Transparency in the management of oil and gas blocks: a review of Kenya legislative framework

Nandako, Sheila
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Strathmore University
It is widely accepted that good governance and transparency in the extractive sector is the precursor to the realisation of economic and social growth. On the other hand technical and institutional flaws are a recipe for economic loss, resource curse or revenue leakage and low return. Kenya, in the year 2019, made an overhaul of its energy and petroleum laws in line with the constitutional dictates and response to policy and legal reform. The changes present a significant departure from the former regime that was restrictive and fell short of the internationally accepted standards and best practices. This research therefore aims at contextualising the reforms that have been introduced by the new energy and petroleum laws in relation to discretion given to the Cabinet Secretary in licensing of oil and gas blocks. In that regard, the research focuses on transparency in licensing, management and control of hydrocarbon blocks and hydrocarbon rights. Kenya’s new hydrocarbon blocks licensing regime represents a shift towards competitive bidding through bidding rounds. However, the Petroleum Act, 2019 offers no criterion or the manner of conducting such bidding rounds. Further, the new law still leaves much of the powers and discretion in licensing of hydrocarbon blocks with the Cabinet Secretary in charge of Petroleum. Such power under section 10, 18 & 126 of the Petroleum Act, 2019, creates opacity which could potentially lead to conflict between the community and the IOC and/or the Government and create avenues or conducive medium for corruption which could lead to economic loss and revenue leakage. The research therefore is premised on the view that having a transparent licensing regime on oil and gas blocks in a country diffuses avenues of corruption and potential conflict between the community and the IOC and/or the Government. Comparatively, to illustrate the potential for abuse in cases of weak governmental systems or flaws in a country's regulatory machinery, the research delves into the Nigerian case of Famfa Oil Limited. The case pits an indigenous Nigerian oil company Famfa Oil in the allocation of OPL 216 and its later conversion to OML 127 and the controversy over the “Back – in – rights” by the government. The research also borrows the comparative experience of Ghana as its legal regime is considered to be one of the few in Africa which has entrenched transparency and promoted accountability in the extractive industry and management of Hydrocarbon Rights. In conclusion, the research recommends a raft of changes and security measures (safety valves) to cure the flaws that exist and persist in the current law. The study suggests that the powers of the Cabinet Secretary should be truncated to minimise the effect of the slippery slope that such arbitrary powers harbour. It also recommends the definition and introduction of a clear cut procedure for calling and conducting bidding rounds to breathe certainty into the system and promote transparency; proposes that in the absence of competitive bidding powers for direct negotiation be vested in an independent authority. The research, in addition, borrows the concept of “Back-in-rights” and encourages the Kenyan parliament to legislate on the same to allow the Kenyan Government to maximise benefits from the extractive industry.
A Thesis submitted in partial fulfillment of the requirements of the Degree of Master of Laws, at Strathmore University
Oil and gas blocks, Kenya legislative framework, Transparency