Somalia’s oil deal with US firm sparks backlash amid transparency concerns


MOGADISHU (Somaliguardian) – Somalia’s government on Friday signed an offshore oil exploration deal with the US firm Coastline Exploration, sparking social media backlash.

Former President of Hirshabelle State Mohamed Abdi Ware said the agreement was “wrong” and called for regional states to reject it.

“Federal Member States should reject the Coastline Exploration / Soma Oil deal. It doesn’t meet the minimum standards for transparent bidding, conflict-of-interest guidelines or National interest considerations,” Waare tweeted, adding that the deal was wrong under former President Farmajo and “it is still wrong.”

Kenyan MP Farah Moalim accused Somali President of auctioning his country’s oil and gas resources.

“There must be a legal regime that mandates Parliamentary approval for all & any contract on natural resources. Profit sharing agreement on oil & gas must be conducted in the open,” he tweeted.

“Somalia sadly turned into another Angola today. President Hassan signed off Somali oil/gas,” he added.

In April 2021, a controversial oil exploration agreement signed with the US firm by the-then Minister of Petroleum was nullified by Somali authorities, a move that was welcomed by opposition leaders, including the incumbent President Hassan Sheikh Mohamud.

Coastline said at the time it firmly believed that the secret production-sharing agreement was legally valid and was in full effect.

During the tenure of former President Mohamed Abdullahi Farmajo, Financial Governance Committee (FGC) a group of experts comprising the Somali Finance Minister, MPs and a member of the World Bank warned the government against entering oil agreements.

The FGC raised concerns in the government’s approach to oil and gas contracts, including inadequate protection of the state’s financial interests and incomplete compliance with the country’s legal framework. It also called on the government not sign any oil deal until an extractives industries income tax is enacted. No such such has so far been introduced in Somalia.

Speaking to VOA last year, Jamal Kassim Mursal, former permanent secretary of the Somali Petroleum Ministry, said the deal was “unfair.”

“A fixed oil royalty rate of 5% and a fixed gas royalty rate of 3%, government profit becomes 59.8%,” he said. ”However, if prices fall to $70 a barrel, government share stands at 50%. Any price below $70, government loses money to the contractor. Sixty dollars a barrel, government share becomes just 42%.”

Mursal added that other key terms, including the R-factor (ratio of cumulative revenues to cumulative costs), the cost recovery ceiling, the discount rate, the exploration period and capital gains determine the overall government profit.

Founded in 2018, Coastline Exploration, which has the contractual possession of Soma Oil & Gas – a company that collected seismic data off Somalia’s shore – distanced itself from allegations that it had bribed Somali officials to win its bid for the oil blocks.

The company denied that Somali government officials are members of its shareholders.

Despite Somali government’s claims that the deal was signed after amendments made to its previous terms, still questions and concerns are raised about why its new terms have been kept secret.

Among key questions are how FGC recommendation that awarding oil contracts should only be made after competitive licensing round was followed, how the deal was reached without an extractives industries income tax law enacted, how many years the cost of recovery will take and how many after the oil production Somalia will get a maximum profit?. Authorities have not yet answered such questions.

Despite FGC recommendation, federal authorities did not include regional states in the signing of the deal.

In a report in 2013, UN Monitoring Group warned that deals between Somali authorities and Western commercial oil exploration companies could spark fresh conflict in the war-torn Horn of Africa nation amid discrepancies over which authorities can issue licenses.

Unnerved by UN reports that cited cases of government corruption, Western diplomats said at the time the government’s limited capacity and experience in negotiating often complex energy and other agreements could mean Somalia received a poor return.

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