Somalia & the issue of Petroleum

20.9.2022: Mogadishu, Somalia

Over the last decade, there has been an exponential boom in the exploration of hydrocarbon resources in the East Africa region which has been categorised as the new frontier of oil and gas exploration in the globe – especially as the globe looks for alternative sources of energy away from Russia and the Middle East.

Amongst the naturally blessed countries is Tanzania where huge reserves of gas was found of the coast. There have also been discoveries in the Ethiopia and Kenya. In fact, some of these discoveries have resulted in border disputes between states. For example, Somalia and Kenya disputed over oil blocks in the southern Jubaland region of Somalia which was settled by the International Court of Justice (ICJ).

The world has kept a close eye on Somalia however, which is reported to hold large quantities of oil reserves. Geoseismic studies have shown that Somalia may have at least 30 billion barrels of oil and gas reserves.

For country in which almost 70% of the population live below the poverty line, the oil and gas industry could dramatically change the fortune for millions of Somalis and a country that has been ravaged by civil war and poverty for three decades.

So with the Somali Petroleum Law being passed by Parliament and signed by former President Mohamed Abdullahi Farmaajo in 2019, why is there continued delay regarding the implementation?

History of Petroleum Exploration in Somalia

Prior to 1991, international oil and gas companies had exploration agreements in Somalia. However, before any major exploration could be completed, Somalia would disintegrate into a major civil war that resulted in many of them withdrawing from the country due to security concerns.

By 2008, the transitional government of Somalia attempted to revive its hydrocarbon sector. This would be continued by the newly created Federal Government in 2012 led by President Hassan Sheikh Mahmoud which signed a landmark agreement with Federal Member States (FMS) to share any petroleum revenue between the Federal Government and the FMS. This would create some of the foundational necessary frameworks to re-attract foreign investors. For instance in 2019, Shell and Exxon made $1.7M in legacy payments for 1990-2008 owed under a previous concession agreement. President Hassan Sheikh also awarded seismic survey agreements and a production sharing agreement to Spectrum Geo, now acquired by TGS, and Soma Oil & Gas respectively.

Baydhabo Agreement 2018

Federal government and state government leaders would meet in the transitional state capital of South West State (SWS), Baydhabo in the summer of 2018 to discuss national security as well as the ownership, management and revenue sharing of the country’s natural resources.

In a three article agreement, Federal leaders agreed upon the ownership of Somalia’s natural resources which is outlined under Article 1 of agreement which stipulates that ownership is reserved to the Somali people. Article 2 and 3 discuss the management of the resources and the distribution of the revenue respectively. Let’s take a look at some of the more elements to this agreement:

  • Article 2(c): The responsibility of creation Federal laws and signing agreements is held by the Ministry of Petroleum in liaison with State Ministries of Petroleum.
  • Article 2(e): The creation of an inclusive Somali Petroleum Agency under Federal law. It will led negotiations and preparation of licenses as well as inspection, verification and implementation of petroleum laws. The SPA will comprise of one member representing each regional government and two members representing the Federal government.
  • Article 2(f): The creation of the Somali Petroleum Corporation which is yet to be create.

The Puntland state government is the first regional government to reject tendering procurement proposals put forth by the newly appointed Joint Ministerial Committee on Contractual Procurement setup by President Hassan Sheikh Mohamud. In fact, Garowe has gone so far as to reject the Somali Petroleum Act 2020 which was by the Federal Parliament as unconstitutional. The state government elucidates that the law does not follow the Baydhabo Agreement of 2018.

Puntland State House

Conversely, the Hassan Sheikh administration is going ahead with the Somali Petroleum Act 2020 as a legal basis to commercialise Somalia’s natural resources. A decision that is currently increasing the ever-growing rift between Said Deni and President Hassan Sheikh Mohamud.

To make matters worse, Puntland also does not observe the Somali Petroleum Agency as legitimate at the current time. In a statement released in the summer of 2021, the Puntland state government argued the Article 2(e) of the Baydhabo Agreement was not followed because Garowe did not have “no official representative”.

Puntland State House

What is current situation regarding Somalia’s Natural Resources?

Somalia has consistently been ranked amongst the most corrupt governments’ in the world in recent decades. It was previously not uncommon for Federal Ministers to sign secret agreements with international organisations without Parliamentary approval.

An example of this was during the latter period of President Mohamed Abdullahi Farmaajo’s caretaker administration in which Federal Minister for Petroleum and Mineral Resources, Abdirashid Mohamed Ahmed announced an agreement with an American upstream oil and gas exploration and production company called Coastline Exploration Ltd without Parliamentary approval. In separate statements, President Mohamed Abdullahi Mohamed Farmaajo and Prime Minister Mohamed Hussein Roble rejected the deal, declaring it “null and void.”

Both leaders cited government decrees and directives banning all ministries and government agencies from signing agreements with foreign governments and organizations until ongoing parliamentary elections are finalized. 

There have been reports that upon taking office, President Hassan Sheikh Mahmoud signed off this very agreement.

Joint Ministerial Committee on Contractual Procurement

Interestingly, as an opposition candidate, President Hassan Sheikh Mohamud strongly condemned the committee setup by President Mohamed Abdullahi Farmaajo only to controversially appoint new members once elected. The current committee is composed of key Mohamud allies including Interior Minister Ahmed Fiqi, Finance Minister Dr Elmi Nur and Justice Minister Hassan Maalim. Some have criticised the President for these actions which demonstrate deception.

Just last week, the committee signed off a new procedural framework for the Federal government and foreign companies would sign agreements which has been vehemently rejected by Puntland State. In fact, reports have emerged today that a delegation led by the Minister of Petroleum and Mineral Resources, Abdirizak Mohamed flew Abu Dhabi to discuss possible deals brokered by the Emirati government. What is important to note here is that the new procedure signed by the joint committee has not been approved by the Federal Parliament.

Is Somalia ready to sell Natural Resources?

The reality of Somalia is that it is loosely ruled by clan states and is a land in which there is hardly any foundational legal infrastructure to underpin the sale petroleum in a manner that protects Somalia from corruption and upholds accountability. The exploration for petroleum is an activity that has a myriad of layers. It involves Federal and state laws, it requires environmental and sovereignty considerations, it is something that requires meticulous planning and is undertaken over decades. What is clear is that Somalia currently has a nationally accepted framework for petroleum trade under the Baydhabo Agreement of 2018 however the Somali Petroleum Act 2020 is not currently accepted by Puntland.

For the Somali government to move forward, it must avoid signing discreet deals as previously done under the previous Hassan Sheikh administration with Soma Oil & Gas which was found to be rife with corruption in legal investigation in the UK.

The reality is that future possible oil reserves in Somalia could exceed 110 billion barrels of oil, effectively giving a population of just over 10 million control of the world’s 5th largest oil reserves; more than UAE and Kuwait.

The Somali people must use this wisely.

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