Why citizens must demand openness and good laws
Posted Monday, May 7 2012 at 14:48
The recent news that oil has been discovered in Turkana County has sparked a swathe of views advising Kenya on how to deal with its new found oil wealth.
Many have commented on the need to manage sky-high expectations, for a strong and credible national oil policy, for Kenya to join the Extractive Industries Transparency Initiative (EITI), and for immediate training of Kenyans to gain the technical skills the government will require managing complex contractual negotiations for oil extraction and transportation.
Most importantly, and even though it will be many years before oil flows, we have seen the beginnings of a vigorous and well informed national debate which started to draw on many lessons from other African countries, including Ghana, Nigeria, South Sudan and Uganda.
To promote transparent management of oil revenues and enable public scrutiny, a legal framework for oil revenue management would need to be considered.
In Ghana, from the public announcement of oil discovery in June 2007, it took nearly four years for the Petroleum Revenue Management Act to be passed.
The Act is now hailed as a world class piece of legislation, providing for the collection, allocation and management of upstream petroleum revenue, and defining a strong and transparent mechanism for monitoring oil receipts and for spending those revenues.
The Act requires the Minister of Finance to reconcile quarterly petroleum revenue receipts and expenditures and submit reports to the Parliament as well as publish the reports in the newspapers and online, and makes provision for four different types of audits of the petroleum accounts.
It also establishes the primacy of the national budget by prohibiting statutory earmarking of petroleum revenue to specific expenditures.
If it is faithfully implemented the Act will not only result in transparent oil revenue management but also improve public access to financial information more broadly in Ghana.
Another challenge is the volatility of international oil prices, which makes planning and budgeting for oil revenues difficult. World oil prices have been on a rollercoaster ride in recent years.
This means that if oil revenues comprise a significant portion of budgetary resources it will make it difficult to manage the expenditure program.
In South Sudan, where oil revenues typically account for around 98 per cent of the annual budget, this is a huge problem.
While Kenya will be far less reliant on oil revenues than South Sudan, having oil revenue stabilisation account can help to provide a buffer against short-term price fluctuations – the Ghana Stabilisation Fund provides a potential model.
But implementing such a mechanism in practice requires a strong political consensus that oil revenues should not all be spent immediately, irrespective of whether they were budgeted for or not.
Expectations will be particularly high in oil-producing areas. With huge wealth potentially lying beneath one of Kenya’s poorest counties, there will be pressures to distribute revenue flows from the oil-sector to oil producing areas.
The challenge will be to ensure that an adequate sharing arrangement is in place so that the people of Turkana realise tangible benefits from the oil.
International experience shows that well designed and implemented benefit-sharing can improve provision of key public services in areas affected by oil extraction.
But the converse is also true: poorly designed and implemented benefit sharing can breed resentment by local communities, even to the extent of generating conflict, as has been illustrated in the Niger delta in Nigeria.