Disclosures of oil revenues is a major issue when it comes to transparency in the oil and gas industry.
Tullow Oil, the British exploration firm which claims to have spent nearly Sh200 billion recoverable from proceeds of oil sales, says it has no problem publishing its production sharing contracts.
The government, however, insists on maintaining secrecy, and has made no effort yet to audit the reported expenses incurred by Tullow.
This is a Q&A with Mr. Joe Watson Gakuo, Founder, Upstream Awards, to try and further explore production sharing contracts disclosure in Kenya.
Do you think the laws are extensive enough to offer clarity on disclosures of oil revenues?
The issue of transparency in the oil and gas industry is important and critical in the management of these resources.
I strongly believe that as a country, we are on the right path especially following the enactment of the constitution in 2010 which provides a robust regulatory system as far as access to information and management of natural resources is concerned.
There already exists a publicly available oil and gas production sharing contract. However, signed contracts have not been disclosed and this might be because of the existing confidentiality clauses in those contracts between the operators and the Government of Kenya.
The proposed Petroleum (Exploration and Production) Bill lays the foundation for a framework towards reporting, transparency and accountability in the upstream petroleum sector which includes the publication of all petroleum agreements.
Disclosures of oil revenues; Are demands for revenue sharing plausible?
In principle, I do agree with them, and as things stand, the government, in the amended petroleum bill, adopted the revenue sharing formula that seems acceptable to all parties.
The discussions and politics of revenue sharing has been a thorny issue, not only in Kenya, but globally, across many jurisdictions.
We must also not forget that oil, like any other natural resource which includes minerals is a national asset that should benefit all Kenyans through revenues, and taxes which is distributed through the budget. Caution is therefore necessary when approaching this issue.
What we must do as a country is to never allow the resources that God has bestowed on us to be the course of conflict. We must defend our unity and harmony with everything we got, and ensure that we handle these kinds of discussions with care and exhaustive consultations.
What can be the best way of bridging this divide?
One thing that came out clearly during that debate is the need for the stakeholders to have exhaustive consultations in developing policies. Also important is proper sharing of information especially with local communities where oil and gas exploration is going on so that they can well understand how the resource will benefit them directly.
Finally, it is unfortunate that this debate seems fixated on the formula. What we should be having as a country is a wider debate of what constitutes an efficient, fair and a stable resource revenue sharing regime in oil, gas and mining sectors.
It is important that more focus be put into the design and implementation of the revenue sharing regimes. In countries where this has been in place, it has been shown to lead to great deal of wasteful public spending, exacerbation of regional inequalities, or even escalation of violence.
Is Tullow Oil hiding under the regulator disclosures in London?
This is very interesting. On one part, Tullow Oil has indicated that it is committed to transparency, and on the other part bound by contractual and confidentiality obligations with Government of Kenya.
However, it is worth noting that Tullow Oil has published copies of the Petroleum Agreements for their contracts in Ghana. I would therefore expect them to publish the production sharing contracts signed in Kenya.
This needs but the support and agreement of the Government of Kenya who are their partners in the PSCs, and citizens’ custodians in these agreements. The new exploration law will make this a bit more open.
Is the Kenyan crude oil export venture viable?
We have witnessed a recovery of the crude oil prices from the lows of $30 per barrel to the current prices which are above $65 per barrel currently.
The ministry officials are on record saying that Kenya would make a profit from sales of crude oil at $34 per barrel. Based on that, the current crude oil prices makes the venture very viable.
Disclosures of oil revenues from the ministry of energy and petroleum in Kenya would be welcome. This would allow for comparative analysis.
Entry of Total into Kenya’s Upstream Sector
It is not the first time Total has shown interest in Kenyan upstream assets, but what would be important is to understand their larger regional strategy. This would inform what cause of action they might take.
However, they are just one of the partners meaning Tullow Oil and the Government of Kenya will play a significant role in the development of the Turkana oilfields as well.
Total also bought significant stake of Tullow Oil’s Ugandan interests. I am not suggesting that they might buy out Tullow Oil’s interest in Kenya, but it is a possibility, and that would make things a bit interesting to watch were they to become the operator or joint-operator in Kenya.
Should Kenya transport crude oil through Hoima-Tanga route?
I do not support the idea of transporting Kenyan crude oil through Uganda. It is easier to link crude oil from Hoima to Turkana then Lamu than having a back loop from Turkana to Hoima then through Tanga port.
But again, I could be biased in favour of Kenya. The real wildcard in this is whether the idea of building the Hoima – Turkana – Hoima will be revived by Total, and ditching Tanzania altogether. Let us wait and see what unfolds.
South Sudan into the East African oil mix
I do not see it as a disruption. It would actually be a great move towards the regional economic integration. South Sudan has been a prolific oil producer.
However, politics have been central to the progress of their oil industry and they are dependent on a pipeline through their hostile neighbours Sudan to export oil.
With oil being their main source of revenue, am sure they would be keen to have an alternative export route, and the Lokichar-Lamu oil pipeline would provide a great link for them.
The pipeline would carry a projected 450,000 barrels of oil a day from Juba.