Global oil dividend: Why Somalis aren’t celebrating

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By: Abdikariim Jama Barre

As many countries around the world focus on devising schemes to reap maximum benefits from the falling international crude oil prices, what is Somalia doing?

The oil subject was a major one in the recently concluded World Economic Forum in Davos, Switzerland. Capital oil importers like China, Japan and India are busy planning how to reap from the oil glut and use the saved funds to improve other areas of their economies.

Closer home, Somalia’s neighbour, Kenya, is mulling over ways to set floor pricing for the two crucial petroleum products. The country’s national roads agency has proposed the price of petrol to be maintained at US$0.8, while that of Diesel to be kept at US$0.60, as any falls below these local pricings will be used for infrastructure development.

Kenya, which has relatively longer paved roads and with her current energy mix largely geothermal, will have excess funds of more than Ksh 550 million per year if the plan goes through.

In Somalia, where the economy almost entirely runs on petroleum products, the benefit of lower crude oil prices is yet to be felt. With almost 99 per cent of the country’s power generation relying on imported petroleum, usually from the nearby Persian Gulf, one would expect the fall in the international crude oil prices to translate into lower cost of electricity.

By end of January, that had not happened. The electricity tariff rate in the country, considered one of the highest in Africa at approximately US$1.00- 1.40 /kWh5, stayed put.

Fuel pump prices had not dropped in line with the happenings in the international arena. With a drop of almost US$70 per gallon since July 2014, petrol prices per litre remained at US$0.90 in Somalia, only recording a US$0.1 drop in January.

With petroleum products still not generating the much needed income from taxation at the point of entry, the yawning infrastructural gaps will be hard to fill as the recovering state seeks to find its feet in the economic path.

Passing down the lowered global cost of petroleum to the business community in Somalia and the citizens is crucial.

The impact in terms of improved cost of doing business and reduced cost of living will be huge, considering that the principal source of energy in the country is petroleum.

Somalia imports the commodity in the form of refined diesel, petrol, and aviation gas, all of which are used for transportation and power generation. Other imported petroleum products including kerosene and natural gas are used for cooking by large segments of the urban community. Kerosene is in addition used by many to light up homes.

Power producers in Somalia use imported diesel fuel as the only source of energy to generate electricity. It is estimated that collectively, the independent power producers (IPP) burn more than 90,000 litres of diesel fuel every day in Somalia.

Yet power rates have not come down in Somalia and fuel pump prices remain constant despite the falling global crude oil prices. This demonstrates the impact of poor regulation of these important industries.

The World Bank observes as much and more. “Currently, multiple levels of government in Somalia claim the right to regulate oil and gas concessions, creating an environment of confusion. Lack of agreement over who is in control heightens the risk that oil and gas revenues may stimulate interregional conflict and reduce the potential revenues extractable from these resources,” states the global lender in a recent report.

Tapping into the oil bonus will be an easy way for Somalia to meet budgetary deficits and fill the huge infrastructural gulf. The concerned government arms have to start with developing policies relevant to this industry with a view to enabling the country take advantage of the current dividends from the drop in global oil prices.