Regulating petroleum in Somalia will be a big boost to the economy

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By Special correspondent

Relevant government arms concerned have to start from developing policies relevant to the petroleum sector and see how the sector is nurtured to yield at its optimum potential.

Petroleum products, the single most reliable energy source in Somalia remains unregulated encouraging predatory behaviours by players and denying the government vital revenue.

With a New Year and new economic challenges, experts and players in the industry believe that the start of formal regulation of import volumes and supply chain of the crucial commodity will make a vital economic lifeline for the county in the horn of Africa.

Hass Petroleum Country Manager, Abdulhakim Muse Omar speaking to The Somalia Investor Magazine says the industry is crucial for the country, hence, it deserves regulatory guidance as it common practice worldwide.

“When import rates, for example, are not regulated, we remain prone to oversupply and under supply cycles which may affect product pricing as well as availability. Everywhere in the world, fuel is regulated to protect the consumers as well as the traders. I believe that is where we are headed to because that way, we all succeed, “said Mr Omar in an exclusive interview.

The scenario has largely affected demand and supply rationale of petroleum and diesel with unpredictable product pricing as well as business disruption for major legitimate players in the country.

The industry which now employ hundreds remains thwarted with the market dynamics, narrowing its potential to expand and employ more people in a country where jobs are highly needed.

Indeed fuel is a highly monitored and regulated commodity in most countries since lack of it may stall the economy instantly. In Kenya for example, the government ensures the importers bid through an open tender system where the landing cost of the product is determined.

Once that has been done, the best bidder is allowed to import the commodity and supply it to the market where the retail prices are determined and announced every 14th day of the month. The practice which is also common in South Africa ensures that the product is both available and at a reasonable price for both the consumers and the sellers.

Unregulated supply gives the dealers an opportunity to undercut one another through pricing. They may also collude to fix prices and deny consumers nay benefits of lower import pricing as was recently experience with the global fuel prices.

Last year, Somalia continued to experience some of the highest energy prices in the world, even when international crude prices were at the lowest with the price ranging between USD 1 to USD 1.25 per kilowatt hour.

Since almost 99 per cent of energy usage in the country is by petroleum, all of which must be imported usually from the nearby Persian Gulf, one would expect the fall in the international crude prices would reflect in Somalia but that was not the case.

Passing down the low cost of energy benefits to the business community and the citizens is crucial. Regulated fuel supply will also have a ripple impact in terms of improving the cost of doing business as well as reducing the cost of living.

Mr Omar is confident that things will take a different shape for the better after the regulatory base has been set up.

“I am very optimistic that once this takes shape, then the government will definitely be able to focus even more on security and building roads. Good roads will generate more income to the economy,” Mr Omar told TSIM.

The World Bank similarly opines that 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 of oil and gas revenues and may stimulate interregional conflict and reduce the potential revenues extractable from these resources, “the lender of last resort says.

Tapping into the oil bonus will be an easy way into meeting budgetary deficits and filling the huge infrastructural gulf currently in Somalia. The government arms concerned have to start by developing policies relevant to this area and see how the sector is nurtured to yield at its optimum potential.