Transparency in Kenya's Upstream Oil and Gas Sector
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Beating the Resource Curse: Transparency in Kenya’s Upstream Oil and Gas Sector by Sally Lesley Brunton Thesis presented in fulfilment of the requirements for the degree Master of Political Science in the Faculty of Arts and Social Sciences at Stellenbosch University Supervisor: Professor Ian Taylor March 2018 Stellenbosch University https://scholar.sun.ac.za Declaration By submitting this thesis electronically, I declare that the entirety of the work contained therein is my own, original work, that I am the sole author thereof (save to the extent explicitly otherwise stated), that reproduction and publication thereof by Stellenbosch University will not infringe any third party rights and that I have not previously in its entirety or in part submitted it for obtaining any qualification. Date: March 2018 Copyright © 2018 Stellenbosch University. All rights reserved. i Stellenbosch University https://scholar.sun.ac.za Abstract In 2012 Tullow Oil plc discovered commercial quantities of crude oil onshore Kenya. Additional commercial discoveries have subsequently been made and estimates suggest that Kenya’s oil reserves are substantial. Steps towards the development and production of these reserves are progressing and Kenya is thus preparing to become another of sub-Saharan Africa’s oil-exporting states. Nevertheless, experience has shown that the majority of these resource-rich states have succumbed to symptoms of the ‘resource curse’: economic and human development and growth has been hindered rather than helped and many of these states find themselves struggling to escape from the clutches of rent-seeking, bribery and corruption. In an attempt to determine how best Kenya might avoid the negative impacts of the curse this study examines various strands of resource curse theory. It focuses on theories that suggest the promotion of good governance through the implementation of effective transparency and accountability measures can help a state to beat the curse. Following a discussion about Kenya’s political culture and an overview of the structure of its oil and gas sector, this study applies these theories to the case of Kenya in order to ascertain how transparent its oil and gas sector is currently, what it stands to gain from further transparency and accountability, and what barriers might stand in the way. This study concludes that whilst the Kenyan government and international oil companies operating in Kenya offer rhetorical support for the promotion of effective transparency and accountability, this rhetoric is not matched in practice. Kenya’s oil and gas sector is characterised by opacity and its reform is currently in limbo. The primary reason for this appears to be a lack of government will to implement change: Kenya’s political culture is inherently secretive and this in turn lends itself to the continued prevalence of bribery, corruption and ethnically-motivated patronage. International oil companies, civil society and the international community each have a role to play in promoting transparency initiatives and face certain challenges of their own, however without government support there is little hope that such initiatives will progress from rhetoric to reality. This study ultimately shows that unless and until Kenya’s oil and gas sector embraces transparency, its positive impact on the state’s development is likely to be thwarted. ii Stellenbosch University https://scholar.sun.ac.za Opsomming Tullow Oil het in 2012 kommersieel benutbare ruoliebronne in Kenia ontdek. Verdere ontginbare bronne is sedertdien gevind en volgens beramings bevat Kenia omvatryke oliereserwes. Die ontwikkeling en benutting van hierdie bronne kom tans op dreef, en Kenia gaan binnekort nog een van die olieproduserende state suid van die Sahara wees. Ervaring toon egter dat die meerderheid van hierdie natuurlike-hulpbronryke lande aan ‘n ‘hulpbronvloek’ ly: die ekonomiese groei en maatskaplike ontwikkeling word in werklikheid belemmer in plaas van aangemoedig, en menigte state sukkel om uit die kloue van wanbestuur, korrupsie, en omkoping te ontsnap. Hierdie studie gebruik verskeie aspekte van hulpbronvloekteorie om te probeer bepaal hoe Kenia die negatiewe aspekte van sy oliefondse moontlik kan vryspring. Daar word op teorië gefokus wat aandui dat die bevordering van goeie regeringbestuur, deur die aanwending van deursigtige administrasie en verantwoordbaarheid, ‘n land kan help om die hulpbronvloek te bestry. Nadat Kenia se politiese kultuur bespreek en ‘n oorsig van sy olie- en gassektore gegee is, word hierdie teorië op die Kenia toegepas om te bepaal hoe deursigtig sy olie- en gassektore tans is, die baat wat hy by verbeterde deursigtigheid en verantwoordbaarheid kan vind, en