Speech during the 2nd Annual East Africa Oil and Gas Summit
Oil & Gas revenue has the potential to significantly change the economies of any region
Ladies and Gentlemen, Let me take this opportunity to most sincerely thank the organisers of this summit, Global Event Partners, for setting up today’s prestigious conference. This year’s meeting promises to be even bigger and better than last year’s and the BHC are happy to be supporting partners for the second year in a row.
As oil men, you are probably a bit worried to have a diplomat address you. I was worried too! So I set about doing a little research into what exactly was required of me. Now I should share with you that my career has taken me from nuclear power in Japan, to military strategy at NATO, to territorial disputes with Mauritius.
But never much oil.
I thought I might find inspiration in a new comedy series, ‘Ambassadors’, that began on British television last week. ‘Ambassadors’ traces the trials and tribulations of the newly appointed British Ambassador to the oil-rich nation of ‘Tazbekistan’. Surely here I’d learn what I was supposed to do. In the first episode, Her Majesty’s representative to the Tazbek people ends up accidentally shooting the national antelope on a Presidential hunting party (which, incidentally, he successfully blames on the French) and then gets blind drunk at a feast where he is required to raise 9 toasts. Unfortunately, the French then snuck the helicopter contract everyone was chasing….
Upon reflection, this was not altogether helpful preparation, but it did make me grateful that the only drink to hand is coffee and the only toast we shall enjoy this morning is that upon which we have spread our marmalade.
In all seriousness, my first experience of Kenya was over twenty years ago in Turkana as a researcher. This means that, despite my inexperience in the oil sector, I find it a huge privilege and excitement to be here in East Africa right now. So much has already changed – mobile phones were almost unheard of 20 years ago - but the pace of change is only accelerating, and it is your sector that will drive much of the change that is yet to come.
There are three messages that I’d be keen for everyone here to take away.
Development of the hydrocarbon sector has to be done right – Transparency is Key
Oil & Gas revenue has the potential to significantly change the economies of any region. Indeed the North Sea has played, and continues to play an important role for the UK economy. But the wealth the sector generates is not an unmitigated blessing and needs to be managed carefully if it is not to create distortions. And this needs getting right first time – as the first time is the only time.
Everyone here will be painfully aware that security is always a concern for an industry that relies on what are necessarily geographically immobile capital intensive investments. Everyone has to have a stake if the hydrocarbon sector is to contribute to, rather than detract from, a region’s stability. The north of Kenya remains an area with unique challenges and so, whilst the opportunities are great, there are self-evident risks that remain. Events of the last month have only served to underline this.
Expectation management will be key to containing this risk. We all need to work together to set expectations for the oil and gas industry at the correct level. Too low – and there won’t be the push to make things happen, and the sector may not develop. Too high – if any of us paint too rosy a picture of a Norway on the equator, with jobs for everyone – then we ultimately risk alienating the very communities that stand to benefit most from the wealth you generate: and this may ultimately undermine the wealth creation process you lead. Transparency is absolutely central to this. That is why my Government is so supportive of efforts like the Extractive Industries Transparency Initiative: whereby firms register what payments they have made to Government, and Government reports what payments it has received. This is a simple principle, but one that I know to be enormously effective from my own experience of asking my eldest son to administer the division of pocket money with his siblings.
If this all sounds rather gloomy, it isn’t meant to. It is clear that the oil and gas reserves that are being proven up in the East African region have the potential to transform the economies of the countries concerned, far beyond the extractives sector. It is only to say that realising this potential is never a foregone conclusion. In this regard, the UK Government’s international development ministry, DFID, has funded a seminal study by the independent Adam Smith Institute which provides concrete recommendations on how to get things right in Kenya. ###Need to be a whole of Government approach
This leads me onto my second point. Getting development of the hydrocarbon sector right necessitates a whole-of-Government approach here in Kenya. Making the most of the potential that recent discoveries have highlighted will involve more than simply the Ministry of Energy or the Ministry of Mines – excellent though they may be. The Government here in Kenya has rightly identified this lesson and is developing cross-Government coordination.
This is hugely important, especially in the early stages of the sector’s development. For example, we need to make sure that tax regimes encourage investment and exploration and only seek to generate revenue once the product is flowing. This is the way to maximise government income in the longer term. Elements of the press should not stand uncorrected in their assumption that the East African hydrocarbon sector is a license to print money. As many of you who are involved in exploration will testify, in the early stages – which can last for years – it is rather a license to spend it.
It’s not been fashionable to say this in the West for a few years now, but developing the provision of financial services in East Africa will be an enormous spur to the oil and gas sector. To the extent that financiers can develop tools to help Governments raise funds to make the necessary investments to enable oil and gas sector developments, for example, LAPSSET, they will make a significant contribution towards growth and, of course, future tax revenue. These investments might be in infrastructure, but they might equally be in skills and training to ensure that you can turn to local labour markets as you ramp up employment.
Political focus will be required, but I’m confident that Kenya’s government is sufficiently sophisticated to enable it to develop as the regional hub of the oil and gas sector, even if it’s reserves aren’t the largest.
As the British High Commission works with Kenya to develop this sector, we have adopted a similar cross-Government approach, involving our political, trade and investment teams, as well as colleagues from DFID, DEFRA, DECC and others.
We can help
This takes me to my third and final point. The UK is well placed to work with partners as the oil and gas sector develops in East Africa.
Now, I know that such an offer of help may sound frightening coming from a Civil Servant. I think it was Ronald Reagan who observed that the nine most frightening words in the English language were ‘I’m from the Government and I’m here to help’. However I mean it as a representative of the ‘UK plc’ rather than Her Majesty’s Government
The Oil and Gas industry is one of our greatest industrial success stories. Several decades of impressive and profitable exploration and production of the North Sea Oil and gas reserves have provided the UK with expertise in all aspects of exploration and production. We can also bring excellence in a whole range of specialist supporting industries such as finance (and I think here in particular of our work with Financial Services Development, Kenya), law, education, safety and training. The latter is a particular strength in the UK, with several truly world-beating universities in the field. In all of this, our watchword will be ‘Partnership’: only what truly benefits Kenya will benefit the UK and UK firms over the longer term.
We’re already seeing Partnership here in Nairobi. A fellow British Citizen has recently spearheaded the development of oil and gas safety training courses here in Nairobi. This means Tanzanian oil executives operating offshore rigs will soon send staff to Kenya for training, rather than Dubai. All will benefit.
Out in the field, I’ve almost lost count of the number of UK firms drilling and exploring both on and offshore. They range from the smallest of smalls to FTSE 100 firms. All want to work with the grain of your Government, Commissioner. And those with listings on the London Stock Exchange will be striving to meet the very highest standards of CSR demanded by our institutional investors.
Conclusion
You must remember that when drafting this speech I was scheduled to be sat next to the Treasury Cabinet Secretary. So please forgive me, in conclusion, when I wish you all a very successful conference and success in your endeavours; I hope that you will contribute to those societies in which you work; that make large amounts of money; and then pay a considerable amount of tax!