Weak legal policy may lower country’s projected oil gain

When National Assembly Majority Leader Aden Duale applied sudden brakes on a planned debate on the Petroleum Exploration, Development and Production Bill over claims that several other clauses had been added to it, another slippery phase of Kenya’s journey to oil riches reared its head: legislation. 

A persistent barrier into any meaningful use of natural resources, legislative loopholes have time and again stood between countries and their mineral wealth. Often ignored in the rush to make money for the mostly poor countries, good laws make a key component in the transition towards making gains from these resources. 

That is why Kenya’s latest legal rut regarding the Petroleum Bill is a double-edged sword; cutting with the benefit of more time to get a better law while fuelling excitement over the black gold discovered more than six years ago in Kenya’s poorest county. 

PETRODOLLARS

The tussle is taking these twists even after news that a British firm, Wood Group, has signed a deal  to begin construction of an oil pipeline from fields in Turkana to the coast. 

It is not the first time the Bill has been aborted, a sign that Kenya may have to wait for longer to touch its first petrodollars.

Experts contend that the wait for legal framework may be better in the long run as newcomers in the oil game build expertise in the industry. Canadian upstream expert Professor Alan Franklin believes the availability of a properly trained local workers makes operations within the set legal frameworks easy, as the people engaged have a better understanding of the industry. 

The University of Athabasca-based professor says countries with natural resources like Kenya must ensure that firms do not push for rules that favour them alone and take the least possible responsibility after gaining from the resources. 

TRANSPARENCY

“At the bare minimum, no company should even start operations without showing that they comply with IFC performance standards, monitoring and transparency,” he said. 

His Columbia University counterpart, Professor Jenik Radon, who, as a lawyer, has been involved in multimillion dollar oil negotiations in Eastern Europe and Africa believes the countries have less to lose by moving slowly. They hold the advantage of the resources being beneath their own soil.  As Professor Radon says, if a country has the assets, the companies will come.

Professor Radon emphasises on a good legal framework as part of a critical foundation which must be achieved. 

“Build the laws and regulations. When Kenya is developing a new field, foreign investors should comply with Kenyan laws. If there is a gap in specific issue, a country like Kenya should use a reference law, a different country’s set of laws to fill the gap. Countries such as Canada, Norway, and the US have long histories of oil exploration and development and have built legal systems to ensure safety and environmental standards in oil development.  A country should never be in a position where corporations can exploit a legal gap at a country’s expense,” says Radon. In Radon’s view, emerging nations and their people, including Kenya, have the right to the same protective standards as the most advanced nations.

POLLUTION

Duale’s decision to abort the Petroleum Bill means Kenya is still without updated legislation for its oil sector. The delicate revenue sharing which dominated last month’s cultural festival in Turkana seems to be rearing its head again and Kenya’s legal quagmire leaves it with the 1986 Oil and Gas Act, which was drafted long before Kenya actually found significant oil reserves to think commercial. Reputable companies want secure policies. Right now, Kenya is making itself less attractive by not providing any. 

With the 800-kilometre pipeline construction becoming the next big thing in the country’s budding oil industry, it will be important to see how the environment will be protected. The environment is one of Kenya’s greatest gifts, and one of its biggest responsibilities. No extractive project is clean. Even pipelines built to the highest standards will leak, and mines will always tear up the landscape. The key is to continue enforcing high standards for environmental protection and to count environmental damage as a real cost. 

The price of resources can fluctuate, pushing some to extract what they can as quickly as they can. Professor Franklin warns that in the rush to beat these fluctuations, the environment is always a collateral damage.

HEALTH

“In a project that doesn’t take the environment into account, the worst-case scenario is an environmental disaster and a stranded asset,” he said. It does not pay off to play games with the planet and end up with a hopeless mess.

There is already precedent for the environment coming second to development goals. A portion of the Chinese-funded Standard Gauge Railway will run through Nairobi National Park despite protests. Mining projects in rural areas of Kwale and Migori have polluted water and raised public health concerns. Oil must not add to this mess and the earlier the matter is sealed through better laws, the better for Kenya.

Kenya has made considerable progress in laying a foundation in mining. Before 2016, the country’s only law governing mining was the pre-independence Mining Act of 1940. It had no provisions for fair revenue sharing and efficient waste management, making the 2016 Act a welcome update to a long-neglected sector. 

ROYALTIES

The new law outlines revenue sharing schemes which require Community Development Agreements (down to the number of elders that should be on the community council) and clears up issues of mineral rights and licenses. However, it cannot be fully operational until the Mineral Rights Board defines fees, charges, and royalties for mineral rights or minerals. Otherwise, it will be difficult to move the funds needed to meet the Act’s requirements. 

Edwin Okoth is a Nation journalist studying at Columbia University; Anastasia Grinberg is a final year Student at Columbia College, USA