die struikelblokke wat dit moontlik kan verhoed. Daar word tot die gevolgtrekking gekom dat alhoewel die Keniaanse regering en internasionale oliemaatskappye skynbaar deursigtigheid en verantwoorbaarheid wil bevorder, hierdie lippediens nie met die werklikheid strook nie. Kenia se olie- en gassektore word gekenmerk deur ondeursigtigheid en die hervormingspogings sloer. Die hoofrede hiervoor blyk ‘n gebrek aan wil te wees vanaf regeringskant om verandering aan te bring: Kenia se politieke kultuur is in wese geheimhoudend en bied ‘n ryke teelaarde vir voortdurende omkopery, korrupsie, en etniese begunstiging. Internasionale oliemaatskappye, die burgerlike samelewing en die internasionale gemeenskap kan elkeen ‘n bydra lewer om deursigtigheidsinisiatiewe te bevorder, en word elkeen deur sy eie uitdagings in die gesig gestaar, maar sonder ondersteuning vanaf die regering is die kans klein dat sulke insiatiewe ooit sal slaag. Hierdie studie dui uiteindelik daarop dat die positiewe impak van Kenia se gas- en olie-industrie op die land se ontwikkeling belemmer sal word, tensy die sektore werklik deursigtigheid omarm. iii Stellenbosch University https://scholar.sun.ac.za Acknowledgments I would firstly like to thank my supervisor, Professor Ian Taylor, for his support and much appreciated advice. His interest in my thesis and thoughts on the subject matter (and others!) were invaluable and helped provide me with the motivation to keep ‘digging’ further. I am also very grateful for the opportunity he gave me to use the facilities and to attend his lectures at St. Andrews University when I was back in Scotland. I also offer my sincere gratitude to the interviewees who took part in my research, not least to Charles Wanguhu of the KCSPOG. The insights offered were instrumental in ensuring that my research remained on track and I greatly appreciate the time taken by these interviewees to speak to me. Thank you also to my friend Hugo Barnard who so aptly translated my Abstract from English into Afrikaans. In addition, I would like to thank the staff members and students of the Political Science department at Stellenbosch University. I thoroughly enjoyed my time studying in Stellenbosch, for not only did I learn a great deal but I met many fantastic people. I will always remember the warm welcome I received and a special thank you therefore goes to Mrs. Magda van Niekerk for her kindness and for keeping me, and the rest of the students, in check and up to date with all of the important information we needed! A specific thank you must also be given to Professor Pieter Fourie (and his witty sense of humour!); his advice and conversation was both enjoyed and appreciated. Finally, thank you to my family and friends. The reassurance I received when I announced my planned ‘career change’ (and ‘continent change’) was invaluable and I am, as always, eternally grateful for their support and encouragement. iv Stellenbosch University https://scholar.sun.ac.za Table of Contents Section Page Number List of Figures ix List of Tables x List of Acronyms and Abbreviations xi Chapter 1 INTRODUCTION 1 1.1 Background and Rationale 1 1.2 Research Problem and Focus of the Study 5 1.3 Research Questions and Objectives 6 1.4 Theoretical Framework 7 1.4.1 The Economic ‘Resource Curse’ 7 1.4.2 The Roles of Transparency and Good Governance 9 1.5 Research Design and Research Methodology 11 1.6 Limitations and Ethical Considerations 13 1.7 Outline of the Study 14 Chapter 2 AVOIDING THE ‘RESOURCE CURSE’: THE IMPORTANCE OF TRANSPARENCY 16 2.1 The Political Side of the Resource Curse 18 2.1.1 Corruption and Patronage 18 2.1.2 Rent-seeking and the Rentier Effect 21 2.1.3 A Threat to Democracy? 24 2.1.4 Conflict 26 2.1.5 Summary 26 2.2 Good Governance and Transparency 27 2.2.1 The Concept of Governance 27 2.2.2 The Impact of Good Governance 29 2.2.3 Governance in the Oil Sector 30 2.2.4 Calls for Transparency 31 2.2.5 The Intended Impact of Transparency 32 2.2.6 Inherent Difficulties in Measuring Effectiveness 35 v Stellenbosch University https://scholar.sun.ac.za 2.3 The Reality of Transparency in the Oil Sector 36 2.3.1 Award of Contracts and Licences 37 2.3.2 Corporate Ownership 38 2.3.3 Revenues, Payments, Taxation and Expenditure 38 2.3.4 Contracts 39 2.3.5 Operational Information 41 2.4 Accountability 41 2.4.1 Transparency Needs Accountability 41 2.4.2 Effective Accountability 43 2.5 Barriers to Success 45 2.5.1 Will and Co-operation 45 2.5.2 Voluntary Nature of Initiatives 47 2.5.3 The Form of Information Disclosure 48 2.6 Chapter Summary 49 Chapter 3 KENYA’S POLITICAL CULTURE 51 3.1 Background 51 3.2 A Functioning Democracy? 52 3.3 Political Violence 55 3.4 Patronage in an Ethnically Divided State 56 3.5 The Prevalence of Bribery and Corruption 58 3.6 Chapter Summary 63 Chapter 4 THE KENYAN OIL SECTOR