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. 
 
¶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