The revised Petroleum Bill 2015 de-links the sovereign wealth fund from the cash generated from oil production, making the intention of the Bill to benefit Kenyans in the immediate term. According to the latest version of the Bill, the national government will be allocated 75 per cent oil royalties, with counties getting 20 per cent of the cash and local communities where crude production will be undertaken taking five per cent.
The sovereign wealth fund was proposed in the Report of The Presidential Taskforce on Parastatal Reforms that was submitted to the President in October 2013. The report stated
“The primary goal for establishing Kenya’s Sovereign Wealth Fund is to achieve the policy objective of securing income from current resources for future generations.”
It noted that on-going developments in the Oil, Gas and Minerals sector requires forward thinking in respect of policy. It therefore stated that the objective for the fund would be
“to support local communities, roll out local renewable energy schemes; fund restoration and rehabilitation of excavated areas; support Government savings from mineral revenues to ensure sustainable and stable future incomes; ease economic stress through stabilization; strengthen the nation’s long term financial position; and finance expenditure on public pensions becomes important.
“Additional objectives for Kenya’s Sovereign Wealth Fund will include supporting the fiscal budget through transfers to National Government budgets (with approval of Parliament) from Sovereign Wealth Fund investments (domestic and international). These objectives are expected to change over time with the onset of sustained exploitation and production of natural resources from recent discoveries in Oil and Gas, Coal, Titanium, Soda Ash, Rare Earth Elements (REE) and other natural resources endowments.”
The report further stated that to realize this, an Act of Parliament should operationalize it. Indeed, there is already a Bill to actualize the fund. The objective stated in the National Sovereign Wealth Fund Bill is
“to undertake diversified portfolio of medium and long-term local and foreign investment to build a savings base for purposes of national development, stabilization the economy at all times, enhance inter-generational equity in Kenya, to give effect to the provisions of Article 201 of the Constitution of Kenya, and for connected purposes”
In the Bill the intention to fund it would come from dividend income from State corporations and proceeds from privatization of government corporations would build the fund ahead of oil production. Tulow Oil estimates that the crude oil reserves to be about one billion barrels. The production and export of this is not expected within the next five years.
The Petroleum Bill looks to have sealed the fate of not attaching its revenues from oil. This decision is prudent because the state of development in Kenya is wanting. There is too much urgent need to use any revenues available, especially from oil to build the country’s infrastructure from roads, health facilities to education among others.
The Fund would have set up to be used after a period of time, like 50 years, negating the urgent and current need to address more critical human requirements of progress.
The Fund thrives in some countries like the Nordic countries like Norway. But there is a stark difference. Norway got its oil when it was already developed. In fact, it has been argued that this is one reason that has helped it to avoid violent conflict as there have been good structures established. Hence to them, creating the fund for future use makes sense. For Kenya, it does not merit it for now.