A Review Of The Natural Resources (Class Of Transactions Subject To Ratifications) Act, 2016

Introduction: What is natural resources?

Article 260 of the Constitution of Kenya 2010 defines the term “Natural Resources” to mean the physical non-human factors and components, whether renewable or non-renewable, including—sunlight; surface and groundwater; forests, biodiversity and genetic resources; and rocks, minerals, fossil fuels and other sources of energy;

Thus, the evaluation of this Act is undertaken in consideration to natural resource in terms of “fossil fuels” a term associated and governed within the petroleum industry. Specifically, evaluation of the Natural Resources Act 2016, hereinafter “NRA 2016” as presented in this article will only cover issues relating to the upstream subsector. Notwithstanding, the evaluation of this Act challenging because, legal frameworks that govern individual natural resources vary exponentially. Thus, transactions of any kind including distinguishing their nature, scope and objective should ideally, be discussed and formulated separately. For instance, the process of acquiring a petroleum title which is rather rigid and intricate is not remotely alike to that of acquiring a title for resources such as water or forests. Therefore, to understand this Act at least in partiality, the following discussions have been undertaken in consideration to the petroleum industry practices only.

 

Background: What is a natural resources law?

 

“In general it is a law that governs how people can use the parts of the environment that have some economic or societal benefit. Generally, these benefits include air or wind, light, water, soil and plants, animals that occupy the land, and underground minerals or oil.”

Review: Why a Natural Resources Act (NRA) in relation to petroleum industry?

Nonetheless, pursuant to Article 71 of the constitution of Kenya, the Parliament on the 20th September 2016 passed the NRA 2016 Act. The Act is designed to apply to any transaction entered on or after an effective date and which is subject to ratification by Parliament. In other words, the Act specifically requires that any class of natural resources transaction as listed under Section (4) (1-2) and tabled in the Schedule of the Act, will need to be ratified by the parliament. This includes the authorization to extract crude oil and natural gas. This provision is already dispensed with under section 49(5) of the Model Contract which specifically requires that petroleum title/host government contract will be presented to the parliament for ratification in accordance with Article71 of the Constitution, or in accordance with internationally accepted standards and norms concerning transparency in the extractive industries. Additionally, the Act provides a list of exceptions including “the grant of a concession or right to exploit a natural resource through a permit, licence or other authorization issued in accordance with the requirements of national or county government legislation.” A provision that is closely associated with petroleum transactions. This raises interesting questions such as, whether “exploitation transactions (which by the way are not defined anywhere) are part of the exemption for ratifications in the upstream subsector?’ and wouldn’t this be contrary to the provisions of the host government contract that require a petroleum title/ host government contract be presented for ratification in parliament? The challenge lies in defining the term “exploit” which is rather different from the term “explore”. Thus, if the terms are synonymously used then this adds to the already unclear definitions. Therefore, this provision does not necessarily add any significant value to the petroleum sector. Accordingly, the term transaction as defined in the Act refers, to an arrangement or other dealing between a grantor and a beneficiary under which the beneficiary lawfully acquires a concession or a right to exploit a natural resource of Kenya. Notably, the choice of terminologies “grantor” or “beneficiary” are not subject to nor inherent to petroleum industry thus, can be unclear and no doubt will add to the ambiguities or complexities of defining more terminologies from those existing in the sector in general.  Further, section 3 of the NRA 2016 provides that transaction involves the grant of a right or concession by or on behalf of any person to another person for the exploitation of a natural resource in Kenya. A concept that has been dealt with sufficiently under the modalities of host government contract and petroleum law respectively. Thus, indicating that additional laws with unclear objectives will only create more confusion to an already intricate sector with labyrinth set of laws. In addition, section 3(2) further affirms that a transaction involves either the -(a) national government, county government, state organ and all county government entities; and grant of a right or a concession by a private person in cases in which such transaction is required. Importantly the act classifies transactions “class of transactions” to fall within certain designations as subject to ratification by section 4 of the Act along with four other exceptions.

