Publish Oil and Gas Contracts (KE0013)
Action Plan: Kenya National Action Plan 2016-2018
Action Plan Cycle: 2016
Lead Institution: Ministry of Mining
Support Institution(s): Ministry of Mining, Office of the Attorney General & State Department of Justice; Transparency International (TI - Kenya), Society for International Development (SID), Kenya Oil & Gas Coalition Hivos Foundation Institute for Law and Environmental Governance (ILEG)
Policy AreasExtractive Industries, Fiscal Transparency, Public Participation
Status quo or problem addressed by the commitment Companies engaged in extractives (largely foreign) have had a tendency of nondisclosure of prospecting information and revenues, seemingly accountable only to their shareholders. Since natural resources need to benefit entire ecosystems and value chain, new partnerships are required between government and natural resources industry to ensure that taxpayers receive every shilling they are due from the extraction of our natural resources. Such compliance will also ensure equitable distribution of proceeds from extractives and reduction of potential conflicts. Pro-active disclosure of information to local governments and citizens is also required to ensure better natural resource management. Main objective Improve natural resource governance systems to ensure transparency and accountability of the extractive sector. Brief description of commitment Disclose contractual information and revenues derived from the Oil and Gas Industry
IRM Midterm Status Summary
Title: 4. Publish Oil and Gas Contracts, including revenue information to ensure transparency and accountability of the extractive sector
Status quo or problem: Companies engaged in extractives (largely foreign) have had a tendency of nondisclosure of prospecting information and revenues, seemingly accountable only to their shareholders. Since natural resources need to benefit entire ecosystems and value chain, new partnerships are required between government and natural resources industry to ensure that taxpayers receive every shilling they are due from the extraction of our natural resources. Such compliance will also ensure equitable distribution of proceeds from extractives and reduction of potential conflicts. Pro-active disclosure of information to local governments and citizens is also required to ensure better natural resource management.
Main objective: Improve natural resource governance systems to ensure transparency and accountability of the extractive sector.
Brief description of commitment: Disclose contractual information and revenues derived from the Oil and Gas Industry
4.1. Adopt and implement a progressive and transparent policy and legislative framework for upstream, mid-stream, and downstream extractive activities: specifically publication of contracts within the Oil and Gas Industry
4.2. Make information on decision-making and financial flows related to the extractive industries publicly accessible and usable.
4.3. Hold regular meetings with civil society, private sector and County Governments to strengthen their understanding of EITI.
4.4. Hold quarterly reviews local and with other leading EITI champions to review progress and preparedness towards signing of EITI
Responsible institution: Ministry of Mining
Supporting institutions: Ministry of Mining; Office of the Attorney General & State Department of Justice; Transparency International (TI - Kenya); Society for International Development (SID); Kenya Oil & Gas Coalition; Hivos Foundation; and Institute for Law and Environmental Governance (ILEG)
Start date: 30 June 2016
End date: 30 May 2018
Context and Objectives
This commitment addresses transparency and accountability in the extractives sector. Kenya is a resource-rich country and the recent discovery of new sources of crude oil and natural gas increases the urgency for developing a transparent extractives policy.
4.1. Adopt and implement a progressive and transparent framework for extractive activities: specifically, publication of contracts within the Oil and Gas Industry
With the absence of a proper regulatory framework to ensure the country does not experience the 'natural resource curse,' the oil and gas industry is a fast-developing area of law in Kenya. The government has been establishing laws and regulations that will govern companies that have been allocated, or intend to apply for, oil-prospecting rights in Kenya. The exploration and production of oil and gas has been primarily regulated by the Petroleum (Exploration and Production) Act, 1986 Cap 308[Note95: Petroleum (Exploration and Production) Act, Cap 308, available at kenyalaw.org/lex/actview.xql?actid=CAP.%20308.] and its regulations. The Kenyan government has not previously produced national reports monitoring the implementation of public contracts. The absence of such reports hinders public scrutiny of contract implementation. Adopting a legal framework[Note96: Legislation that is crucial for governance of this sector include: Mining Act 2016; Constitution of Kenya 2010; Petroleum (Exploration and Production) Act, Cap 308; Energy Act; Environmental Management and Coordination Act (EMCA); Income Tax Act; Industrial Training Act, Cap 237; Occupational Safety and Health Act, Cap 514; Land Act, Cap 280; and Petroleum (Exploration and Production) (Training Fund) Regulations, 2006.] to publish oil and gas contracts could deliver better goods and services, deterring fraud and corruption and saving the Kenyan government time and money. The oil and gas sector has previously been shrouded in secrecy and publishing contracts would be a transformative move to open previously undisclosed information about contracting processes in oil and gas.
4.2. Make information on decision-making and financial flows related to the extractive industries publicly accessible and usable
With the recent oil discovery in Turkana County, stakeholders in the extractives sector have been calling for a comprehensive and consolidated legislative framework to help track revenue from the sector and enable Kenyans to understand its contribution to the economy. The Mining Act 2016[Note97: Kenya Gazette Supplement No. 71 (Acts No. 12) (Nairobi: The Government Printer, 13 May 2016) kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/MiningAct_No12of2016.pdf. ] was enacted in early 2016 to strike a balance between investor interest, public interest, and financial obligations to mineral rights holders. This milestone seeks to publish key information on decisions and financial flows in extractive sector, information that previously was not available. Therefore, if completed, this milestone could be a transformative move to make new information available and contribute to discussions on the responsible management of the extractive sector.
