Forum Report
EB- Quarterly Fireside Chat
“Interrogating Confidentiality Clauses in Kenya’s Oil, Gas
and Mining Contracts”
12th April 2017
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Background
Typically, natural resources are the property of all citizens and bestowed upon governments as the
custodians of those assets; thus, the argument goes, the contracts that govern them should be available to
the public. At the same time, there are also numerous important questions about how to move forward with
such disclosure in practice and how to respond to several perceived business risks. This apparent tension
between the freedom of contract and freedom to information has contributed to a growing frustration and
mistrust among stakeholders that the industry is shrouded in secrecy.
The Extractives Baraza (EB) held its first Quarterly Fireside Chat on 12th April 2017 at Strathmore
University, Nairobi, Kenya. The forum saw a convergence of stakeholders in the extractives industry with
representatives from the government, civil society organizations, extractives companies, law firms and
academic institutions (See Annex 1 for the organizations represented).
Objectives of the Forum
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To interrogate the scope of confidentiality clauses, their legality, enforcement and effect of the
same in the managing of oil gas and mineral resources
To interrogate different stakeholder perspectives on confidentiality clauses in oil, gas and mining
contracts vis-à-vis the right to access of information
To bridge the gap between these different perspectives on what information in extractive contracts
may legitimately and reasonably be kept confidential and what information should be made public
To promote a serious conversation among industry, governments (host and home), investors,
banks and civil society organizations about disclosure and confidentiality in extractive
contracts so as to promote good governance of our natural resources.
1st Session: Expert Presentation and Response on Confidentiality Clauses in Kenya’s
Extractives Sector.
The first session focused on the legal framework of the extractives industry with an analysis of the
confidentiality clauses in both mining agreements and oil and gas contracts. The expert presentation was
made by a legal expert from Hamilton, Harris and Mathews, one of Kenya’s highly acclaimed law firms
with a tradition of excellence dating back to 1902. This was followed by an expert response from EcoNews
Africa a non-governmental organization that analyzes global environment and development issues from an
African perspective.
The expert presentation began by noting that there are several confidentiality as well as disclosure
provisions in the Constitution of Kenya, 2010; Mining Act, 2016; Model Production Sharing Contract, 2015
and the Access to Information Act, 2016. The rationale behind confidentiality was viewed as one stemming
from investors desire to protect their business interest so as to gain advantage and ensure ease of doing
business. However, it was underlined that disclosure has not been seen to harm1 business but to a greater
extent may be key in managing stakeholder expectations.
1
Already seven contracts have been disclosed although not locally but haven’t in any way harmed the operations of the investors. The seven
contracts can be accessed through the Extractives Baraza website http://www.extractives-baraza.com/resources/legal-corner/publicly-availableeast-african-oil,-gas-and-mining-agreements
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To access the expert presentation, see Interrogating Confidentiality Clauses in Kenya’s Oil, Gas
and Mining Contracts.
The expert response began by drawing consensus that confidentiality may be justified in situations where
certain information e.g. geological information which is in essence intellectual property of the investors
and trade secrets, if disclosed can be of commercial risk to an investor. However, information on fiscal
terms should not be considered commercially sensitive. This is important because disclosure of fiscal
information can help manage expectations of the community to avoid community expecting/demanding for
more than they are entitled to.
The response underlined that the existence of confidentiality clauses in Kenya’s extractives agreements has
created information asymmetry between the national government and county government. Therefore,
disclosure can significantly reduce contention and promote stable relationship between the national and
county government.
Furthermore, the expert response noted that the agreements do not provide penalties or actions to be taken
in situations where one party discloses information without consent of the other. Considering there is no
provision for penalties, either party especially the investors have to prove how the information disclosed
will or has impacted their investments.
2nd Session (Breakout Session): Crafting the Ideal Confidentiality Clause
This session took a closer look at the following Kenyan confidentiality clause (Part IX Clause 49) in
the Model PSC 2015 which provides as follows:
1. All information (including the data, samples and reports referred to in clauses 14 and 15)
which the contractor may supply to the Government under this contract shall be supplied at
the expense of the contractor.
2. The parties shall keep the information that the other party may supply under this contract
confidential, and shall not disclose it to any other person other than to a person employed by
or on behalf of the party except where such information is required to be published in
accordance with the provisions of the Constitution or by a lawful order issued by a court of
competent jurisdiction to disclose, except with the consent of the other party which consent
shall not unreasonably be withheld.
3. Notwithstanding sub- clause 49(2), the Cabinet Secretary may use any information supplied,
for the purpose of preparing and publishing reports and returns required by law, and for the
purpose of preparing and publishing reports and surveys of a general nature.
4. The Cabinet Secretary may publish any information which relates to a surrendered area at any
time after the surrender, and in any other case, three (3) years after the information was
received unless the Cabinet Secretary determines, after presentation by the contractor, that a
longer period shall apply.
