More transparency needed in the oil sector

Last week Tullow Oil reported that one of its wells in Turkana, Ngamia-1 in block 10BB, had already begun producing 281 barrels per day following a drill test. With increasing evidence of the commercial viability of the wells comes the need to make sure that Kenya does not come under the “resource curse” like many of our neighbors in Africa. For Kenyans to benefit from the oil find, we absolutely must get a few important things right. Top of the list is making sure there is a great deal of transparency in the regulation of the oil sector. Deals between the Government and the oil explorers, and eventual operators, have to be made public. Parliament must ensure that the Government gets the best deals for Kenyans. Africa is replete with examples of countries where resource wealth accrues to a few individuals at the expense of the public. Kenya must not join this list of countries.

If and when the wells in Turkana and other exploration sites become operational, a lot of investor money will flow into Kenya. If not managed well, the rapid inflow of cash might result in the “Dutch disease,” a case where foreign investment in the country increases the value of the Shilling so much that our commodity exporters become less competitive internationally. The last thing Kenya needs is for the oil discovery to cause a decline in our vibrant agricultural sector. On this score we can learn from Botswana and Norway, two countries that have been successful at using their resource wealth for the benefit of their people through sound policy. We need not look far for lessons on what not to do. Nigeria and Chad provide clear examples of how much resource wealth a country can lose due to corruption.

Our next-door neighbor Uganda is a caution on the cost of having an opaque oil sector concession process. I am presently in Ghana doing consultancy work on projects to increase transparency in the oil sector and I believe we as Kenyans can learn a great deal from the Ghanaian experience since the discovery of commercially viable oil in 2007.

Ghana’s Petroleum Revenue Management Act (2011) has guidelines on revenue management and transparency. It created a dedicated Petroleum Holding Fund for all receipts of oil revenue and two long-term funds (the Stabilisation and Heritage Funds) into which it will deposit 30 per cent of annual revenues from the oil sector, with 70 per cent used in the budget. The law also requires all revenue receipts from oil and gas to be gazetted within 30 days to ensure transparency. Before enactment of this law, the Government of Ghana had a robust engagement with civil society and international organisations working on transparency initiatives. The Civil Society Platform on Oil and Gas, an umbrella group of civil society organisations, is dedicated to ensuring transparency in the management of the country’s oil and gas sector. Since 2010 the country has been a member of the Extractive Industries Transparency Initiative, an international organisation that works to promote transparency in the management of natural resources. Ghana offers good lessons that we can learn from as we set up our own oil sector regulatory environment.

For starters, we need to review the Petroleum Exploration and Production Act of 1986. The current law gives the Cabinet Secretary in charge too much discretionary power. The confusion created by the recent introduction of the “Mwakwere rules” in the mining sector should serve as a cautionary tale. The renewed law should ensure greater parliamentary oversight in the management of oil revenue, provide for transparency and public access to contract information, and create a fund or funds to guarantee short-term monetary stability and save for future investments.

Kenya’s oil sector is still young and has an uncertain future depending on whether there will be more discoveries of commercially viable wells. One advantage that we have as a country is the fact we discovered oil after having set up strong institutions. It is our duty as Kenyans to ensure that the management of the oil and gas sector is also institutionalised to make it work in the best interest of the Kenyan people.