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MPs told to drop caps on oil cash

?British nonprofit Oxfam has urged Parliament to consider removing clauses capping oil revenue shares for county governments and communities in the Petroleum Bill.

Instead, Oxfam wants a flexible formula adopted such that oil revenues going to counties increase once issues such as absorption capacity are addressed.

The Bill proposes that a 20 per cent share of oil revenues goes to counties and five per cent to communities, with the national government taking 75 per cent.

There is, however, a rider that oil revenues to counties should not exceed annual allocations by the Government. Allocations to the communities are also capped at 25 per cent of what the county is allocated.

Oxfam said yesterday Parliament should reconsider the ceiling proposed in the Bill as the reasons cited might not be adequate to deny counties the oil billions once the country begins commercial production by 2022.

Capacity to absorb the billions that will go to counties and communities has been cited as among the reasons for capping the oil revenues, but the organisation noted that this could be developed.

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“It is important to note, however, that the concerns around absorptive capacity need not result in a reduction of the percentage of revenue due to the county governments and the local community,” said Oxfam in a discussion paper titled .

“On the contrary, concerns around absorptive capacity should enable planning for capacity reforms at national and county government levels and provision of support for effective oversight and prudent monitoring of the transfers and use of sub-national payments.”

Turkana County, where oil companies have had success exploring for oil, has among the best absorption rates.

The Bill that was tabled in Parliament in February this year has now stalled due to differences between Majority Leader Aden Duale, who sponsored the Bill, and the Committee on Energy, whom Duale said had introduced ‘too many and unnecessary changes’ to the proposed law.

Among the contentious issues are the capping of revenues to counties as well as the reduction of the community share to five per cent.

“The Government should explore options of implementing a flexible cap or a cap on sliding scale. Such a cap would recognise increased and improved absorptive capacity at county and community level, and would ensure that formula is not static,” says Oxfam.

Estimates show that Turkana County could earn as much as Sh20 billion in 2027 if it is allocated 20 per cent of the oil profits that will be paid by exploration firm Tullow Oil.

This is also assuming that the crude oil prices will hold at the current levels of around $65 per barrel. The revenues to the county would be about double the Sh11 billion Turkana was allocated by Treasury in the current financial year.

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