Somalia: Reviewing Oil Deals U.N. Says Lack Transparency

Posted by Michelle Howard October 24, 2014

Somalia says oil exploration key to country's future
U.N. investigators say oil contracts lack transparency
Oil deals from two decades ago on hold due to war

Somalia said it was reviewing several oil and gas deals that U.N. investigators say lack transparency and risk hindering development of the country's energy industry.

Energy firms are cautiously eyeing Somalia's long coastline, an untapped frontier on the east African seaboard that has become an exploration hot spot after big gas finds in Mozambique and Tanzania. Somalia's southern neighbour Kenya has found oil.

The Somalia-Eritrea Monitoring Group (SEMG), an eight-member panel of investigators that monitors compliance with U.N. sanctions, said Mogadishu had signed a series of contracts and cooperation agreements that "highlighted transparency and accountability issues" in state petroleum institutions.

In a report, the monitors said such deals were "likely to exacerbate legal tensions and ownership disputes and stunt the transparent development of Somalia's oil and gas sectors".

Mohamed Keynan, director of communication in the president's office, said Somalia was reviewing several contracts with the help of the Financial Governance Committee (FGC), comprising three Somali members and three donors, including representatives from the World Bank and International Monetary Fund.

"The Federal Government of Somalia (FGS) will take appropriate action, based on the advice of the FGC," Keynan said in a statement sent to Reuters. "However, it is wrong to assume that all contracts in place with the FGS are in some way flawed."

About a dozen companies, including oil and gas majors, had licenses to explore Somalia before 1991, the year a conflict erupted that tore the nation apart for the next two decades, involving clans and Islamist militants.

The breakaway territory of Somaliland, semi-autonomous Puntland and other regional authorities in the fractured nation have granted their own licences for some of the same blocks.

Western diplomats have said the government's limited capacity and experience in negotiating often complex energy and other deals could mean Somalia received a poor return. Donors have also been unnerved by earlier U.N. reports that cited cases of government corruption, charges Mogadishu denies.

Efforts Appreciated
In the latest report, U.N. monitors said a deal with London-based Soma Oil and Gas had "never been made public, nor was it approved by the Federal Parliament of Somalia".

Lawmakers have in the past challenged contracts that they said parliament had not been given the chance to scrutinise.

Soma Oil said "the broad terms" of the deal were made public and said it had invested about $37 million on a programme to gather and digitalise old seismic information and collect new offshore data.

The firm, chaired by former senior British politician Michael Howard, said it was not operating in disputed regions but was focusing on deep water areas offshore. It said its work had encouraged other firms to discuss restarting activities.

"The efforts of companies such as Soma Oil and Gas are both essential and greatly appreciated," said Keynan, adding Somalia was recovering from war and could not do such work itself.

The monitors said the federal government was in talks with firms such as Shell, Exxon Mobil Corp and BP , to revive contracts which were put under force majeure in 1991 when the civil war broke out.

They said "such negotiations are premature and could spark conflict, especially since they have not been conducted in consultation with regional authorities who may be affected".

Shell said it had no comment on such political issues, and BP denied it was in talks with Mogadishu on blocks where it declared force majeure in 1991. Exxon did not immediately respond to requests for comment.

Petroleum Minister Daud Mohamed Omar said on Monday that Somalia wanted oil output to start in six years.