Somalia has attractive oil and gas prospects, with experts saying the Horn of Africa nation could be sitting on 100 billion barrels which could make it one of the world’s major oil producers.
After recent improvements in security that saw al-Shabab lose control of major towns and a decline in piracy off the coast of Somalia, the government saw an opportunity to start exploration activities.
But oil is already creating problems among Somalis, even before it is being extracted from the ground, and threatening to spark a diplomatic crisis with neighbouring Kenya.
On February 6th, the Somali government hosted an international oil conference in London and said it was presenting the results of seismic surveys and showcased possible locations in the country where oil reserves can be extracted in the future.
But Somalis accused President Mohamed Farmajo’s administration of auctioning oil blocks in the country to foreign oil exploration companies, an allegation the government denied. Diaspora Somalis in London staged a protest outside the hall where the conference was taking place. The senate, Somalia’s upper house of parliament, described the oil conference as ‘unconstitutional.’
Kenya has also alleged Somalia auctioned part of its oil blocks in the Indian Ocean to international companies at the London event, prompting Nairobi to recall its ambassador to Somalia and ordered the Somali ambassador in Nairobi to leave. Mogadishu denied Nairobi’s accusations.
Currently, Somalia does not have clear petroleum laws that govern exploration. Currently, there is no revenue sharing formula between the federal and state governments, and the two levels of governments disagree over who has the right to offer licences to foreign oil exploration companies. Parliament is yet to approve a bill passed by the cabinet.
Due to instability and the absence of a formal regulatory structure, regional governments had taken advantage to reach deals with foreign firms.
Puntland, one of Somalia’s five federal member states in the northeast of the country, has an agency that regulates the oil sector. It is known as the Puntland Petroleum Agency. Unlike the federal government in Mogadishu, Puntland has an oil law that prevents Mogadishu from involvement.
Puntland’s oil law ‘prohibits individuals and entities from discussing, negotiating, or representing the Puntland government in hydrocarbon and/or minerals operating in any part of Puntland territory, onshore or offshore, to any Somali or foreign company’.
Amid the row over licencing, Canada’s Africa Energy Corp withdrew from Puntland. In its notice to Puntland’s oil regulator, it cited ‘disagreement between the Somalia central government and Puntland over the legitimacy of production sharing agreements’.
In September of last year, state governments cut working ties with the central government, one of the reasons being disagreements over division and control of natural resources where the regional administrations want to have a bigger say.
Although there are calls for Somalia’s government to wait to make any move, before the passing of a petroleum law by parliament, it said it will award exploration licences to foreign companies later this year.
Oil exploration, although it will help rebuild Somalia’s fragile economy and create jobs, will also exacerbate an already tense political situation and enhance existing conflicts.
If Somalia’s government does not come up with clear laws governing oil exploration, there could be confrontation, and possibly armed clashes.
“The government is currently struggling to fight al-Shabab, an al-Qaeda-linked group fighting to overthrow it and implement its own version of strict Islamic sharia. It cannot afford another war with state governments that are based on clans and have their own armies,” a report by the Heritage Institute of Policy Studies, a non-profit think-tank based in Mogadishu, stated.
Somaliland, a break-away region in northwest Somalia, and Puntland have been engaged in a border dispute since 1998. Both Somaliland and Puntland claim ownership of Sool and Sanaag which is an oil-rich region. The two fought for the control of this region, and if anyone of them grants a foreign company to extract oil, it will cause a full-blown war. In 2014, Somaliland proposed to form an oil protection unit, drawn from the police and the military to protect oil industry personnel
Somalia needs to rebuild effective public institutions, stabilise the country, and create a working political system, and make a proper legal frame governing exploration and sharing of natural resources before it starts extracting oil. Without doing these first, oil is likely to hamper every effort to stabilise Somalia.