Good governance key in exploitation of oil revenue

By Billow Kerrow

Kudos to the Energy Ministry! We have discovered the black gold and have every reason to get impatient for the petro- dollars. Oil has been known to create vast fortunes, industrial empires and has had profound influence on modern societies and politics. We can’t wait to be awash with dollars like the Arabs, and our cities should soon look like Dubai and Doha, and we should tell US they go jump into the sea because we will not need their aid anymore. Well, we will be an economic super power!

This is the perception oil discovery generates in most modern societies. The high expectations of benefits from the oil are the greatest challenge in most developing countries.

Unless we manage such expectations, it is likely to foment problems as perceptions around the oil revenues and its use is transparent. Much of the perceptions arise from the secrecy around oil discovery and its production. The perceived marginalisation by communities has led to rebellions such as the one in the Niger Delta, Nigeria.

Ever since the first oil well was drilled in the US nearly 250 years ago, exploration and extraction rights have generated controversy, just as much as its utilisation and influence on society, often perceived as a ‘resource curse’ in developing countries. The governments in these countries overestimate benefits accruing from oil resource when in fact the exploration companies enjoy nearly all the rights, often signed away during the exploration allocation process.

In 1901, a British gentleman by the name William D’Arcy won concession in Iran for exploration, extraction and sales of oil for £20,000 and a 16 per cent profit share, for a period of 60 years. In Saudi Arabia where oil was discovered in 1933 by US companies, it was only in 1950 when King Abdulaziz Ibn Saud threatened nationalisation that the US company, Aramco, allowed 50/50 profit sharing. Then in 1973, the government bought 25 per cent of the company, and only completed 100 per cent ownership of the company in 1980.

In some countries, governments own the oil, and opt for production sharing arrangements with these foreign oil companies through the national oil companies. This is the scenario in Uganda, Ghana and Nigeria, and likely to be adopted by Kenya. In others such as Norway, the private corporation that discovered the oil owns it but pays the government royalties and tax through and a license and tax regime. In democratic countries where the national oil companies are run as commercial entities rather than political, they have had better history of managing their resources.

Large oil revenues have tended to erode the need for popular mandate in some countries as governments use the huge cash to ‘bribe’ populations. Indeed, in the recent Arab spring, countries with oil fared better, as they utilised their wealth to silence critics. The former Saudi oil minister, Zaki Yamani once said ‘all in all, I wish we had discovered water instead’ because the oil wealth has distorted lives of citizens in producing countries through pursuit of material wealth and subservience to authoritative governments.

Oil also changes the geopolitical relevance, in the oil-rich versus oil-less status of a nation. For decades, the West de-democratised the Arabian Gulf because of its strategic oil reserves.

In Nigeria, Equatorial Guinea and Columbia for instance, the population has not even seen the ‘free money’. Angola pumps out 1.7 million barrels a day, earning $16 billion annually; but 70 per cent of the population lives on less than $2 a day. In Nigeria, which produces 2.5 million barrels daily, and earns $ 25 billion annually, 92 per cent of the population live on less than $2.

It is important that we focus on good governance where institutional checks and balances ensure accountability and transparency in government if the nation has to benefit from the oil. If we keep on course in our current constitutional dispensation, we have every reason to look forward to the good times ahead!

The writer is a former MP for Mandera Central and political economist