US rules seek to end corruption in EA’s oil and gas industry
An oil rig. The new rules are expected to reduce revenue sharing disputes between governments and communities in areas where extractive activities are carried out. PHOTO | FILE
What you need to know:
New rules require American registered firms to publicly declare money paid to governments for commercial development of oil, natural gas and other minerals.
Transparency will soon become a must in East Africa’s extractives industry when new rules by the US Securities and Exchange Commission are enforced.
The new rules require American registered firms to publicly declare money paid to governments for commercial development of oil, natural gas and other minerals.
The rules are expected to reduce revenue sharing disputes between governments and communities in areas where extractive activities are carried out.
Anadarko Petroleum Corporation, Erin Energy Corporation and EHRC Energy Inc operating in Kenya and ExxonMobil in Tanzania are now under obligation to declare to the SEC all payments equal to or exceeding $100,000.
The SEC on June 27 adopted a final rule implementing Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, making disclosure mandatory within 150 days after the company’s fiscal year ends.
“I am pleased that the Commission has completed these rules, which will provide transparency to further the statutory goal,” said SEC chairperson Mary Jo White.
The final rules define commercial development of crude oil, natural gas, or minerals as exploration, extraction, processing, and export, or the acquisition of a licence for any such activity.
“The rules are intended to further the statutory objective to advance US foreign policy interests by promoting greater transparency about payments related to resource extraction,” said the SEC.
The rules aim to combat global corruption and empower citizens of resource- rich countries to hold their governments accountable for wealth generated from natural resources.
Annual reports have to be filed with the Commission under the Securities Exchange Act. Companies are under obligation to disclose types of payments specified in the rules made by a subsidiary or entity controlled by the issuer.
Nairobi-based Hydrocarbons Management Consultants said companies are required to file information in a prescribed format that will also provide investors with information to manage risk in volatile commodities markets.
“The information will include total amounts of payments, currency used, fiscal year, segment of resource extraction and the name of the government,” said Hydrocarbons lead consultant Robert Shisoka.
Taxes, royalties, fees, production entitlements, bonuses, dividends and payments for infrastructure improvements will also be disclosed.
The Kenya Civil Society Platform on Oil and Gas said the SEC rules will reduce the vulnerability of the extractives sector to tax evasion because information regarding payments will now be accessed by the public.
“We have for long called for disclosure of not only contracts but payments made to the government. We hope the new rules will promote transparency and accountability,” said the body’s co-ordinator, Charles Wanguhu.
ExxonMobil Exploration and Production Tanzania Ltd, a unit of ExxonMobil of US, owns 35 per cent stake in offshore block 2 , where it has — with Statoil of Norway — found gas in southern Tanzania. Production has not started.
More explorations
Anadarko, Erin and EHRC are exploring for hydrocarbons in Kenya but have not made a discovery. Anadarko owns block L5, L7, L11A, L11B and L12 within Lamu basin in Kenya jointly with Total of France.
EHRC has 35 per stake in block 11 A in northwestern Kenya. Erin owns 100 per cent of onshore acreage L1B and L16 along Kenya’s coastline with offshore block L27 and L28.
SEC provides a longer transition period for recently acquired companies that were not previously subjected to reporting under the final rules and a one-year delay in reporting payments related to exploratory activities.
BG Group, recently acquired by Royal Dutch Shell Plc, will be a beneficiary. BG owns 100 per cent of Kenya’s offshore block L10A and L10B. The firm has equity in southern Tanzania’s offshore gas discovery acreage 1, 3 and 4 but production has not started.
BG will submit annual reports of operations in East Africa to the SEC after its transition as Royal Dutch Shell is listed on the New York Stock Exchange in addition to trading on the London Stock Exchange and Euronext Amsterdam.
Kenya’s Ministry of Energy said the Kenya Petroleum Bill being debated by the National Assembly has facets on exploration fees, profit sharing and accounting for taxes collected.
“Taxes, and royalties from upstream petroleum operations shall be collected in accordance with the relevant tax laws and accounts provided to the government agency responsible for collection of taxes in the manner it prescribes,” reads the Bill.
The Bill once enacted will create a new legal and fiscal framework for exploration and commercial production of hydrocarbons. It provides for sharing of revenue that the government will collect from output of oil and gas.
Tanzania’s Oil and Gas Revenue Management Act of 2015 covers revenues derived from exploration, development and production of hydrocarbons.
