By Achola Kevin
Kenya is at a critical stage in the drive to become an oil producer. This will bring in varied interests from all over the globe. It has the potential to give a huge impetus to the economy and well-being of the country. Extractive resources can also prove very destructive if mismanaged. Kenya must therefore safeguard the resources within its borders and the resulting revenue.
According to the World Bank, Kenya has a Gini coefficient of 47.7. This places Kenya amongst the world’s most unequal countries. Norway on the other hand, has a Gini coefficient of 25.8 placing it amongst the world’s most equal countries. Norway has steadily risen since Norwegians took control of their hydrocarbon resources half a century ago. The wealth from these resources has been used to the benefit of all. This is largely due to a prudent base with respect to policy and citizens’ constructive participation in government.
When petroleum activities started in the 1960s and 1970s, Norway had close to no knowledge on the petroleum industry. This is precisely where Kenya finds itself today. We, however, have the benefit of learning from other people’s mistakes including the terrible practices that have seen oil related conflicts lay waste to entire peoples and ecosystems. Continentally, we have several examples from which we can learn what not to do. Dialectical materialism shows that most actions have predictable outcomes. Therefore, what we do now with Kenya’s abundant resources will affect us in the long term and, mostly, in a predictable ways.
Hindsight shows that when public interest is kicked out of policy discussions and ruthless business promotion is allowed at all costs, the backlash always proves devastating. By definition, a business venture overwhelmingly strives to make profit. The encompassing objective of a business is to maximise its gains. It will do all in its power to achieve this. This includes looting a country dry if given the chance and causing environmental and human loss in the process. Examples of multi-nationals devastating Africa’s land while maximising their profits include the activities of Royal Dutch Shell in Nigeria. The Ejama-Ebubu spill case and the history of the Ogoni people versus Shell come to mind. (Ken Saro Wiwa narrated the Ogoni people’s story in detail.)
Governments take part in resource exploitation to deter the exploitative tendencies of multinationals and ensure equitable benefits to the citizenry. The Geneva Convention of 1958 requires national governments to hold exclusive rights to exploit resources found in their respective countries’ both onshore and offshore. A government, therefore, is responsible for the overall social considerations for those in its jurisdiction while a company has profit as the final goal.
A government must be involved with long-term social concerns and monitoring companies which might otherwise disrupt the country’s social goals. In Norway, the state directly owns interests in a number of oil and gas fields, pipelines and onshore facilities so that it can take on the risk and costs as well as benefit from the economic rent.
2. Exploring oil and gas in Kenya
In Kenya, National Oil Corporation (NOC), which incorporated in April 1981, has a mandate to participate in all aspects of the petroleum industry. According to NOC, petroleum exploration in Kenya begun in the 1950’s and the first well was drilled in 1960. British Petroleum and Shell began exploring in Kenya in 1954 in the Lamu Embayment where they drilled ten wells. In 1975, several consortia acquired acreage in the upper part of Lamu Basin. Texas Pacific and its associaites drilled Hargaso-1 in 1975 and encountered oil and gas in cretaceous rocks. In 1976, Chevron and Esso drilled the Anza-1 and Bahati-1 wells in the southern part of Anza Basin.
In 1986, the petroleum exploration and production legislation in Kenya was revised. In 1986, the government of Kenya entered into a joint venture exploration programme with Petro-Canada International Assistance Corporation. Between 1985 and 1990, Amoco and Total led a group of companies which drilled ten wells, eight in Anza Basin and two in Mandera Basin.
In August 2000, the National Oil Corporation commissioned the Tertiary Rift Study that was completed in March 2001. The study led to the quantification of potential sources and reservoir rock units in the study area as well as the evaluation of the petroleum system in the sub-basins. In 2012, British-based Tullow Oil said it had established more than twenty meters of net oil pay, a possible precursor to oil exploitation in Kenya.
3. The Norwegian model
On September 9, 2014, at the State House in Nairobi, Norway’s new Ambassador to Kenya, Victor Conrad Ronneberg, presented his credentials to President Uhuru Kenyatta. As the government of Kenya had previously contacted Norway about best practices in managing natural resources, at the State House, Ambassador Ronneberg praised Kenya for showing interest in how Norway manages its oil and gas resources. “We are considering a long-term agreement with Kenya’s Ministry of Energy and Petroleum on effective and socially responsible management of petroleum resources,” Ambassador Ronnenberg said.
