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Economy

Proposed law for oil sector heralds row with counties

Energy secretary Davis Chirchir at a function last week. Mr Chirchir says the law on oil and gas will open the sector for investors. Photo/Salaton Njau
Energy secretary Davis Chirchir at a function last week. Mr Chirchir says the law on oil and gas will open the sector for investors. Photo/Salaton Njau  Nation Media Group

A proposed legal framework for the nascent oil sector has handed the national government exclusive powers to negotiate production sharing deals with multinationals, setting stage for turf wars with counties.

Under the proposed regulatory framework, the Energy and Petroleum ministry will assume control of production sharing contract (PSC) talks, a duty currently undertaken by the National Fossil Fuels Advisory Committee (NAFFAC).

“We recommend that the ministry retains this role but will execute it in consultation with NAFFAC,” Hunton & Williams and Challenge Energy Consultants said when they unveiled the draft regulatory framework in Nairobi Thursday.

The consultants were hired by the World Bank to craft a competitive legal framework to woo investors in the gas and oil wells.

The proposed changes will also see National Oil Corporation of Kenya (NOCK) split to separate its regulatory affairs from upstream (oil exploration drive) activities.

“Generation of revenue from oil sector comes with a lot of challenges that must be addressed through a robust regulatory framework,” said Lex Huurdeman, World Bank’s expert on oil and gas.

Unlike the current Petroleum Act, the draft regulatory framework also focuses on gas production.

Energy and Petroleum secretary Davis Chirchir said Thursday the proposed law opens the sector for investment.

He said explorers such as Apache, which discovered oil in Kenya, slowed down for fear of striking commercial quantity before the legal framework was in place.

“We are also reducing exploration block sizes from 10,000 acres to as low as 3,000 acres to accommodate local artisan explorers,” said Mr Chirchir.

The governors representing counties with oil and gas potential have, however, rebuffed the calls to hand back the PSC talks to the ministry.

Instead, the counties want to be included in making all key decisions that touch on oil and gas.

“Once the oil is discovered in an area, it is difficult to convince the surrounding people that the resource is not theirs,” said Baringo County governor Benjamin Cheboi.

Turkana County governor Josephat Nanok said: “We want to be allowed to monitor cost component on daily basis to ensure these firms do not get a chance to exaggerate them.”

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