Somalia: Somali government and US company challenge legality of oil deal

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The Somali government and an American company are embroiled in a dispute over the validity of an oil exploration agreement reached in February in Istanbul.

Abdirashid Mohamed Ahmed, Somalia’s Minister of Petroleum and Mineral Resources, and Richard Anderson, Managing Director of Coastline Exploration Ltd., signed the agreement. But in separate statements, Somali President Mohamed Abdullahi Mohamed, known as Farmaajo, and Prime Minister Mohamed Hussein Roble rejected the deal, declaring it “null and void”.

The two leaders cited government decrees and directives prohibiting all government ministries and agencies from signing agreements with foreign governments and organizations until the ongoing parliamentary elections are finalized. Elections are expected to conclude next month with the election of a new president.

In addition, the government has instructed Attorney General Suleiman Mohamed Mohamud to investigate the contract and take appropriate legal action.

The position of the government is that the agreement is contrary to a presidential decree of August 7, 2021 and a directive of the Council of Ministers of December 6, 2018. The mandate of the current legislative and executive powers expired more than a year ago. . The government said the correct procedures were not followed; therefore, the deal is “null and void,” according to a Feb. 21 letter sent by the Foreign Office to Coastline Exploration and obtained by VOA.

Anderson disagrees with the letter and challenges the government’s interpretation of the agreement’s legality.

“I won’t go into the legal details of the analysis, but we believe quite strongly that our PSAs (production sharing agreements) that we have signed are legally valid and are in full effect,” he said. he said in an interview.

VOA asked Anderson why the company ignored the Somali president’s executive order and a letter from a parliamentary joint committee on natural resources that ordered government agencies not to enter into agreements during the election period.

“We didn’t ignore anything,” Anderson said. “Before signing the PSAs in February, we consulted with the ministry and the SPA (Somali Petroleum Authority), and we were assured that the president and the prime minister were aware of the process and that they agreed with the signature.”

He admitted that Coastline Exploration had not communicated directly with either the president or the prime minister, but said the oil minister and SPA members had assured them that the two leaders were aware. Ahmed, the oil minister, declined repeated requests from the VOA for an interview for this report.

In an interview with VOA in February, Ahmed said the president was aware of the signing, but the presidential palace denied his request.

Agreement details

Providing details of the deal for the first time, Anderson said it was a “fair deal” for Somalia.

“There’s a 5% royalty that comes right out of the gate. Profits are split 50-50. There’s a 30% income tax on profits made by the entrepreneur, that is, say Coastline,” he said. There are various other financial benefits for Somalia in the deal, he added.

According to Anderson, all of the terms of the PSAs, including the profit-sharing percentage, are fixed for its 30-year term and will not change during the life of the contract.

Somali oil experts have criticized the deal. Jamal Kassim Mursal, former permanent secretary in Somalia’s oil ministry, said the deal was “unfair”.

“With a fixed oil royalty rate of 5% and a fixed gas royalty rate of 3%, the government’s share becomes 59.8%,” he said. “However, if prices drop to $70 a barrel, the government’s share rises to 50%. Any price below $70, the government loses money for the contractor. Sixty dollars a barrel, the share of the government becomes only 42%.

Mursal said other key terms such as discount rate, R-factor (ratio of cumulative revenues to cumulative costs), cost recovery cap, exploration period and capital gains determine the take. overall government.

“So we can’t say it’s fair,” Mursal said.

“The fact that everything was done in secret in itself makes it unfair. The government’s current term is over, and both statements from the Prime Minister’s Office and the President said that no government official is signing a contract until until the new government is installed, so they don’t have a mandate to sign such an agreement.”

Last year, the Somali government was warned against entering into oil deals by the Financial Governance Committee (FGC), an expert group consisting of the Somali finance minister, parliamentarians and a member of the World Bank.

In a notice, the FGC said it identified two main concerns in the government’s approach to oil and gas contracts: incomplete compliance with the government’s legal framework and inadequate protection of the state’s financial interests.

“Incomplete compliance greatly increases the risk of future legal claims and/or compensation against FGS (Federal Government of Somalia), while inadequate protection of FGS’s financial interests risks poor value for money during the life of the awards which can last for 40 years or more,” says the notice obtained by VOA.The signed agreement was for 30 years.

The FGC also said no PSA should be signed until an extractive industries income tax is enacted. No such law has been enacted in Somalia.

Coastline Exploration, founded in 2018, contractually owns Soma Oil & Gas, a company that has collected seismic data off Somalia.

Soma Oil & Gas was previously investigated by the UK’s Serious Fraud Office but was later cleared of wrongdoing due to “insufficient evidence”. Some of the board members of Soma Oil & Gas, including Anderson and Alexander Djaparidze, a Russian billionaire, are board members of Coastline Exploration.

“I want to tell everyone up front that we’re not corrupt. We don’t need to be corrupt,” Anderson said. “I have never been asked by any Somali government official to make any illegal payment. This has never happened. I also want to stress that no Somali politician is a shareholder of Coastline. We are independent of the government .”

He confirmed that Coastline had paid for flights to Istanbul and hotels for members of the Somali delegation, who flew to Turkey to sign the agreement.

“I want to make it clear that before doing anything and paying anything that has anything to do with anyone in the Somali government, it is always reviewed by our anti-corruption and anti-corruption board. -corruption before making such payments or undertakings,” Anderson said.

“It was reviewed by them, and they determined that it was, you know, it was fine under US law and Somali law, again for convenience.”

Anderson said he was confident that the investigation by the Somali Attorney General would conclude that Coastline had complied with Somali law and that Coastline would be allowed to begin work.

This report comes from the “Dossier d’Enquête” program of the Somali service of VOA.

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