Secrecy in oil deals breeds suspicion

As the standoff over revenue-sharing between the two levels of government and locals in Turkana County rages, the State maintains a tight lid on details of a formula it signed with Tullow Oil more than a year ago.

The stalemate plunges Kenya’s commercial oil production into a dilemma as the battle moves to Parliament to determine if locals will get five or 10 per cent of the ‘unknown’ ratio the government will share with Tullow. 

Petroleum Principal Secretary Andrew Kamau who remained upbeat most of last year before brakes were applied on the early oil pilot scheme, now says it will only restart when the Petroleum Exploration, Development and Production Bill passes.

“The scheme has not been postponed,” Mr Kamau responded to our queries.

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READ: WARUTERE: Oil revenue sharing tough challenge

TRANSPARENCY
Apart from the delay being blamed on lack of infrastructure to facilitate the trucking of crude to Mombasa, the bill still leaves out a critical component of such a venture: the production sharing agreement.

In fact, there is no clarity at just how much the government will take from the oil to share with the devolved unit and the community as the rest is left to Tullow Oil.

This lack of transparency makes a mockery of the revenue-sharing standoff that has ended up in Parliament twice in under one year and is likely to persist.

The government remains cagy on transparency calls regarding the production sharing agreements and Mr Kamau insists it is not a legal requirement to publish them.

However, Tullow says it has no problem making the details public.

“As we have stated, Tullow has no objections to the public discourse of its Production Sharing Contracts (PSCs) with the government,” the oil explorer said.

“Our experience in Ghana, where our PSCs are public, suggests that transparency in the oil sector is important. We declare all our payments to governments in line with the United Kingdom law and we will continue to do so.”

RATION
Revenue-sharing formulas make a critical component of transparency in natural resource management the world over.

It makes the country’s engagement with a foreign investor transparent and earns the operator a social licence from the country.

As much as the latest version of the Petroleum Exploration, Development and Production Bill specifies how the county and the community would gain from the share of oil revenue, the formula for calculating the exact ration the government will take and what Tullow will have remains a mystery.

What ratio will the government take from the total production and at what period?

What is the cost recovery formula for Tullow Oil, which has spent more than $15 million in phase one of the exploration?

How much will the explorer recover in the development phase? 

Ghana, where Tullow also operates, has taken steps to make the details of its oil deals available to the public.

DEVELOPMENT
Last year, the country launched an online petroleum register with information on its oil development projects.

Every page lists the joint venture partners involved, the relevant geographical data, fiscal agreements and contracts between Ghana and its investors. Why would Kenya fail to do the same?

While Ghana has been in the business for several years, experts contend that Kenya’s late mover’s advantage puts it in the best position to walk carefully on this path where other African nations have stumbled and fallen. 

“To go fast, you must go slow,” says Columbia University professor Janik Randon.

CONFLICTS
He believes there has to be a deliberate attempt by the country to approach transparency issues carefully for the business to sail smoothly.

For years, many African countries have followed a similar pattern of finding resources, rushing into production and ending up in bloody conflicts and economic inequality.

This is known as the resource curse, or the failure of countries to extract the full benefits of their wealth.

Countries have missed decades of economic growth when resources proved to be their undoing.

All are plagued by weak institutions and negative impact on quality of life. 

ECONOMY
From the highly populated Nigeria whose 37 billion barrels of oil have done little to address poverty to the less populated Equatorial Guinea, African countries continue to perform poorly, the Natural Resources Governance Institute says in its 2017 index, which measures how resources are managed.

So why is Kenya keeping the formula secret? Is it meant to protect contract confidentiality? Is there a legal loophole?

Kenya Civil Society Platform on Oil and Gas believes there is more than meets the eye in the hidden contracts.

It has been pushing for transparency of the deals in vain and now plans to go to court.

“Contract confidentiality is not a valid reason for the government to keep the deal secret.

"The default to secrecy is likely due to more nefarious reasons, including a lack of accountability to citizens and inclination to corrupt licensing,” the platform's secretary-general Charles Wanguhu said.

The lack of transparency also mocks one of Jubilee’s pillar into the 2017 election as it promised to promote transparency in the running of its affairs; this being a public resource management affair.