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Petroleum law is approved: Ready for oil?

Abdirahman H. Yusuf

Somalia’s MPs in May approved a Bill that finally gives a green light to exploration and extraction efforts. What does it mean for the country and the people?

The Petroleum Law and Revenue Sharing Agreement is real and in operation. This has been a long time coming. After years and months and weeks of deliberations, back and forth talks, heated discussions and concessions from different interested parties; law makers in Somalia decided to approve the law. The bill is however before the senate for their deliberations and approval.

On May 18th, the Lower House of Somalia’s Federal Government, during a sitting that was monitored keenly and closely by key players in the petroleum sector in the world, from Arab nations to the US and Russia, to the UK and Canada among other global oil industry heavy hitters, the leaders passed a law that sent immediate shock waves across the world.

Oil off the coast of Somalia is of interest to not just the global players, but also to the regional partners and neighbouring countries, local business leaders, local politicians and local citizens. The drilling and extraction of Somali oil is a subject that has created a buzz and divisions among the Somali community at home and those abroad. It has also forced Somalia and Kenya into a diplomatic row that appears to be getting worse by the day.

Terms and Conditions

Previously accused of rushing the licensing process so as to allow oil companies, both local and foreign, to begin the extraction process, the Federal Government’s move to pass the law is a clear sign that finally, the legislative processes that was earlier on an issue will no longer be a bother to prospective investors and businessmen angling for a piece of Somalia’s oil.  At the same time, it brings out the finer details of the terms under which the drilling, processing and distribution (of oil) firms that intend to operate in Somalia will have to abide by.

Speaking shortly after the law was approved; Minister of Petroleum & Mineral Resources, Abdirashid Mohamed Ahmed said that the law was a landmark development in harnessing and benefiting from the natural resources that the country is endowed with and that with the law, the transformation of the country’s development trajectory was sure to begin in earnest.

“The Ministry has worked successfully with the Federal Member States to develop an equitable and transparent framework to develop natural resources for the greater good of Somalia and all its people”, he said. “Production sharing agreements (PSAs) can now be signed, wherein the first phase will involve planning and mobilising to acquire seismic data and the drilling of exploration wells over 2020 and 2021”.

What does it mean?

Somalia’s 2019 offshore licensing round.

The first offshore licensing round in Somalia begun in February 2019 and should be coming to a close at the start of the month of November 2019.

What does this law mean for the country and for those who would like to get into the oil business in Somalia? For starters, it means that the coast is finally clear. With this law passed, the legal encumbrances that have for some time held investors and international companies back will now not be a problem.  In short, due to the passing of this law, Somalia can now contract international or local companies to explore, extract (drill) and distribute oil and gas off its offshore find.

The vote, which was done by a show of hands with 150 MPs voting in favour of the approval and a paltry 4 rejecting the move, has been seen as a bold step by the country towards prosperity, even as regional leaders registered their protest. This protest is the other thing that has been occasioned by the new legislation.

Resource sharing

According to the legislation, the Federal Government will have 55% of the share, the oil producing region will have 25%, the oil producing districts will have 10% of the proceeds, while the non-oil producing districts are projected to get 10%. This is part of the reasons why some of the regional leaders weren’t for the idea of passing the law.  The Petroleum Law, which is a revised and revamped version of the 2008 regulation of an almost exact name has set the Somali government and leaders of the Federal Member States in a deadlock over what they see as unequal distribution of the oil and gas proceeds.

Other countries in East Africa, especially Kenya, might also be directly affected by the legislation.  The news of the legislation was met by skepticism seeing as Somalia and Kenya are currently embroiled in a tussle over the some section of the same oil blocks that are now open for extraction. The 62,000 square miles triangle that is at the centre of the feud between Kenya and Somalia has so far led to a case that is currently at the International Court of Justice (ICJ) and that is just the start of it, an open diplomatic row is playing out between the two countries at the moment.

At the beginning of the year, during a conference in London, Somalia opened up its oil blocks to international investors, showing oil blocks and offering other market sensitive data to the participants and interested parties to purchase.

At the same time, the questions of accountability and oversight have also arisen in relation to whether oil international (foreign) exploration, extraction, and distribution companies and the agreements reached between them and the Somali government will be subjected to parliamentary reviews, approval and scrutiny. It is not yet clear how this is supposed to work out, however, the suspicion that local political leaders and/or business leaders have towards international foreign oil companies is justified.    

If they are to operate in the country and have access to the oil and natural gas resources, then there is a definite need for oversight and proper accountability.

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