4.3. Hold regular meetings with civil society, private sector and county governments to strengthen their understanding of EITI
The Extractives Industry Transparency Initiative (EITI) is a standard by which information on the oil, gas and mining industries is published. The EITI Standard requires countries and companies to disclose information on the key steps in the governance of oil, gas and mining revenues, including contracts and licensing, production, revenue collection, allocation, public spending, and public benefit. It is relevant to the OGP value of civic participation. Its impact is coded minor because the scope of public participation is unclear. The milestone does not specify how often meetings will be held, the format for discussion, who will be responsible for convening them, and who will be invited.
4.4. Hold quarterly reviews local and with other leading EITI champions to review progress and preparedness towards signing of EITI
This milestone seeks to create an enabling environment that will lead to Kenya adopting the EITI Standards. The signing of the EITI will demonstrate the government’s commitment to enhance transparency and accountability in the extractives sector. Currently 50 countries are EITI compliant and a further three have committed to applying as candidates. Presently, Kenya is neither compliant nor a candidate country. This step has minor potential impact as its full implementation could be an incremental step towards strengthening accountability to stakeholders, especially communities affected by mining. As Kenya moves toward enhancing the effectiveness and proper enforcement of the petroleum and mining laws, an EITI pilot would be a major step forward.
4.1. Adopt and implement a progressive and transparent policy for extractive activities: specifically, publication of contracts within the Oil and Gas Industry – Limited
This commitment has seen some limited progress. The process to bring the Petroleum (Exploration, Development & Production) Bill 2017 before Parliament has been lengthy. A technical committee under the Ministry of Energy prepared this new petroleum Bill after reviewing the Petroleum Exploration and Production Act of 1986. On the 23rd September 2016, President Uhuru Kenyatta communicated to the National Assembly his refusal to assent to The Petroleum (Exploration, Development and Production) Bill.[Note98: https://citizentv.co.ke/news/uhuru-not-genuine-on-petroleum-bill-raila-150572/. ] Then, an amended version of the Bill was again proposed and went through the first reading at the National Assembly on 8 November 2017. It did not advance, and was withdrawn based on disagreement and errors in the draft over revenue sharing percentages. A new draft with revised revenue structures was republished and reintroduced to the National Assembly on 6 December 2017, and a first reading was scheduled for February 2018.[Note99: http://kenyalaw.org/kl/fileadmin/pdfdownloads/bills/2017/Petroleum_Exploration_DevelopmentandProductionBill_2017.pdf. ]
However, as this milestone is to adopt and implement extractives policy, it remains limited given that implementation remains in the early, preliminary stages. According to the Act, the government will establish the Upstream Petroleum Regulatory Authority (UPRA) and National Upstream Petroleum Advisory Committee (NUPAC). It also provides for awarding exploration blocks through competitive tendering. Additionally, the law requires the Cabinet Secretary to develop a framework for reporting, transparency, and accountability in the sector. This requires publication of all agreements, records, annual accounts, reports of revenues, fees, taxes, royalties and other charges, relevant data and information support payments made by a contractor and payments received by the national government, county governments and local communities. After an exploration company declares a commercial discovery, the Energy Secretary will approve the field development plan, which must be ratified by Parliament. In regard to revenue sharing, the national government will retain 75 percent of the profit from commercial oil and gas produced, with the host county government receiving 20 percent and the local community 5 percent. Later, the county governments will be expected to make laws forming a board of trustees and regulating cautious utilisation of the funds received.
Milestones 4.2., 4.3., and 4.4.
These milestones were not started in the first year of implementation. No measures were taken to publish information on decision-making or financial flows related to the extractive industries (4.2), the government did not assign an agency to organise regular meetings with civil society, private sector and county governments regarding EITI (4.3) and there is no publicly available evidence that quarterly reviews for Kenya’s preparedness towards EITI have taken place (4.4).
The Kenya Civil Society Platform on Oil and Gas (KCSPOG) wrote a letter to President Uhuru Kenyatta on transparency and accountability in the sector regarding contract information and management.[Note100: The Kenya Civil Society Platform on Oil & Gas, 'Kenya commits to implementing EITI' (KCSPOG, 6 Aug. 2015) kcspog.org/kenya-commits-to-implementing-eiti/.] Kenyatta then referenced the letter in an official statement. However, aside from an official mention, there have been no further outcomes.
There are no early results for these commitments. Prior to the action plan, the government implemented a comprehensive legal and policy framework to govern the oil and gas industry, but legislative gaps exist regarding the publication of public contracts with the oil and gas industry. The next step is to ensure proper and effective implementation and enforcement. Given the lack of progress on the other milestones, there are no early results available yet. This could be attributed to the transition of personnel within the Ministry of Mining, which has resulted in the key OGP champion being moved to another ministry.
CSOs respondents interviewed for this report believe that the Kenyan government should carry this commitment forward in its next action plan. They recommend:
To ensure that that royalties, mining revenue, and mineral rent management are in place, the government needs to establish an appropriate system to publish this information. This should include desegregating amounts going to subnational governments from those going to the national government and identifying the different types and sources. Specifically, list the names of the companies in their locality, the tax collections from each company, type of revenue, date of payment, place of extraction and computation of the subnational share.
The Ministry of Mining needs to ensure that information on contracts is made public in accordance with government policy through open contracting. This will require publication of contracts in the Open Contracting Data Standard (OCDS).
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