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Tuesday, August 11, 2020

Somalia’s Oil and Gas: A recipe for corruption that could trigger renewed conflict in Somalia

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Since March this year, the Minister for Petroleum and Minerals of the federal government of Somalia has been shuttling from city to city in Europe and North America to convince potential oil exploration companies to invest in Somalia’s untapped oil and gas sector and asking them to participate in the bid rounds on offshore blocks with high prospects.

The Minister held the first licensing round in London on February 7, 2019, before the petroleum bill was even debated in the parliament, a clear dereliction of his ministerial responsibility. This was followed by another license round in Turkey, in the USA and in South Africa. 

A recipe for corruption! Yes, indeed article 20 (3) of the recently passed petroleum bill by the people’s house (not yet ratified by the upper house) explicitly states the Somali Petroleum Authority has the prerogative to negotiate and offer blocks directly with potential oil companies without going through the open, transparent licensing rounds; to vouch for yourself (please see the petroleum bill on Somali parliament website).

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With that, it is pertinent to put forth few caveats for foreign oil companies that are interested in investing in oil and gas sector in Somalia:

First caveat; the Somali Prime Minister was employed by SOMA-OIL and had 2,000,000.0 shares with SOMA-OIL and gas company, though he claims to have relinquished his shares after being appointed to the Premiership position, sources have confirmed for me that the shares were transferred to his cousin and business partner. Who has travelled to Moscow more than five times in the last two years and was recently (two months ago) spotted attending energy conference in Moscow representing the interest of the Prime Minister.

It is now an open secret that the Minister of Petroleum and Minerals for the federal government of Somalia has been telling close friends that SOMA-OIL l will be offered two blocks with good prospects in Hobyo basin as per the instructions of the Prime Minister

Second caveat; Notwithstanding, the marketing campaign by the Minister of Petroleum and Minerals, the regulatory framework for petroleum regime is not yet in place as the petroleum bill is yet to be ratified by upper house, the niceties of competitive PSA model is just a plot to hoodwink potential oil and gas investors.

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Third caveat; The current mandate of the government is coming to an end in 2020, the current administration is working hard to offer as many blocks as possible and use the signature bonuses they collect for their re-election bid (an unlikely scenario). Foreign oil investors must take into account that not only the stability of the markets matters but the stability of the government is equally more important. Moreover, any hastily signed agreement without a regulatory framework and with a government that is running out of its mandate, will be subjected to challenges by the next elected government in 2020/21.

Fourth caveat; There is pervasive insecurity throughout the country and Al-Shabab poses an existential threat to the federal government and African Union forces. Despite American airstrikes, Al-Shabab is more potent and deadly in terms of its suicide operation, and by using improvised explosive devices (IED) and ambushing AMISOM and Somali security forces. Al-Shabab collects taxes from Mogadishu port, levies sales taxes on properties and business in major urban cities including Mogadishu. 

With such insecurity, any investment in oil and gas sector in Somalia is a very risky undertaking and is critically important to consider the above caveats. The Prime Minister is now scheduled to go to the USA to convince oil companies to invest in Somalia’s untapped oil reserves. My advice to the unsuspecting potential oil and gas investors is to reflect on the above facts before making any hasty decisions on investing in Somalia’s oil and gas sector


by: Ismail D. Osman
A political analyst with a special interest in the horn of Africa.

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