The United States Treasury Department has said no to the IFC’s proposed equity investment of up to $50 million in Africa Oil Corporation. In a statement dated 9th July 2015, The Board of The Treasury expressed ‘serious concerns’ about this particular investment by the International Finance Corporations.
While recognizing the importance of the recent oil discovery around Lake Turkana, The Treasury’s reservations were triggered by their observation of how mismanagement of the ‘windfall revenue from hydrocarbon production’ can cause more harm than good to a country’s economy. The statement says in part:
The United States appreciates that the development of a hydrocarbon sector is a key priority for the Government of Kenya given the sector’s expected contributions to economic growth, poverty reduction, and government revenue. The United States notes, for example, that the development of the South Lockichar project alone is expected to generate more than $1.3 billion in revenue per year during the height of production, or slightly more than two percent of current GDP, using 2013 data. As the United States has seen in other countries, however, windfall revenue from hydrocarbon production, if not appropriately managed, can also cause harm to an economy.
The Treasury lists four key concerns that have driven them to opposing the investment:
- IFC’s lack of disclosure to the Board of key documentation that would have allowed a more thorough assessment of the risks associated with this proposed investment, which is all the more troubling given the project’s potential – together with that of downstream pipeline and port infrastructure – for significant impacts on critical habitats and marginalized communities.
- The United States disputes the observation in paragraph 2.5 of the project document that aspects of Africa Oil’s other exploration activities, which may similarly be in critical habitats or land claimed by marginalized communities, fall outside the scope of the IFC’s proposed investment.
- the United States is concerned by what it views as a lack of sufficient financial additionality. The United States notes that Africa Oil, a predevelopment stage company with no
cash flow, is publicly listed on two separate stock exchanges, with a market capitalization of nearly $800 million, signifying ample investor demand given its potentially lucrative holdings. As such, the United States is not persuaded that the IFC’s investment is a necessary component of this project’s success.
- The United States is concerned that IFC feels as though an equity investment is necessary to put in place environmental and social (E&S) management systems when IFC’s performance standards should already apply to Africa Oil through the involvement of Helios Investment Partners LLP, Africa Oil’s largest shareholder and current IFC investee.
The United States government, thus, as represented by The Treasury, has entered a NO vote against this investment.
You can download and read the actual statement here…