East Africa’s extractive sector continues to be poised for development and growth due to increasing exploration and efforts to bring commercially recoverable oil to market. Since the discovery of recoverable oil resources, Uganda, Kenya and Tanzania have, to varying degrees, put in place the legal, policy and institutional framework for petroleum development.
The government in Tanzania has adopted interventionist policies in the extractives sector, fast-tracking three new mining laws that allow Tanzania to renegotiate contracts and force operations to submit to a new regulatory regime. These laws come on the back of Presidential Committee reports that concluded that Tanzania is currently not getting a fair share from her extractive resources.
With respect to gas, Tanzania has two producing gas fields in Songo and Mnazi Bay. Shell, ExxonMobil, Statoil and Ophir Energy seek to push forward a $30bn Liquified Natural Gas (LNG) project in Lindi. Despite legislative provision and public commitments for the disclosure of contracts, the government has yet to disclose contracts or production sharing agreements.
In Kenya, since the discovery of commercially recoverable oil reserves, there have been efforts to update legislation and institutions although the principal legislation, the Petroleum Exploration and Production Bill, is yet to adopted.
While the Kenyan government made public commitments to implement the Extractive Industries Transparency Initiative (EITI) in 2015, there is no indication if there is still commitment to follow this through. Contracts are also currently not public even though some of the main petroleum and mining companies operating in Kenya may be willing to disclose contracts and revenue. The IFC approved $50 million equity to Africa Oil for the South Lokichar oil project. This funding is contingent on Tullow Oil, the project lead, complying with various performance standards relating to contract disclosure, environmental management, land and community rights.
In Uganda, upstream and revenue management legislation is now in place. However as in Kenya and Tanzania, there is still no full public disclosure of contracts. With the legislative and policy framework in place, the challenge is to ensure that the government fully implements its laws although Parliamentary oversight is weak, and power largely rests with the executive. Oil was discovered in commercial quantities in the Lake Albertine region. Major oil production and commercial sales are closer as the final investment decision for the oil reserves in the Lake Albertine region is expected in 2018.
There is now some clarity and agreement on the oil pipeline route. The pipeline will now route from Hoima in Uganda to the Tanga port in Tanzania. On completion, the pipeline will be the longest heated oil pipeline in the world, and it is expected to cost about US$3.5 Billion. Plans to establish an oil refinery in Hoima remain in place although there is no clarity on whether this project will be commercially viable regardless of the political imperatives.
Communities along the pipeline route are likely to face major long-term economic, social and environmental impacts. These potential impacts related to involuntary displacement include; loss of land to speculation and or government compulsory acquisition, a distorted local economy, a population influx and potential environmental degradation.
The East African Community (EAC) – which includes Kenya, Uganda, Tanzania, Burundi and Rwanda – has recognized natural resource management as a key issue for regional collaboration. More integrated regional cooperation could have the potential to insulate projects from domestic politics and patronage networks that limit transparency in the tendering and procurement process. Despite the increasing importance of extractives in the region, the EAC still does not have a regional protocol on extractives.