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Panel Discussion on “How the Extractives Industry can Transform Kenya’s economy

Panel Discussion on “How the Extractives Industry can Transform Kenya’s economy. Prof J Kieyah JD., PhD Kenya Institute for Public Policy Research & Analysis At Information Center for Extractives Sector 31 July 2004. OVERVIEW. Outline Production share Agreement Structure Some weakness

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Panel Discussion on “How the Extractives Industry can Transform Kenya’s economy

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  1. Panel Discussion on “How the Extractives Industry can Transform Kenya’s economy Prof J Kieyah JD., PhD Kenya Institute for Public Policy Research & Analysis At Information Center for Extractives Sector 31 July 2004

  2. OVERVIEW • Outline • Production share Agreement • Structure • Some weakness • Allocation of risks • Local content Policies • Why question? • Market failure • Government failure • What question?

  3. Production Sharing Agreements (PSA) FOC GOK Gross Production Cost recovery Oil Profit FOC share GOK share Profit Income Tax

  4. PSC Model • Area • Specified block size • Exploration • Initial exploration -2 yrs, 1st – 2yrs, 2nd – 2yrs • Production: 20 -30 yrs • Profit oil • Based upon a production-based sliding scale • Cost recovery • Based on negotiated gross revenues (world average 60%)

  5. PSC Model • Inherent weakness of Petroleum Act • Compensation regime • Licensing rounds • Community awareness and participation • Environmental concerns • Payment of royalty on gross oil produced

  6. Risks allocation • Participation Agreement • Discovery of new resource • Type of resource • Size of deposit • Economic viability of development • Technological requirement • Future price development • General economic and political

  7. Local Content Policies • Why • Market failure • Information Asymmetry • Government failure • Ineffective representation • Way forward • Local content policy • Situational Analysis • Stakeholder analysis • Implementation • Drivers • Monitoring & Evaluation

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