Oil and Gas conference raises important legal issues that demand urgent solutions

India’s extreme protectionism and Britain’s absolute liberalisation will not work here. Kenya should come up with its own solution

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Martin Kavanagh (HSF), Sonal Sejpal, Prof Peter Cameron (CEPMLP), Aly-Khan Satchu (Rich Management) and Franklin Juma (Tullow Oil).
Martin Kavanagh (HSF), Sonal Sejpal, Prof Peter Cameron (CEPMLP), Aly-Khan Satchu (Rich Management) and Franklin Juma (Tullow Oil).
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Elsie Oyoo
At the Fedora Ballroom of the Kempinski Hotel in Nairobi, oil and gas professionals met for a one-and-half day legal conference running from September 18–19, 2015. The agenda was to give an international spin to matters in oil and gas law in East Africa. The 80 or so attendants included advocates from Kenya, Uganda and Tanzania. British solicitors, in-house counsel, business chiefs and Kenyan and Scottish academics also graced the event. The conference was organised by Herbert Smith Freehills (HSF), a Global Legal Practice, Anjarwalla and Khanna Advocates (A&K), the University of Dundee, Centre for Energy, Petroleum and Mineral Law and Policy (CEPMLP).

Paula Hodges, the Queen’s Counsel and Partner in charge of global arbitration at HSF, kicked off the event. Kenya’s deputy Solicitor-General Muthoni Kimani read the keynote speech on behalf of Attorney-General Githu Muigai, in which she outlined developments in oil and gas in Kenya, concluding with the hope that the resource curse would not prove true here. With that, speakers sitting on seven successive panels steered in-depth debate on, among others, the gap between government policy and the market, relationships between companies and communities, route to market and dispute resolution.

Gap between policy and market
“The picture is not that pleasant,” pronounced Aly Khan Satchu in the first panel discussion. Using the poor performance of Atlas Development and Support Services on the stock market, the chief executive of Rich Management drove his point home on just how bad things were. Prof Peter Cameron of CEPMLP, however, suggested that though East African governments could do nothing about oil prices, they could change their approach to attracting investment.

He advised that they had to stop trying to get new players onto the field under the current conditions and instead work on building relationships with those already present by creating favourable regulatory conditions.

The panellists pointed disapproving fingers at the gap between government policy and market reality. Senior Tax Manager from Deloitte, Denis Kakembo, and Abercrombie & Kent Tax Partner Daniel Ngumy highlighted the 30 per cent capital gains tax introduced on January 1, 2015. These, they maintained, were contrary to good taxation practice.

Oil express
Should all oil producing countries bordering Kenya jointly develop one pipeline?
Some panellists thought that such a project could be successfully run. However, they noted that before getting into it, each government had to identify its objectives. Prof Stephen Dow of CEMPLP offered the example of the West African Gas Pipeline. The idea behind it was to take gas to Ghana. However, currently, Ghana produces its own gas. Though they pulled it off at a policy level, its utility is dubious. Moreover, panellists thought that within joint developments, governments ought to look at the contractual framework that best served their purpose such as inter-governmental agreements and host government agreements.

Fostering friendships between companies and communities
The fourth panel discussion dealt with how exploration companies could gain the trust of local communities. Panellists cited the challenges of determining who local communities were and the form that consent obtained from them should take. Stéphane Brabant, Chairman of Africa Operations at HSF, observed that enshrining indigenous rights in the Constitution created certainty about who owed what to whom. He noted that respecting local communities was no longer optional, and that the bankability of exploitation companies depends on compliance with instruments such as the IFC Performance Standards on Environment and Social Sustainability.

Navigating trouble spots
Panellists dealing with dispute resolution saw price review clauses and market volatility as likely sources of disputes. According to Emmanuel Wetangula, Litigation Partner at Mohammed Muigai Advocates, an example of such disputes could be seen when smaller companies began wanting to scale back activity and renegotiate their licences. However, the Government did not and will not let them do so as it has exploitations targets.

To liberalise or not?
Academic and Kenya School of Law chair Prof Patrick Lumumba appeared towards the end of the panel discussion to comment on local content. Prof Lumumba wondered at the presence of foreign firms in Kenya despite the abundance of home-grown lawyers. He further observed that Kenyan lawyers could become experts in oil and gas in much the same way English ones had.

He thus challenged global firms to find an exit strategy terming their interest in the continent as a modern day scramble for Africa. He may have gone unanswered but Prof Lumumba brought to the surface issues bubbling beneath the official agenda.
HSF is not the first global law firm to show interest in the country. Earlier this year, Baker and Mckenzie, the global legal practice with the greatest presence in Africa, held a conference in Kenya.

Paul Hodges (HSF) with Sonal Sejpal (A&K).
Paul Hodges (HSF) with Sonal Sejpal (A&K).

Further, a number of foreign firms such as DLA Piper, associated with Iseme, Kamau and Maema Advocates, already have affiliates here. The Advocates Act, Cap 16, contains no provisions enabling foreign law firms to set up shop locally; thus, they can only operate in the country by forming alliances with Kenyan firms.

In the liberalisation discourse, those who share Prof Lumumba’s views argue that letting in foreign firms without a requirement to work with locals spells doom for the Kenyan Legal Practice. They draw evidence from the country’s accounting profession. It operates in an open market. The big four accounting firms are foreign-owned and do all the big deals. This will not change soon. Moreover, although other markets claim to be open, this holds no benefits for Kenyan lawyers. The biggest global law firms employ about 4250 lawyers. This dwarfs even Kenyan giant, A&K, which houses 120 lawyers.

On the other end of the spectrum lies the Attorney-General, Prof Githu Muigai. He can think of nothing better for the Kenyan legal profession than liberalisation. In a speech at the launch of Strathmore Law School in 2012, he expressed such sentiment. Later, in February, 2014 the Standard Newspaper quoted him as saying, “I have been telling the LSK that we cannot keep the legal market closed forever. We must and will open it up for competition; and our members must be ready for that”.

Kenyan and foreign lawyers need to come to terms with certain realities. On the one hand Kenyans should acknowledge the irreversibility of globalisation. Cross-border transactions are on an upward trend. No amount of lobbying can change that. Due to the capital intensive nature of the oil business, there is all the more reason for oil companies to be foreign. They come with their tried and tested global legal advisors. These global firms possess a wealth of experience and expertise which under the right conditions, Kenyan firms can benefit from them, to strengthen the Kenyan legal outfit.

The local content concerns raised within oil and gas, apply to the legal profession: it cannot be a matter of simply reaping benefits and leaving. In light of this, a well-thought out but limited level of liberalisation would be ideal.

The conference provided insight and networking opportunities in that sector. The gap between policy and practice cannot continue unchecked. Oil Companies must give back to local communities. Moreover, disputes ought to be effectively dealt with.

On another level, the conference brings home a truth: globalisation is knocking at Kenya’s door. India’s extreme protectionism and Britain’s absolute liberalisation will not work here. Kenya must come up with its own solution.

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