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Trading with the Government

Oil and gas, school textbooks, passport production, security sector rations, tuna fishing, and Mogadishu port… a new report lifts the lid on the 2020- 2021 reviewed contracts and concessions  by the government and companies and entities it’s in business with

TSI Writer

To any ordinary businessman, the opportunity to do business with the government is one that if utilized properly, promises guaranteed stable and lucrative returns. Based on contracts that run years (often 5-10 years or more), a company landing a deal with the government usually portends the beginning of good tidings.

The 2021 Financial Governance Report (FGR), which was released by the Ministry of Finance in September this year (it is the fifth –annual- report from the Financial Governance Committee), offers an insightful window into who and which entities have in the previous one year held concession agreements and government procurement contracts above the US $5 million. The report outlines developments in the country’s financial governance in 2021 and the priorities for 2022.

The Financial Governance Committee (FGC) is a top-level advisory unit that is made up of top members of the Federal government of Somalia and key international representatives from organizations such as the World Bank. It advises the government on sensitive and strategic financial matters including natural resource management, the governance of the central bank, contracts, and concessions among other things.

In this year’s annual report, the Ministry of Finance opened the lid on some of the key reviewed contracts and concessions made in 2020-2021 by the government and companies and entities that it does business with. From the report, The Somalia Investor Magazine has learnt that some of the contracts are ending, presenting an opportunity to entrepreneurs and businessmen who have what it takes to trade with the government, other contracts and agreements have expired, but were awarded one-year extension; this also presents an opportunity to businessmen and lastly, others are continuing or newly signed contracts.

In the 2020-2021 cycle, the Financial Governance Committee with assistance from a World Bank team covered advice and support on concessions and contracts, procurement policy and compliance, review of tender processes, and a review and regular follow-up on contracts that were previously under discussion.

Below (direct excerpts from the report) are some of the mentioned entities that are currently doing significant business with the government:

Mogadishu port concession

In October 2020, after two years of negotiations, the Federal Government of Somalia signed a revised port agreement with Al Bayrak, the Turkish firm that has been managing the Port of Mogadishu since 2013. The revised agreement runs until 2034. It sets aside US$52 million of port revenue for investments in port infrastructure during the first five years.

It also specifies a procedure for the government of Somalia and Al Bayrak to agree on a long-term plan covering port investment from years six to fourteen and enables the government of Somalia to terminate the agreement after five years if the long-term plan is not acceptable. The FGS is required to play an active role in implementing the revised agreement.

Passport production concession

The Federal Government of Somalia launched a tender in 2020 for a new passport production concession agreement to replace the existing contract. Although six firms were invited to bid, only one bid was received.

Another bidder submitted a formal legal complaint requesting that the process be canceled. The Federal Government of Somalia decided not to proceed with the tender process. It has instead issued a short-term extension to the existing contract holder to give it time to prepare adequately for a new tender.

Security sector rations contracts

Tenders were issued in December 2020 for the supply of dry rations to the Somali National Army (SNA), Police, National Intelligence and Security Agency (NISA), and Prisons. Four contracts were awarded competitively in March 2021 for the supply of rations to the SNA (two lots), Police, and Prisons for a one-year period. NISA did not open the bids submitted for the NISA rations tender, and no contract was awarded. So there is an opportunity here.

Education textbooks concession

In August 2020, the Ministry of Education signed an amendment to its 2016 contract with Beder Printing House. The 2016 contract granted Beder the exclusive right to develop Somalia’s curriculum and associated textbooks, but suffered from a lack of clarity over key contractual terms – including the ownership of copyright.

Tuna fishing licensing

The Financial Governance Committee monitored progress in tuna licensing and revenue sharing in the twelve months from July 2020 to June 2021. The Ministry of Fisheries and Marine Resources (MFMR) awarded a total of 21 annual tuna fishing licenses in the second half of 2020, against the Federal Government of Somalia’s Memorandum of Understanding with the Chinese Overseas Fishing Association.

Revenues from the November 2019 license round were shared with the Federal Member States in 2020. Revenues from licenses issued in 2020 have not yet been shared, and the March 2019 revenue-sharing agreement has expired.

Oil and gas licensing

The FGS has made considerable progress in establishing the legal and fiscal framework for petroleum management and the award of oil and gas Production Sharing Agreements (PSAs). The award of PSAs is governed by both the 2020 Petroleum Act and the Procurement Act. The MoF has also drafted an Extractives Industries Income Tax (EIIT) Bill to govern the fiscal terms of the PSA, including royalty rates and the applicable taxation regime.

The Somalia Petroleum Authority Board (SPA) was appointed in July 2020. It then launched a licensing round for seven offshore blocks in August 2020, with a deadline of March 2021. In November 2020, it posted a licensing round tender protocol and draft PSA on the licensing round website. In parallel to launching the licensing round, it carried out negotiations for the direct award of 10 offshore blocks to two oil exploration firms.

As the year comes to a close, the political and economic environments in Somalia are expected to ease. This is in comparison to the onset of the Covid-19 period and the political tension surrounding the election that was witnessed early in the year.

However, the Finance Governance Committee and its international partners, in conjunction with the Federal Government of Somalia have identified four priorities including fiscal reforms (including fiscal federalism), contracts and concessions, natural resource revenues, and central bank governance that will be of significance during the next 12 months.

This article has been written using excerpts from the Financial Governance Report – September 2021, published by the Ministry of Finance.

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