Going into development phase, Kenya can avoid “The three minute Force Majeure”

A dear friend passed me this book ‘the New Kings of Crude’, with it came a statement that: “Kenya has no option but to do its crude oil well” as it would contribute to South Sudan peace. Now that’s a mouthful and she agreed to it. But it sent my Sudan nostalgic mind to the 2013 MOU between Kenya Government and Tullow after the October 26 events that let Tullow to a 3 weeks suspension of operations.

Early February 1984, Luke Patey’s well researched book, poses the day when a group Sudanese rebels, under the cover of darkness overrun Chevron’s Rubkona Camp in Bentiu, just when the American company after years of extensive exploration and a billion dollars shy, had set-up base to work out how to evacuate the oil to international markets. The rebels were not going to allow Chevron to use the billions of oil dollars to perpetuate their oppressions. Sudan’s President Jaafar Nimeiri in Khartoum would however not see why the death of three sub-contractors (a British, a Kenyan and a Philipino) would stand between him and the revenue to build his country. 

“The events of 26th October 2013” in which Turkana demonstrations at the 10BB and 13 T work sites, is a far cry from the Sudan case. The Turkana operations contractor was forced to demobilize and suspend the Petroleum operations led to the enactment of a memorandum of understanding (MoU) between the parties (Kenya Government and Contractor parties led by Tullow). The purpose of the MoU (a copy which can be downloaded from www.shitemi.com), was to record the commitment of the parties in relation to:

a) expeditious resumption of operations by contractor in block 10BB and 13T by interalia resolving the issues which gave rise to the events at the Turkana Work Sites on 26th October 2013;

b) Establishing a safe, secure and sustainable environment in Turkana supportive of petroleum operations. 

The discovery of oil and the entry of the cowboy hatted oilmen put great expectations and promise of an economic miracle to the impoverished country, after emerging from a bitter long civil war, continues Luke. When George Keller the Standards Oil Chairman (Chevron’s parent company) sought a political solution, or else they pack and go, and actually finally packed and left, leaving many feeling that it had been a hasty decision.

The 2013 Turkana MOU which was signed by CS Ministry of Energy & Petroleum (MoEP) David Chirchir representing Kenya government and Tullow Kenya Country Manager. Martin Mbogo representing contracting parties, was witnessed by Petroleum Commissioner Martin Heya. It has eleven common principles, with a view to secure establishing a safe, secure and sustainable operating environment in Turkana. The parties agreed to collaborate and engage on the basis of these principles.

 Many Sudanese felt Chevron had acted too hastily by suspending operations in the wake of the Rubkona attack. Sudan’s oil ministry in Khartoum dubbed Chevron’s decision the ‘three minute force majeure’. That was the end of Chevron. In the Kenyan case, the MoU says, "whereas the contractor is entitled to claim force majeure under the PSCs in respect of the events on 26th October 2013 (and has reserved its right to do so), the parties have agreed that it is the best interest of all stakeholders not to invoke Force Majeure at this stage but rather to work together towards resolving the underlying issues in an expedient manner";

 The parties agreed to collaborate and engage on the basis of these MoU principles: this is an effort to relate each principle to the Turkana operating environment work plan (which is part of the MoU) included as annex 1 while the time lines look bad, most issues and structures are in progress in front or back banner at different levels;

