Identifier
Created
Classification
Origin
06NAIROBI1637
2006-04-13 12:32:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Nairobi
Cable title:  

KENYA BULLISH ON EXTRACTIVE INDUSTRY TRANSPARENCY

Tags:  ECON EAID EFIN EPET ENGR KCOR KE 
pdf how-to read a cable
VZCZCXRO2395
RR RUEHGI
DE RUEHNR #1637/01 1031232
ZNR UUUUU ZZH
R 131232Z APR 06
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 0991
INFO RUEHLMC/MILLENNIUM CHALLENGE CORP
RUEATRS/DEPT OF TREASURY WASHDC
RUEHXR/RWANDA COLLECTIVE
UNCLAS SECTION 01 OF 02 NAIROBI 001637 

SIPDIS

SENSITIVE

SIPDIS

DEPT FOR AF/E, AF/EPS, EB/IFD/OMA
USAID FOR A - DAA/AFR WADE WARREN, AFR/EA JEFF BORNS AND
JULIA ESCALONA
MCC FOR KEVIN SABA AND MALIK CHAKA
TREASURY FOR LUKAS KOHLER
LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: N/A
TAGS: ECON EAID EFIN EPET ENGR KCOR KE
SUBJECT: KENYA BULLISH ON EXTRACTIVE INDUSTRY TRANSPARENCY
INITIATIVE AS OIL EXPLORATION SET TO BEGIN

Ref: 05 Nairobi 4090

NAIROBI 00001637 001.2 OF 002


Sensitive-but-unclassified. Not for release outside USG
channels.

UNCLAS SECTION 01 OF 02 NAIROBI 001637

SIPDIS

SENSITIVE

SIPDIS

DEPT FOR AF/E, AF/EPS, EB/IFD/OMA
USAID FOR A - DAA/AFR WADE WARREN, AFR/EA JEFF BORNS AND
JULIA ESCALONA
MCC FOR KEVIN SABA AND MALIK CHAKA
TREASURY FOR LUKAS KOHLER
LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: N/A
TAGS: ECON EAID EFIN EPET ENGR KCOR KE
SUBJECT: KENYA BULLISH ON EXTRACTIVE INDUSTRY TRANSPARENCY
INITIATIVE AS OIL EXPLORATION SET TO BEGIN

Ref: 05 Nairobi 4090

NAIROBI 00001637 001.2 OF 002


Sensitive-but-unclassified. Not for release outside USG
channels.


1. (SBU) Summary: Deep-sea oil exploration is scheduled to
begin in late-2006 off the coast of Kenya. In preparation
for a possible discovery, key donors and the Australian
company in charge of exploration are encouraging the
Government of Kenya (GOK) to start planning now on how to
avoid the "resource curse." In particular, they are
advocating GOK commitment to the Extractive Industries
Transparency Initiative (EITI). The initial response from
key GOK policymakers and the state-owned oil company to
EITI participation is strongly positive. End summary.

--------------
Deep-Sea Drilling Coming Soon
--------------


2. (SBU) Reftel provides background to an oil exploration
project in "ultra-deep" water 80 miles off the coast of
Kenya being carried out by an Australian firm, Woodside
Energy (Kenya) Pty. Ltd. Econ/C attended a briefing on
April 12 organized by the UK's Department for International
Development (DFID). The meeting included Woodside Kenya
General Manager Alex Taylor, who briefed on the status of
Woodside's oil exploration project. Also attending were
several senior Government of Kenya (GOK) officials, the CEO
of the National Oil Company of Kenya (NOCK),the country
representatives of the IMF and the World Bank, and
bilateral donor countries (Australia, Norway, U.S.). The
briefing focused primarily on Kenya's voluntary
participation in the Extractive Industries Transparency
Initiative (EITI).

--------------
What is EITI?
--------------


3. (U) Launched at the World Summit for Sustainable
Development in 2002, EITI seeks to prevent the "resource
curse" -- i.e. overvalued currencies, corruption, conflict,
and poor citizen-state accountability -- that has plagued

many developing countries rich in resources, such as
Nigeria and Angola. EITI does this by putting in place a
reporting infrastructure that generates transparency and
accountability in the receipt and use of revenues from
extractive industries like oil and gas. For those
Washington consumers unfamiliar with EITI and interested in
more details, the "EITI Source Book" and other information
are available at: www.eitransparency.org.


--------------
Drilling Deep for Oil in 2006
--------------


4. (SBU) The Woodside oil exploration project is moving
forward, according to Taylor, who said Woodside is close to
concluding a contract to hire a "fifth generation" deep sea
drilling ship, of which there are only 18 in operation in
the world. The ship will arrive in Kenyan waters and
commence drilling in 2,000 meters of "ultra-deep" water in
what he termed "severe oceanographic conditions" in the
fourth quarter of CY-2006. The company has already
invested $20 million thus far in the project, and once
completed, the first exploratory well will add another $70-
80 million to Woodside's investment - by far the largest
single foreign investment in Kenya in years. And that's
all before a single drop of oil flows.


5. (SBU) Woodside's project is high-risk, both from a
technical and financial perspective, said Taylor, and key
stakeholders need to start preparing now for both success
and failure. If the exploratory wells are successful, he
said, Woodside wants the Kenyan government to participate
in EITI, in which the company participates in other
countries. The meeting included a detailed briefing on
EITI by DFID representatives, covering both principles and
process.

NAIROBI 00001637 002.2 OF 002



--------------
Government Reaction Strongly Positive
--------------


6. (SBU) GOK reaction to proposed participation in EITI
was pleasantly and overwhelmingly positive. Referring to
the "poison chalice" of natural resources and noting that
"oil revenues are as clean as oil itself," the Legal
Director of state-owned NOCK made a strong pitch for Kenya
to sign on to EITI and to begin to establish the necessary
systems and processes for implementation. NOCK CEO Mary
Mukindia reported that her parent body, the Ministry of
Energy (not present at the meeting),had already expressed
its unequivocal support for joining EITI. It was then left
to three key Permanent Secretaries present from the
Ministries of Finance, Justice, and Environment to meet
later the following week to begin working out modalities.
All three, and in particular Finance PS Joseph Kinyua, were
strongly supportive and spoke as if GOK participation in
EITI was a given. Kenya Anti-Corruption Commission
Director Aaron Ringera gave EITI a ringing endorsement,
noting that its value was so self-evident that no self-
respecting politician or bureaucrat would dare oppose it.

--------------
Next Step: Yup, Do A Study
--------------


7. (SBU) Meeting participants agreed to quickly finalize
the terms of reference for a two-week "scoping study",
ideally to take place no later than May, to help the GOK
put together a work plan on implementing EITI. The World
Bank Country Director suggested that the GOK use the
occasion of the budget presentation, in early June, as a
deadline for the GOK to publicly commit itself to EITI
participation. Thereafter, the "set-up stage" of EITI
implementation could begin in earnest to ensure reporting
mechanisms are in place before any oil begins flowing.

--------------
Comment
--------------


8. (SBU) The devil as always will be in the details of
implementation, but the strong support shown by the GOK
representatives for EITI is good news indeed. Even if
Woodside doesn't strike oil at the end of the year, an EITI
mechanism in Kenya would be useful in light of other
developments in the natural resources sector, including a
soon-to-open titanium mine, and increased interest in
hydrocarbon exploration on the part of others, including
Chinese firms. There is no indication yet what EITI
implementation might cost, but it would appear DFID, the
IMF, and/or the World Bank will be willing to assist with
any capacity building needed to get the initiative off the
ground.
Bellamy