Somali Government, US Company Dispute Legality of Oil Deal
The Somali government and a U.S. company are locked 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, chief executive officer 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."
Both leaders cited government decrees and directives banning all
ministries and government agencies from signing agreements with foreign
governments and organizations until ongoing parliamentary elections are
finalized. The 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
measures.
The government's position is that the agreement is in contravention
of a presidential decree dated August 7, 2021, and a Council of
Ministers directive on December 6, 2018. The mandate of the current
legislative and executive branches expired more than a year ago. The
government said correct procedures have not been followed; therefore,
the agreement is "null and void," according to a February 21 letter sent
by the Foreign Affairs Ministry to Coastline Exploration and obtained
by VOA.
Anderson disagrees with the letter and disputes the government's interpretation of the legality of the agreement.
"I won't go into the legal details of the analysis, but we believe
quite firmly that our PSAs (production-sharing agreements) we signed are
legally valid and that they're in full effect," he said in an
interview.
VOA asked Anderson why the company ignored the Somali president's
decree and a letter from a joint parliamentary committee on natural
resources that instruct government agencies not to enter agreements
during the election period.
"We did not ignore anything," Anderson said. "Before we signed the
PSAs in February, we consulted with the ministry and with the SPA
(Somali Petroleum Authority), and we were assured that both the
president and PM were aware of the process and they were fine with the
signing."
He admitted Coastline Exploration did not directly communicate with
either the president or the prime minister, but said the minister of
petroleum and members of the SPA assured them that both leaders were
aware of it. Ahmed, the petroleum minister, refused repeated VOA
requests for an interview for this report.
In an interview with VOA in February, Ahmed said the president knew
about the signing, but the presidential palace denied his claim.
Agreement details
Providing details of the agreement for the first time, Anderson said it was a "fair deal" for Somalia.
"There is a 5% royalty that comes right off the top. Profit is split
50-50. There is a 30% income tax on whatever profits the contractor —
i.e., Coastline — makes," he said. There are various other financial
benefits for Somalia in the agreement, he added.
According to Anderson, all 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 criticized the agreement. Jamal Kassim Mursal,
former permanent secretary of the Somali Petroleum Ministry, said the
agreement was "unfair."
"A fixed oil royalty rate of 5% and a fixed gas royalty rate of 3%,
government share 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 said other key terms such as the discount rate, the R-factor
(ratio of cumulative revenues to cumulative costs), the cost recovery
ceiling, the exploration period and capital gains determine the overall
government take.
"So, we cannot say it's fair," Mursal said.
"The fact that all was done in secret itself makes it unfair. Current
government term has ended, and the two statements from the office of PM
and president stated no government official signs a contract up until
new government is installed. So they do not have a mandate to sign such a
deal."
Last year, the Somali government was warned of entering oil
agreements by the Financial Governance Committee (FGC), a group of
experts comprising the Somali Finance Minister, parliamentarians and a
member of the World Bank.
In an advisory, 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 significantly raises the risk of future legal
and/or compensation claims against FGS (Federal Government of Somalia),
while inadequate protection of FGS's financial interests risks poor
value for money over the lifetime of awards that may last for 40 years
or more," said the advisory obtained by VOA. The signed agreement was
for 30 years.
The FGC also said no PSAs should be signed until an extractives
industries income tax is enacted. No such law has been enacted in
Somalia.
Coastline Exploration, founded in 2018, has contractual possession of
Soma Oil & Gas, a company that collected seismic data off Somalia's
shore.
Soma Oil & Gas was previously investigated by the United
Kingdom's Serious Fraud Office but was later cleared of wrongdoing
because of "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 everybody upfront that we are not corrupt. We don't need to be corrupt," Anderson said. "No Somali government official has ever asked me to make any kind of illegal payment. It has never happened. I would also like to stre
ss that no Somali politician is a shareholder of Coastline. We are independent of the government."
He confirmed that Coastline paid for the flights to Istanbul and
hotels for members of the Somali delegation, who flew to Turkey to sign
the agreement.
"I want to make very clear before we do anything and pay anything
that has anything to do with anybody in the government of Somalia, it's
always reviewed by our anti-bribery and corruption council before we
make any such payments or any such commitments," Anderson said.
"This was reviewed by them, and they determined that it was, you
know, that it was fine under U.S. law and under Somali law, again out of
convenience."
Anderson said he was confident that the investigation by the Somali attorney general would find that Coastline had complied with Somali law, and that Coastline would be cleared to start work.
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