Somalia: International Oil Deals Must Wait

Published on 9th March 2021

International oil companies must withhold investment involving Somalia until new government is formed. The Oil and Gas Investment Industry - International Oil Companies (IOCs) must withhold any investment involving Somalia until the country’s elections take place, and new government is formed. 

International Oil and Gas Companies and any other investment entities need to withhold their investments in the Oil and Gas sector in Somalia, due to the current constitutional crisis and the growing violence in Mogadishu. Capital investment in the oil and gas sector in Somalia will be at great and might not be recognised by any upcoming government after the elections. 

Somalia is in transitional period. The current electoral and constitutional crisis in Somalia puts the country in a difficult place considering the help and support it receives from the international community and the United Nations. The president’s mandate ended without any proper electoral movements on February 8th, 2021. However, on the 18th September 2020, an indirect Electoral Model Agreement was reached between the Federal Member States (Galmudug, Puntland, Jupaland, Hirshabele and South West) and Federal Government of Somalia in Dusamareeb, Galmudug.

The model was approved by the Federal Parliament and recognized by the international community, Somali stakeholders, political parties and civil societies. Nonetheless, the political consensus has not been implemented by the FGS and it was heavily criticized by the Union Council of Presidential Candidates that the implementation process lacks fair participation, inclusion, transparency, and accountability. According to the electoral agenda, the Members of the two houses of the Federal Parliament were supposed to be selected by the end of December 2020, and the Federal President was supposed to be elected by the new Parliament in February 2021. Thus, nominations to the electoral management bodies were several weeks late at the time, and they are still a source of controversy. This was exacerbated by FGS attempts to install its preferred candidates in regional legislatures, which observers interpreted as outgoing President Farmajo manoeuvring for a second term.

In September 2020, Prime Minister Mohamed Hussein Roble was appointed by Villa Somalia, who then named his Cabinet. The new government faced a difficult task in guiding the country through the electoral process, and the reform agenda across the political, security, and economic spectrums. An interview conducted by VOA with former Prime Minister, Omar Cabdirashiid Ali Sharma’arke, stated that Somalia has not experienced such a situation since the formation of the Somali government. In the past four years, the country has entered a culture of ‘let it be defeated’ which Somalia does not need. Overall, in the past four years, the Somali Federal Government made little progress on security and judicial reforms, while civilians were exposed to conflict-related abuses, insecurity, and the humanitarian crisis. It has made some progress on economic reforms, including its national development plan without any implementations. 

Dangers of confidential deals related to oil Exploration and Production in Somalia

In January 2021, a press release from the Union Council of Presidential Candidates stated that Federal Government of Somalia (FGS) cannot enter into an oil exploration and production agreement that does not comply with resource regulations and the system of international oil exploration agreements. The Council released a legally binding letter in early 2021 stating that the successful FGS debt relief program agreement includes an article that declares that FGS cannot sign any oil and gas agreement with IOCs or any other foreign entities due to the debt relief. 

FGS has pressed hard for oil and gas exploration and licencing to be permitted, with an ongoing auction that started from August 2020. The establishment of the Somalia Petroleum Agency (SPA) and key government appointments have occurred, but they have sparked controversy because they are in breach of the provisional constitution. Although only suggestive, seismic surveys indicate that reserves may be enormous, there is no solid evidence supporting this other than seismic surveys. 

Under outgoing President Farmajo, Somalia's, divisions have become worse. In 2012 and 2016, Somalia's elections were extended without major political repercussions. The people of Somalia fear that this time, things will be different because of the deep uncertainty between outgoing President Farmarjo's administration, the Federal Member States and The Council of Presidential candidates.

Bidders in making their own evaluations of the Contract Areas and the opportunity to explore, develop and produce petroleum in Somalia are advised to withhold their investments regarding the opportunity to explore, develop and produce oil and gas in Somalia. The Bidders are advised to wait until Somalia is in a stable place and new government is formed. This information has been prepared in a good faith, simplify because Somalia is in a fragile stage, and IOCs must not take advantage of its situation for quick gains. Otherwise, contracts entered into at this time will likely attract needless constitutional and political debates that could be avoided by holding off till a new government is formed. There is no doubt that legitimacy is an important aspect of contracting and investing in oil and gas operations, which involve long term of years.  

By Marian Harbi 
LLM Oil & Gas Law, BSc (Hons) Oil and #Gas Management. 
Email: [email protected] 

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