Somalia’s President Mohamed Abdullahi Farmaajo has signed a law that gives the central government powers to sell the country’s oil blocks for commercial drilling, giving his administration full control of the unexploited crude deposits.
The new Petroleum Act paves the way for creation of a state-owned oil company with authority to sign exploration deals with foreign entities that have been lining up for the country’s more than 200 petroleum blocks.
The law also raises a new dimension in the ongoing maritime dispute between Kenya and Somalia, as it unlocks Mogadishu’s powers to potentially sell oil blocks that are in the disputed area of the Indian Ocean waters.
A ruling on the case filed before the International Court of Justice is expected in July.
The new Act dissolves all agreements entered into between Somalia and outside entities between 1991 and 2012. It also states that deals entered into with Somalia before Siad Barre was ousted will be retained, though these may need to be updated.
These were some of the things missing in Somalia’s oil policy, which held back the country from holding public auctions for its oil stocks.
“The opportunities for the international exploration and development majors are enormous, with Somalia having the potential to become one of the most significant hydrocarbon players in offshore East Africa,” said Somalia’s Petroleum and Mineral Resources Minister Abdirashid M Ahmed. “We now look forward to moving to agreeing Production Sharing Agreements with our international partners.”
President Farmaajo said the law signified the unity of Somalia towards reconstructing a country broken down by years of war and terrorism. Somalia’s 202 oil blocks are said to hold over a billion barrels of oil. Fifteen of those blocks could be ready for extraction. But four of those are in a disputed area where Somalia is contesting a maritime boundary with Kenya.
On Friday, Kenyan diplomatic officials who spoke off the record told The EastAfrican they will be watching to see if any of those blocks in the disputed area are affected by the expected public auctions.
Within Somalia, however, passage of the law was acrimonious, with some stakeholders arguing that it was pushed through the Upper House (Senate) without their input.
A member of the Somali Senate Committee on Natural Resources, Transport, Economy and Infrastructure said his team put questions to the Minister for Petroleum to clarify some issues before the Bill was sent to the floor of the House. But when new suggestions were forwarded to the floor, they were rejected and the Bill passed in a day.
“Somalia hasn’t managed oil in its history so there were a lot of questions asked as there are people afraid of how it will go,” the Senator told The EastAfrican, asking not to be named to avoid reprisals from colleagues.
“The Bill was not perfect and what we added to it was not used in the final draft. It was pushed through the House through a motion published the same day. It was an illegal way, to be honest with you, because such a motion needed at least 24 hours,” he added.
Senators from Puntland also walked out of the session in protest.
As it is, the law gives the federal government exclusive rights to enter petroleum exploration and extraction agreements with foreign entities. This means that Mogadishu could now revoke agreements entered into by federal states as long as the federal government does not endorse them.
“It is a good thing in the short-term. Mogadishu is going to get quick cash from selling off those blocks to foreign companies. That cash is needed for elections later this year,” said Dr Abdiwahab Sheikh Abdisamad, who runs Nairobi’s Southlink Consultants, a think-tank that specialises in Horn of Africa affairs.
“But it is a bad idea in the long-term. Because some companies simply buy oil blocks and don’t extract oil for years. That will be disastrous for Somalia because they will be unable to utilise that resource,” he said.
President Farmaajo was already running into headwinds with federal State leaders. Moments after the Bill was enacted, Puntland State President Said Abdullahi Deni said the law was unconstitutional because there had been no consultations with federal States.
“Puntland shall not be involved in the implementation of the Petroleum law until such a time that consultations start between the leaders of the federal government and federal member states to remove all the clauses that violate the federal constitution,” he said in a statement. “Puntland informs all international companies interested to invest in onshore and offshore oil reserves in Somalia to steer away from any agreement based on the new petroleum law signed by the Somali President.”
Puntland, which has been autonomous for most of Somalia’s chaotic years is one of the five federal states. Others are Jubbaland, South West, Hirshabelle and Galmudug.
Legal experts said Somalia’s vague policy on oil revenue sharing could also prove to be a future sticking point.
“The current provisional constitution only outlines general principles about resource sharing and all relevant articles call for both sides to negotiate and agree on a mutually beneficial formula,” Hamza Abdikadir Sadik, a lawyer and political analyst based in Mogadishu, said.
Somalia has more than 200 oil blocks, said to hold over a billion barrels of oil.
Fifteen of these blocks could be ready for extraction. But four of those are in a disputed area where Somalia is contesting a maritime boundary with Kenya at the International Court of Justice.
A ruling on the case is expected in July.