Finally, the body in charge of implementing this Act, is the Cabinet Secretary relating to matters of Environment. The mandates are broad and include maintaining a central register on all natural resources transactions, which is open to the public for scrutiny at no cost. Thus, the mandate is extended for the CS Environment to annually publish a summary report on all transactions. A provision that would be most valuable to petroleum industry since, it would help improve transparency around oil contracts. Nonetheless, presentation of these contracts for public scrutiny may not be valid, due to two reasons first being that petroleum transaction might be an exception (depending on interpretation) to this act and second due to the commerciality aspect of petroleum transactions that comes with strict confidentiality clauses and or due national security or other public interest considerations. Thus, information regarding petroleum transactions cannot be disclosed. Therefore, this clause does not add   value.  Importantly, is the inadequate representation and co-ordination from other natural sectors. The law does not mention what role Ministry of Energy, and the bodies attached to the ministry will play in the implementation process. Also, the choice of body to implement the law is a rather odd ministry to deal with an economic regulation. Surely, and economic regulation is best suited to be implemented with an economic organ such as the Director of budget Fiscal and Economic affairs? At least in practice, the fundamental nature of the ministry of environment is to implement laws that secure social optimum which often deal with social regulation as opposed to economic. Thus, begging the question on appropriateness of the body in charge of implementing the law or even the reasonableness of the objectives stated.

Overall, one would expect that in passing of a law of this nature, the government of Kenya would focus its interests on how to promote and secure the question of socioeconomic benefits. Thus, NRA should have addressed several other issues impacting the development of socio-economic objectives including but not limited to issues such as ownership rights to the resources on the land and how severely property rights – i.e., the rights of the land owner – have been negatively impacted, despite the guarantee of the principle of cujus est solum, ejus est usque ad coelom et ad inferos (roughly translated: the owner of the soil owns to the heavens and to the lowest depths).

The petroleum sector is unique and one that although applies several domestic laws of the host country nonetheless, covers several other laws including laws of multinational companies, international treaties that are impacted by several other factors such as legal systems etc. Thus, in considering to pass a law that would govern the sector such as NRA 2016 (which in principle does not add value to the petroleum sector in general), it is relevant to view the multifaceted legal frameworks of petroleum vis-à-vis the objectives of host country. Accordingly, the parliament underscores the necessity to revise ownership discussions to include the concepts of property rights governing the division of land and minerals, land access and compensation, and native title cultural heritage, in addition to mining rights.

Thus, a fair conclusion is that the parliament is passing way too many laws that are detailed and accompanied by several regulations which can be daunting for an intricate and infant sector such as petroleum. This only goes ahead to show that the current objectives are misaligned and the courts are left to evaluate laws from the inductive nature of reasoning, where legislation is necessary only to address specific problems. Unlike the deductive nature of reasoning which allows a problem to be resolved by an already existing statute even if not directly applicable to the matter at hand legal professionals are expected to identify principles that will solve the matter by analogy.

About Author:

Berryl Claire Asiago is an energy lawyer in pursuit of her doctoral studies at the UEF law school, in Joensuu Finland. She has a substantive legal academic background and hands-on experience in litigation of petroleum industry in some African countries. From the outset, she has brought an unparalleled commitment to, and knowledge of, the region including key issues that challenge it as well as the tremendous possibilities that exist in marshalling the concept of “national content” to ensure a sustainable future for the people and the environment around them. Berryl possesses an infectious, enthusiastic conviction regarding the pivotal role that legal analysis and development must play to realize potential that lies for countries in Africa.

Currently her work at the University of Eastern Finland is strongly anchored in International energy law, with particular interests in permanent sovereignty of natural resources, foreign investment treaties and rights of a state to regulate in the oil and gas sectors. Her research aims to contribute new perspectives on how best to promote objectives of sustainable economic growth while mitigating the growing challenges surrounding energy regulatory frameworks and energy investments.

Email: berryl.asiago@uef.fi