John Ngumi, Chairman, Kenya Pipeline Company (KPC): Interview

Interview: John Ngumi

How has global volatility in oil prices impacted investment in Kenya?

JOHN NGUMI: Let me start with midstream. Surprisingly, the demand for finished petroleum products has held up remarkably well through the ups and downs of the oil price. Demand for these products has been driven by various economic sectors in different countries across the region, and has held up despite the fluctuations in oil prices. Therefore, midstream has not really been affected. On the downstream side, you have companies like Total and Vivo that are investing heavily to expand their footprint. If you ask them why they are doing this, it is not for the margins. It is more probable that they are interested in creating a consumer experience around petroleum products. This is in stark contrast to what is being witnessed by middle-market players.

The upstream segment was absolutely and directly affected by the volatility in oil prices, and investment has been down almost across the board. Recently, there has been an uptick in investment as oil prices have begun to rebound, but in general investment has waned. In summary, global factors have largely affected the upstream segment, whereas local factors have affected midstream and downstream segments.

What must Kenya do to build itself up as a regional centre for the oil and gas sector?

NGUMI: We have identified the lack of manpower and human capital within the energy sector as significant deficiencies. At every stage — from fitters to welders, and all the way up to engineers — we are deficient. The head start Kenya would get by being a centre of excellence in human capital would be an enormous boon in terms of taking advantage of our strategic geographical location in the region.

KPC has built a training school and is busy rolling out a curriculum, but ultimately this will be something that will have to be heavily subsidised by the government. East African leaders made a decision three or four years ago to make Kenya the centre for excellence in oil and gas. At least the recognition is there, and Kenya has made a consistent decision towards furthering this objective and making it a reality.

How has devolution impacted infrastructure investment for the energy sector?

NGUMI: First and foremost, in terms of attracting actual producers we need to work on the overall clarity and predictability of government policy. Our constitution has outlined the very special role that counties will play in the country’s development, however, these roles have not been very clearly defined yet as they pertain to the energy sector. There is nothing stopping counties from raising taxes or creating non-tariff barriers to operators. This has certainly raised questions in terms of how local content is used and how revenue sharing agreements are going to be implemented.

The Petroleum Bill seeks to address those challenges, but has already met with criticism. It is not just petroleum that this bill is addressing; every other investment platform is running into these headwinds. The Kenyan government, both on the national and county level, must seek to clarify how the country will handle investors. If we are able to do this and create a model platform that is conducive to investors while also satisfying federal and county stakeholders, we will create an even more attractive investment climate.

What can be done to improve community engagement in the extractive sectors?

NGUMI: If anyone has done well in terms of community engagement and managing relationships with communities in Kenya, it is the energy companies. The explorers in particular have done very well. The issues, however, go beyond the energy companies. Energy companies are seeking to ameliorate issues between national governments and county governments, and are also building relationships with local populations.