1. The prioritizing and expediting of the issues underlying the suspension of operation and the establishing of a safe, secure and sustainable operating environment in Turkana: can be said to be mostly covered by stakeholder engagement & expectation Management in the operating plan. In details its sees gaps in O&G information especially as a challenge critical to fuelling mistrust, self-interest and suspicion. This was to be solved by the contractor opening field offices in Lokichar and Lodwar, increase social investment to 2 Million dollars; intensify community education and sensitization programme; consult on and define local content; strengthen sub-contractor management. There were no direct responsibilities to the county government, while the national government was to expand its local liaison representatives.
2.  The resolution of any grievances shall be carried out in a peaceful and expedited manner; on the issue of Grievance process where formal grievance processes were not clear to all stakeholders, the action point was to agree on a formal grievance resolution procedure, which excludes intimidating and threatening behavior and firearms. This was the responsibility of the contractor, national government (NG) MoEP and Turkana County Government (TCG).
3. The need for shared prosperity amongst all stakeholders; a framework for local content including local employment, goods and services and revenue sharing framework was detailed. The action point was to agree and implement a road map a round a multi-stakeholder opportunity sharing framework. The legislative proposals for revenue sharing 75:20:5 percentages, and on local content are efforts in this direction. Limited resources at County government level were identified as an issue. It was detailed as one of the challenges brought about by devolution. This has made it difficult to deliver on key county government duties, which was demonstrated by delays in permitting. Action points were a needs assessment and appropriate secondment of specialized consultants facilitated by adequate resources.
4. The need for transparency and fairness in processes and procedures in relation to the sharing of opportunities; on governance was detailed as pursuing transparency in the O&G sector to ensure responsible development of the industry as sustainable utilization of oil revenues. The action points include enforcement and communication on local anti-corruption and anti-bribery legislation. Putting in place transparent processes and procedures at national, contractor and county on key aspects of permitting, recruitment, tendering, revenue management and other key aspects of O&G operations. The development & production phase of these processes and procedures are largely on going in all the parties.
5. The need for dialogue to occur in an open, inclusive and structured manner amongst all stakeholders; on the issue of Multi-Stakeholder Collaboration is required since O&G issues are multidimensional and requires cross stakeholder focus and input based on an inter-ministerial structure including county government and communities to discuss and prioritize cross-cutting issues; The Turkana county government has gone a long way in building the necessary local structures to manage some of the issues then considered as lacking in capacity. The TCG has establishment of a substantive Ministry of Energy, Environment and Natural Resources with a dedicated director for Energy & Petroleum and another directorate for Environment. 
6. The need for a safe, secure and sustainable working environment to enable the Contractor and its sub-contractors to conduct petroleum operations; on the issue of upholding and maintaining the rule of law, the need for effective policing and reduction of impunity. The immediate operational action points were to agree a robust, realistic MoU on Security to establish operating principle, standards, expectations and mechanisms for implementation of in line with the Voluntary Principles on Security & Human Rights (VPSHR), which is in advanced stages. Define and agree the roles & responsibilities of security administration, capacity, responsiveness, supervision and accountability at county and community level.
7. The need for all stakeholders to act in a manner consistent with good international petroleum industry practice; Infrastructure and logistics is a key component of the operations ad can result in significant costs and delays. The construction of a tarmac-road between Kitale and the area of operations (Lokichar- Lodwar) is one of the action points.  
8. The need for mutual cooperation, respect and trust for persons, cultures and procedures; the on-going environmental and social assessment will provide mitigation measures that include management of stakeholder engagement plan, mitigation measures that promote mutual cooperation’s, respect and trust for persons, cultures and procedures. There are multi-stakeholder programmes proposed under various funding frameworks whose objective is to support establishment of a safe, secure and sustainable operational environment for oil& gas operations.
9. The need for respect for the preservation of life, the environment, property and reputation; land management can be seen under this principle. Land management is detailed as a long-term risk that should be addressed as soon as possible. The current land regime in Turkana does not define the community rights to land. The action points include on going processes to review and communicate land take in respect to well pad sizes and camp utilisations; develop a land management framework and involve industry on all on-going land legislation matters; industry is involved in the drafting of the community Land bill which recognizes the rights of local peoples whose use of the land is linked to their traditional livelihoods; and provide input and support. This is the responsibility of the MoEp, Ministry of Lands and County Government.
10. The need for the contractor parties to be fairly and justly compensated for the time and cost incurred in having to suspend operations as well as support the establishing of a safe, secure and sustainable operational environment; this means that the costs incurred as a result of the suspended operations will be deductible during the cost recovery phase. Cost recovery is when contractors will deduct costs associated with exploration and development from the revenue from petroleum sales. This is done according to ratio, which according to the petroleum model under which these contracts may have been signed will be limited to up to 60 percent.
11. The need for all stakeholders to recognize  and at all times abide by all applicable Laws, Policies, regulations and procedures; Legal framework is an issue detailed as uncertainty of sharing of benefits. Action point was to provide timeframe presentation of Energy Policy and Energy Bill by MoEP.

 This MoU shall came to effect on the date of its signature by all parties and unless otherwise agreed by parties in writing, shall remain in force until the objectives contemplated have been achieved of the PSCs 10BB (signed on 25th October 2007) and 13T (signed on 17th September 2008) terminate, whichever is earlier.

 This MoU shall be construed in accordance with the laws of the Republic of Kenya and any disputes as a result of this MoU, including any questions as to its existence, validity or termination, shall be resolved amicably through mutual consultations. If such disputes cannot be resolved within 30 days of the first meeting, the dispute shall be resolved according with article 41 of the PSCs (both are yet to be disclosed by either parties).

Without prejudice to amending or intention to vary the MoU, the periodical monitoring is important especially since the PSCs are yet to be disclosed. It is hoped that Kenya can avoid the challenges and costs that come with force majeure (even if its not a three minutes one). Force majeure is a standard section in all production-sharing contracts (the relevant section is not disclosed in the two relevant PSCs or the in the 2013 MoU).

This is expected to be on course, to be achieved through collaboration amongst stakeholders in a win-win-win approach. It is these kind of agreements implemented in a transparent manner that may make Kenya a lead examples in the continent in making oil a blessing.

These are personal views and due diligence is advised on any references made, for any purposes whatsoever.