Proposed IFC Investment in Africa Oil Corporation

Kenya

July 9, 2015

The United States welcomes this opportunity to discuss IFC’s proposed equity investment of up 

to $50 million in Africa Oil Corporation. The United States also welcomes IFC’s continued

commitment to expand the scope of its activities in IDA countries, more broadly.

The United States recognizes that recent discoveries of substantial hydrocarbon deposits have the 

potential to transform Kenya’s economy. 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. In this context, the United States is encouraged by 

the fact that the IFC is working closely with the World Bank as the latter assists the Government 

of Kenya build capacity, improve transparency, and put in place new regulatory policies through 

the Petroleum Technical Assistance Project. In the United States’ view, this is a good example of 

the IFC and the World Bank working as one World Bank Group.

The United States nonetheless has serious concerns with IFC’s proposed equity investment in 

Africa Oil.

First, the United States is troubled by 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. While the United States recognizes that there are extraordinary 

circumstances in which IFC must delay public disclosure due to market sensitivities, such lack of 

disclosure to the Board impairs its ability to exercise its fiduciary duties and should not be 

repeated going forward.

Second, given that this is an equity investment in a publicly listed company, 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 therefore expects that the IFC will closely monitor, and that the IFC’s policies will apply

to all aspects of Africa Oil’s operations, and that the IFC will promptly provide the Board notice 

of any adverse environmental and social impacts stemming from Africa Oil’s operations.

Third, 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.

Fourth, in terms of environmental and social (E&S) additionality, the United States is concerned 

that IFC feels as though an equity investment is necessary to put in place 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.

Again, while the United States recognizes the potential transformational potential of the South 

Lockichar project, the United States is not comfortable with IFC’s equity investment in Africa 

Oil. Given its concerns regarding how this project has been presented to the Board, the United 

States opposes this proposed investment and wishes to be recorded as voting NO.