5. This contract is a public document and the Government shall have the right to publish and keep
it publicly available. The Government may publish such information concerning this contract
as may be required by the laws of Kenya, including for purposes of obtaining ratification of
the contract by Parliament in accordance with Article 71 of the Constitution, or in accordance
with internationally accepted standards and norms concerning transparency in the extractive
industries.
The session asked participants to review the above clause and make recommendations where necessary.
Participants were organized into groups to discuss whether Kenya’s confidentiality clause is robust. The
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exercise also involved a comparative assessment of confidentiality clauses from other jurisdictions
including Nigeria, Tanzania, South Africa, Ghana, Nigeria and Norway.
The following are the collective views of the participants:
1. The discussion reached a consensus that the Kenyan confidentiality clause in oil and gas is fairly
adequate because it already contains robust exceptions as follows: the information may be
disclosed:
i.
to an employee
ii.
in accordance with the provisions of the constitution
iii.
in accordance with a court order
iv.
with the consent of the other party, which consent shall not be unreasonably
withheld
2. Participants noted that the challenge with the confidentiality clauses is not in how it is crafted but
in implementation and accountability by the contract parties
3. Participants were divided on whether disclosure or confidentiality should be the default position in
the agreements with reasonable exceptions. It was felt that the government needs to sensitize the
public to create more awareness on the nature of agreements they are entering into and to properly
account to the public thus breaking mistrust and information asymmetry.
4. There is need to address vague provisions for instance the constitutional provision under Article 35
(b) ‘we can publish and publicize any information affecting the public and all relevant facts’. The
provision has not been properly defined creating a huge leeway for extreme confidentiality.
Participants felt this can be addressed through a shift from general disclosure clauses to specific
ones to avoid generalization of information in the sector as being confidential.
5. There was undisputed consensus that transparency does not necessarily translate to accountability.
Outstanding Questions for Consideration on Confidentiality clauses
The session raised important questions that have generated contention and accusations over increased
secrecy and deliberate withholding of information in the oil and gas sector particular. Important questions
included:
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What is the role of companies in revenue sharing (social responsibility) between national and
county governments? Participants felt to a greater extent, government has failed in playing its role
as the provider of basic social services and leaving this to the investors. As a result a tug of war
between national and county government has ensued affecting investors who are now expected to
play the role of the government in service provision.
There is need for more clarity on whether ratification by parliament should be at the exploration or
at the exploitation stage. There was a divided opinion where some participants felt ratification
should be at the exploitation when the stakes are higher to avoid burdening the investor with many
legal barriers at the exploration stage where no minerals have been found. However, a contrary
opinion was that the ratification process shouldn’t be at the exploitation because if the project is
rejected it may lead to a huge loss on the part of the investor and trigger unnecessary legal battles
between government and investors for compensation. If the proposed Natural Resources (Classes
of Transactions Subject to Ratification) Bill, 2016 passes as it is, it places the government in a more
disadvantaged position.
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Preference of EITI over other transparency mechanisms was questioned. Despite the existence of
many other transparency mechanisms, EITI was viewed as one that has a wide acceptance with
about 40 countries having endorsed this initiative and some oil, gas and mining majors some
operating in Kenya being signatories to the initiative.
Conclusion and Way-Forward
The discussions drew positive feedback from participants who felt the forum was timely, Impartial and
critical in establishing a consensus on contentious issues in the extractives industry. Based on the foregoing,
disclosure should be keenly considered during negotiations and drafting of the contracts. The EB was
encouraged to keep on having similar session towards achieving consensus building and enhancing
governance in the extractives sector in Kenya.
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Annex 1: Organizations Present During the EB Fireside Chat
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7
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12
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14
15
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Name Of Organisation
World Wide Fund for Nature Kenya
Strathmore Extractives Industry Centre
Kenya Private Sector Alliance
Kenya Oil and Gas Association
Hamilton Harris and Mathews Advocates
Institute for Law and Environmental Governance
Business and Human Rights Resource Centre
Katiba Institute
Oil and Energy Services
Tullow Oil
National Treasury
Lusweti and Nabutola CO’ Advocates
Community Action for Nature Conservancy/Kenya Oil and Gas Working Group
Kenya Institute of Public Policy Research and Analysis
Centre for Economic Governance
Kipya Africa Limited
Kenya Chamber of Mines
KPMG
South Consulting
K-EXPRO
Base Titanium
National Oil of Kenya
Kenya Oil and Gas Working Group
For More information contact
Geoffrey Kerecha:
[email protected]
Tel: +254727437396
And
Edwin Kimani:
[email protected]
Tel: +254727363338
For further information and EB products please visit our website
www.extractives-baraza.com
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