Bravely assessing a country’s position then juxtaposing it with countries once in similar conditions is prudent. The assessment can inform the entrant on what to emulate and what not to do. What is the use of inventing the wheel when you can just improve on what already exists?
Norway started its journey by laying out a simple people-based oil policy and Ten Oil Commandments that guide Norwegians. According to Stortingsmelding 1971, two of Norway’s ten Oil Commandments state that national management and control must be secured over all operations on the Norwegian continental shelf and petroleum discoveries must be exploited in a way that minimizes Norway’s crude oil dependence on other countries. The goal was to achieve a qualitatively better and equal society.
According to Extractive Industries Transparency Initiative, petroleum activities have been crucial for Norway’s financial growth and to financing the Norwegian welfare state. Over forty years, petroleum production on the shelf has added more than NOK 9000 billion (about 126000 billion KES) to the country’s Gross Domestic Product (GDP). In 2010, the petroleum sector represented 21 per cent of the country’s total value creation. Norway’s value creation in the petroleum industry is more than double that of the land-based industry and about fifteen times the total value creation in the primary industries.
Norway’s net cash flow goes into the Petroleum Fund which is now called the Government Pension Fund-Global. The government of Norway uses some of these funds to balance the national budget using the “4 per cent fiscal rule.” Along with the return on these investments, Norway saves the rest in international portfolio investments. With high oil prices and a large fund, the capital increases rapidly.
If Kenya adopts people-based thinking, akin to what Norway did at the inception of its oil and gas exploitation, we might expect our resources to work for us. However, if we let neo-liberalisation drive us, instead of people-cantered policy, then our resources will definitely work against us.
4. Establishing policy for posterity
Like Norway, Kenya must keep its people first in all of its policies. The government must prioritize the most disadvantaged people. Oil and gas exploitation bring with it challenges. Kenya lacks capacity, yet the country must deliberately empower itself with desirable policies. Without affirmative action to encourage local participation and locals’ eventual takeover of these industries, there will be chaos arising from the oil. The areas of participation include policymaking, downstream activities and upstream activities. Do not forget revenue harvesting and enjoyment.
The internationals should show us how to do it. They should not come do it for us. The energy sector activities promise Kenyans abundance, prosperity and self-reliance. Attaining these promises demands a comprehensive policy framework and avoiding the familiar and tragic experiences of oil and gas rich countries. Not only their business interests, but all of Kenyans’ aspirations, should be fulfilled. The policy framework should lay out a clear base for handling hydrocarbon resources. Major areas of consideration include institutions, revenue, legal frameworks, and environmental considerations.
We must be alive to the fact that extractive energy resources are finite, yet they can cause protracted loss of life, disruption of life and environmental damage. Soon hydrocarbons and mineral resources could account for 20 to 30 percent of Kenya’s GDP and more than half of its total exports.
The government is currently grappling with the 2014 National Sovereign Wealth Fund (KNSWF) Bill. The bill establishes this fund to address the pertinent issues of intergenerational inequalities, use the fund to stabilise the budget, protect the country from revenue volatility, and prevent the economic pitfalls of overemphasizing and mismanaging the extractive industry.
Long-term needs of the country, not short-term partisan political goals, should inform the management of these funds. The executive should be limited in the role it plays in the fund so that the constantly shifting machinations of politics do not affect the fund. The only political role that the fund must play is to economically and geo-politically strengthen the country and its citizenry. The KNSWF Bill should contain clauses that institutionalize public accountability and participation. Policymakers must find ways that limit the harm which short-term political manoeuvres, so common in resource rich African states, may cause the fund. KNSWF is targeted to start with a capital injection of KES 10 billion the source of which will include, but not be limited to, privatisation proceeds, state corporation dividends and revenue from the extractive industries. It is easy to see that the mainstay of the fund will be the extractive industry with gas and oil at its centre.
Through their duly elected leaders, supervision and policy must remain a domain of the people directly. These policies should create jobs for the locals and ensure that maximum revenue remains in the country. The energy mix of any country is a reflection of policy, politics, and opportunities in that country. Energy is, has, and will always be a political subject. Engineers, however, remain the only people who can extract energy and make it work for all.
(i). Helge Ryggvik, 2010, the Norwegian oil experience, Centre for Technology, Innovation and Culture at the University of Oslo. Norway.
(ii). World Bank GINI index, accessed on November 24, 2011