Back to the “Bottom of the Barrel”? Will East Africa’s New Oil and Gas Producers Get it Right?

Editor’s Note: This piece was originally posted on Oxfam America’s The Politics of Poverty blog.

Oxfam America and the Brookings Institution will host “East Africa’s Oil and Gas Boom – Promise and Peril,” on Thursday, Feb. 20, in Washington, DC. You can view the event and join the conversation on Twitter #AfricaOilGas.

A decade ago, I co-authored Bottom of the Barrel: Africa’s Oil Boom and the Poor with Prof. Terry Lynn Karl of “Paradox of Plenty” fame. When the report came out in 2003, Chad was about to start producing oil under a controversial World Bank-financed scheme. Equatorial Guinea was starting its big ramp up in production. And tiny Sao Tome and Principe was being hailed as the new “Kuwait of Africa” with talk of four billion barrels of oil in place. Deals were being struck in Ghana, but the world-class Jubilee Field discovery was several years away. We predicted African governments would receive more than $100 billion in revenues by 2013. (It turns out we underestimated.)

A similar buzz is taking place now in East Africa due to a raft of discoveries. In the last three years, discoveries in Kenya, Uganda, Tanzania and Mozambique have placed the region in the global oil and gas industry spotlight. More than 50 exploration wells were completed in the region in 2012, delivering nearly half of conventional oil and gas resources found worldwide that year.

So how have West and Central Africa’s newer oil and gas producers fared? And will these experiences inform the path that East Africa’s new producers take?

So how have the countries featured in the 2003 Bottom of the Barrel report fared?

Chad’s “model” program for managing oil quickly unraveled after President Deby gutted the country’s law designed to channel oil revenues into poverty reduction. Instead, oil revenues have been spent on the military. Military spending jumped 633 percent between 2000 and 2009. Communities in the Doba region of southern Chad are no better off – and arguably worse off – than before the project.

Equatorial Guinea is the “world’s best example of the resource curse” according to the Financial Times and the country’s ruling family has been the subject of multiple corruption investigations in the US and France.

Sao Tome, on the other hand, has escaped the “resource curse” by not finding oil at all!

Ghana, which began oil production in late 2010, presents the most positive story “between a blessing and a curse,” as a recent report from Oxfam America partner African Center for Energy Policy describes the country’s situation. A landmark Petroleum Revenue Management Act (PRMA) was passed in 2011, enshrining transparency of financial flows between companies and government. The Ministry of Finance discloses payments received, oil production down to the barrel, and the details of Ghana’s petroleum fundsOil contracts are publicly available for the world to see and the PRMA established a Public Interest and Accountability Committee to watchdog implementation of the law.

All is not rosy in Ghana though. Debt is soaring with the government using oil as collateral for a $3 billion loan from China. The watchdog committee is starved of resources and the independent regulator for the sector is barely functional. New licenses are negotiated behind closed doors – not through open and competitive bidding. Ministers have significant discretion and implementing regulations for new petroleum laws are not yet in place. Finally, value-for-money research on oil revenues has shown that Ghana has not been receiving good value from some infrastructure projects and little money has gone to investments in agriculture and health.

It is important to emphasize, though, that Ghana’s experience shows that a baseline of publicly available information, a vibrant civil society, and journalists and Members of Parliament playing watchdog roles can lead to healthy democratic debate and reform. The question is: Will countries in East Africa be able to put these ingredients together?

Kenya, Uganda, Tanzania and Mozambique are all facing big decisions this year on how to manage their growing oil and gas sectors:

Kenya is considering a new energy bill, a community lands bill, and legislation governing how revenues would be shared with county governments set up under the country’s new constitution.

In Uganda, the government has just signed an MoU with its oil company partners Tullow, CNOOC, and Total covering plans for oil field development, an export pipeline through Kenya, and a refinery. Ugandan MPs who were in the US last week studying oil sector management are now set to take up public finance legislation which could be an opportunity to enshrine financial transparency disclosures similar to those in place in Ghana.

Tanzania, the site of deadly protests over gas fields last year, says companies should disclose the site of a proposed LNG plant next week. The government is also attempting to use the African Mining Vision and the Natural Resource Charter as “benchmarking” tools for governance of the sector while, at the same time, pushing hyrdrocarbons legislation through this year.

In Mozambique, where some estimates say the government could receive $200-$400 billion in gas revenues over the next decades, some donors have pulled aid funding over corruption concerns.

Beyond the financial windfall, governments and companies must manage the real issues of community engagement, consultation, and consent. There is growing recognition of the principle of “free, prior and informed consent” (FPIC) in Africa as a new Oxfam America report highlights and some companies have explicit policies recognizing FPIC rights for indigenous communities. Tullow was forced to suspend exploration briefly in Kenya in the face of local protests.

A decade from now, will African’s citizens in oil-rich states again be stuck at the “Bottom of the Barrel”? Watch the Oxfam America and Brookings Institution conference on Feb. 20 to see what experts from the region have to say. And I’ll be checking back again in ten years!