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Why counties want bigger say in oil, gas operations

By Macharia Kamau | September 11th 2018
Workers at an oil field

County governments are seeking an expanded role in the oil and gas sector.

This is as the industry starts to gain momentum with the promise of becoming a critical economic sector in the coming years.

Through the Council of Governors (CoG), the devolved units have been pushing for increased involvement in policy making for the oil and gas sector, as well as policing the industry. These efforts have so far had mixed returns of success and failure.

Tipped for growth

The industry, whose only marked success has been Tullow Oil’s work in Turkana, has been tipped for growth, with preliminary surveys in Lamu and Kerio Valley indicating there are major deposits of oil and gas.

The push by counties to have more say in the sector is seen in the process of developing the legal framework where CoG made proposals to have counties play key oversight and licensing roles in the sector.

In submissions to the Parliamentary Committee on Energy during the public participation phase, the CoG had proposed several alterations to the Petroleum Bill, seeking to give counties major roles in the running of the industry alongside the national government.

Among the proposals by CoG are having a representative in the board of the proposed National Upstream Regulatory Authority, which is expected to play an oversight role for the sector once it is up and running.

“The submissions from CoG address the need to provide a meaningful consultation framework between two levels of governments on matters related to exploration of petroleum resources found in the counties, such as oil resources,” said a report by the committee chaired by Nakuru East MP David Gikaria.

“Secondly, it reiterates the need for deletion of the ‘cap’ provisions in the Bill related to the county governments share of revenues arising from the exploration of energy resources.

“There is need to recognise the role of county governments in upstream petroleum operations in line with their functions as provided for in the Fourth Schedule (of the Constitution), which is environmental conservation and disaster management.”

The governors also wanted clauses that would compel the Government to consult counties in the process of licensing oil and gas operators to explore and produce oil.

They had also wanted contractors to hand over data on an oil block when they are quitting operations. Such data is critical for carrying forward exploration works and can be used as a bargaining chip whenever a company is exiting or selling a stake in a block.

The Energy Committee accepted some of the suggestions by the CoG and is including them in the Bill, which has already gone through Parliament and is currently in the Senate.

Among the wins for the counties include getting a seat in the board of the planned Upstream Regulatory Authority and removal of caps on oil profits paid to counties.

In sharing resources, the Bill had previously said counties would be paid 20 per cent of oil profits that the Government got as long as it did not exceed their annual budgets. Allocations to the communities were also capped at 25 per cent of what the county is allocated.

The counties were, however, unable to get the Committee on Energy to increase the share of revenues to communities to 10 per cent. CoG proposals on getting certain levels of disclosures from the Government and oil contractors were also thrown out.

The counties were also successful in checking some of the powers that the Bill initially bestowed on the Cabinet Secretary. In some instances, the CS Petroleum and Mining would have had immense powers in areas like licensing firms and deciding areas that would be explored for petroleum.

Upstream regulator

CoG and stakeholders, however, proposed that the CS be required to consult other players, including counties and institutions that will be set up by the law, including the upstream regulator and the National Upstream Petroleum Advisory Committee.

The Petroleum Bill has been harmonised with the Energy Bill in the Senate and domiciled some petroleum functions into the Energy Bill, leaving the Petroleum Bill to handle crude oil.

This would mean that the Energy Regulatory Commission will continue overseeing the retail petroleum business, which includes transportation, storage, and sale of refined petroleum products in Kenya.

In the Energy Bill, ERC has been renamed the Energy and Petroleum Regulatory Authority. It is charged with regulating electricity as well as mainstream and downstream petroleum industries, with the exception of crude oil, which will be regulated by the Upstream Petroleum Regulatory Authority proposed in the Petroleum Bill.

The Kenya Civil Society Platform on Oil and Gas, however, wants petroleum functions transferred to the Petroleum Bill and fall under the proposed oil and gas regulator.

ERC will have to report to different ministries, especially when it comes to the issuance of licences and sector monitoring.  

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