s been in storage at Lokichar in Turkana will be by road to the Indian Ocean port of Mombasa. Shipment of the 70,000 barrels will begin by June 1, according to the Kenyan presidency.

“In light of the recent agreement between the national government and leaders from Turkana county regarding revenue sharing, Tullow is working with both on a suitable flag-off date for the early-oil pilot scheme in the coming weeks,” Tullow’s spokesman, George Cazenove, said in an emailed response to questions.

Early Oil

The nation has signed agreements with Tullow Oil Plc, Africa Oil Corp. and Maersk oil on a joint development study for a pipeline linking the oilfields to an Indian Ocean port being built at Lamu.

Passage of the proposed law is required before an early-oil program can continue. Tullow discovered crude in the north of the country in 2012 and is developing finds estimated at 1 billion barrels of crude. It was scheduled to start production in the first quarter of 2018.

The bill will be reintroduced in parliament when sessions resume in June, according to Aden Duale, the majority leader in the National Assembly. “We shall conclude the law by the second week of June,” he said by phone.

When oil shipments begin, they’ll earn Kenya much-needed foreign exchange and help to diversify the mainly agricultural economy that’s the world’s biggest exporter of black tea and supplier of more than a third of the cut flowers sold in the European Union.

“We will intensify our exploration efforts, not just in Turkana, but in the rest of the country now that we have a legal instrument that can help guide how oil and gas will be handled,” Kenyatta said in a statement on May 19.

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