Opinion::Bid to export crude oil without policies should worry us all

President Uhuru Kenyatta flanked by Deputy President William Ruto flags off the crude oil trucks

In true Kenyan fashion, last week’s flagging off of the first trucks of crude oil from the Turkana oil wells in what is dubbed the “Early Oil Pilot Scheme” passed casually, with the headlines more attuned to the dramatic events surrounding the NYS prosecutions.

That is not necessarily a bad thing. While the commencement of oil exports heralds the possibility of a new dawn in Kenya’s revenue space, the story of oil and its exploitation particularly in Africa has produced so much gloom as to invite distress, not celebration!

When I last wrote on the subject well over three years ago, I outlined the lessons that Kenya could learn from other oil exporting countries to avoid the “resource curse”.

The latter is a feature in many developing nations where instead of being a blessing, this resource has destroyed economies, ruined environments and brought devastating war to nations rendering the blessing a curse. While the curse concept draws one’s attention to the continents oil giants like Nigeria, there are numerous other examples especially in Central America where massive strife has accompanied great oil finds.

It is, however, also true that many countries have managed to secure expansive growth to their economies through a progressive utilisation of this rare resource. Countries like Ghana, though relatively young in the industry, have applied a more transparent and accountable policy framework while Europe’s Norway stands apart as one where the riches of its oil benefit not just today’s but also future generations of Norwegians through Sovereign Wealth Fund.

My first concern for Kenya is that we have started oil exportation without a sound legal framework.

While the Petroleum Bill was submitted to Parliament three years ago, incessant fights over revenue sharing have stalled it. Consequently, critical aspects of the management of the industry that ought to have been settled remain in limbo. Granted, an agreement on community benefit has been reached. The question of the revenue share for the affected County and local communities was delicate enough to have jettisoned the entire industry.

President Uhuru Kenyatta and Turkana Governor Josphat Nanok’s teams must be commended for getting this issue resolved. I do hope however that the proposal to cap revenue entitlement has been retained in the Bill. In the first draft of the law, the entitlement to a County had been placed at twice its last share of allocated revenue. For instance, Turkana which received Sh11.6 billion revenue last year would be entitled to a maximum of Sh23 billion in oil revenue this year in addition to its normal revenue share. That is a critical component of the revenue sharing agreement if we are to imbue equity in the resource revenue space and reduce inter-regional strife. But other critical issues remain unresolved.

The first is the transparency requirements for all activities in the sector. In progressive jurisdictions, the law requires all critical information including Production Sharing Agreements to be published and publicised. This is a critical bulwark against sleaze, a common feature of the oil sector. Other concerns relate to the institutional framework for the management of the myriad issues that oil exploitation raises.

These include licensing, supervision and oversight, environmental protection, including the short term and long term impacts of oil exploitation. Ideally these issues ought to be settled before the petro-dollars arrive. Even the institutional framework for ensuring that the community benefit is not cornered by the local elite requires early resolution! At the national level and the local level the issue of intergenerational benefit requires to be settled.

Sovereign wealth funds and similar instruments through which a portion of the revenues for the resource are sequestered for specific long term investments should ideally have been concluded by now.

or some reason our Sovereign Wealth Fund Bill was shelved a while ago without any explanation. That these issues remain unresolved while we have started exportation must cause worry. We must naturally celebrate the blessings of this rare resource. We must, however, ensure we finalise the policy and legal framework dealing with these and other issues lest our blessing mutates to a long-term curse.