Publish Oil and Gas Contracts (KE0013)

• Lessons from Reformers: Kenya Makes Public Procurement Open and inclusive (April 1, 2020)

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

4. Publication of oil and gas contracts

Commitment Text:

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

Milestones:

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.

Completion

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.}

Early Results

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.

Next Steps

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).

4. Publication of Oil and Gas Contracts

Commitment Text:

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.

Milestones:

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
2. Make information on decision-making and financial flows related to the extractive industries publicly accessible and usable.
3. Hold regular meetings with civil society, private sector and County Governments to strengthen their understanding of EITI.
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

Commitment Aim

Kenya is a resource-rich country, and the recent discovery of crude oil and natural gas increases the urgency for developing a transparent extractives policy. This commitment aimed to create the necessary legal framework for disclosing contract information and revenues derived from the oil and gas industry.

Status

Midterm: Limited

By the midterm, this commitment saw limited progress on Milestone 4.1. This was attributed to the transition of personnel within the Ministry of Mining, where the key OGP point of contact was moved to another ministry. The Petroleum Bill did not advance and was withdrawn based on disagreement and errors in the draft related to 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. Milestone 4.2 was also incomplete by the midterm, as the Ministry of Mining made no progress on releasing data, contracts, or financial information. At that time, the government needed to establish the appropriate system to publish revenue information and ensure that contract information is made public and meets.

Milestones 4.3 and 4.4 were not started by the midterm. The government did not assign an agency to organize regular meetings with civil society, private sector and county governments regarding the Extractives Industry Transparency Initiative (EITI), and there is no publicly available evidence that quarterly reviews for Kenya’s preparedness towards EITI have taken place. For more information, please see the 2016–2018 IRM progress report. [60]

End of term: Limited

Implementation remained limited by the end of term. For Milestone 4.1, the Petroleum (Exploration, Production & Development) Bill, 2017 was tabled in January 2018 before the National Assembly. The Departmental Committee on Energy held public hearings and accepted memoranda from the public in March 2018. The National Assembly passed the Bill in July 2018, and it proceeded to the Senate in August 2018. However, the Bill was delayed in the Senate due to ongoing negotiations between the President and the Turkana County Governor on the issue of revenue allocation. On 19 May 2018, an agreement was reached where the national government would take 75 percent of the revenue, while the county government would take 20 percent, and the local community would take 5 percent. The agreement removed the previously contentious caps in the 2015 Bill that would have limited the county and community allocations based on the amounts received from the national government in the fiscal year. At the Senate, the Petroleum Bill proceeded to the committee stage in August 2018, and the Committee on Energy held a public hearing and called for memoranda between 21 and 22 August 2018. [61]

The Petroleum Act was subsequently passed and received the President’s assent on 12 March 2019. [62] The Act addresses petroleum agreements in sections 17, 18, and 19. Although the law makes some provision for transparency (e.g. where the Cabinet Secretary intends to negotiate directly with a contractor, he must publish a notice of this intention in the Gazette and invite objections [63]), it does not require that oil and gas contracts must be published.

According to the Chief Executive Officer of Upstream Oil & Gas Ltd, the 2018 Local Content Bill [64] could also provide a legislative framework to facilitate the local ownership, control, and financing of activities connected to the exploitation of gas, oil, and other petroleum resources, in line with Milestone 4.1. [65] This bill introduces several rules and guidelines into Kenya’s upstream oil and gas industry as a means of protecting and promoting local growth. These include:

• Enhancing the participation of local persons in extractive industry value chain,
• Facilitating the development of a competitive, capable, and sustainable labor force within the extractive industry,
• Enhancing local ownership and use of local assets and services in the extractive industry, and
• Maximizing value addition through local content development and local participation in extractive industry operations.

Milestones 4.3 and 4.4 on EITI remained not started at the end of term.

Did It Open Government?

Access to Information: Did not change

Civic Participation: Did not change

Prior to the action plan, the government implemented a comprehensive legal framework to govern the oil and gas industry. The upstream oil and gas sector were governed by laws such as the Constitution of Kenya, the Petroleum (Exploration and Production) Act regulations made under the Petroleum Act, and the Ninth Schedule to the Income Tax Act. However, legislative gaps existed in these laws regarding the publication of public contracts with the oil and gas industry. The passage of the Constitution of Kenya, 2010 ushered in a new era of natural resource governance and management in Kenya. Hydrocarbons and crude oil, which had previously been the property of the state, are now the property of the people of Kenya (managed for them by the State). To effect the Constitutional change relating to natural resources, the National Assembly in 2013 first introduced the Petroleum Bill, 2013. The 2013 Petroleum Bill, 2013 sought to repeal the Petroleum (Exploration and Production) Act that commenced in 1984. Since 2013, there have been four legislative attempts to obtain a new oil and gas legal regime in Kenya. The latest attempt was in January 2018.

Milestone 4.1 has not led to improvements in access to information or civic participation because the Petroleum Bill, 2017 is yet to be passed. The objective of the Petroleum Bill is to regulate the negotiation and conclusion of petroleum agreements by the government relating to the petroleum operations. However, when passed, the law could provide for public participation and involvement framework, especially for the local communities and in revenue sharing, and would also enhance revenue management from the extractives sector.

Carried Forward?

This commitment has not been carried forward to Kenya’s next action plan. It is recommended to carry this commitment forward into the next action plan with steps taken to publish information on oil and gas, particularly given how important these are now in Kenya.