Is it the right time to sign Oil deal?

The signing of the new Somali government’s first oil contract with an untested company linked to a British peer raises concerns about whether the dash for oil wealth will destabilise the east African country. but is it the right time for the government to sign the deal?

Michael Howard, the former leader of Britain’s Conservative party, has spearheaded the first oil deal with the new government of Somalia, a country destroyed by two decades of civil war, piracy and terrorism.

In May both Mr Abdirizak and President Hassan Sheikh Mohamud said they would not sign any oil deals until the petroleum bill and the new constitution were made compatible, but they have now abandoned that stance. “We realised we had to take a different approach,” said

Mr Abdirizak

There has been a recent influx of oil companies to Somalia, but the country has been offered only a 7% share of the proceeds from the exploitation of its oil.

This problem was foreshadowed by the former Somali President Mohamed Siad Bare, who famously said: "I will never sell my oil for 5%, or even for 10%, as long as Somalia is not getting the best deal."

 Late last year, Somalia caught the attention of foreign oil companies by announcing it intended to auction some of 308 newly delineated oil blocks this year.

The world’s leading oil companies are increasingly accepting that their quest for new reserves will take them into challenging new territory. In regions such as the Arctic, the problems are technical

Attempts to carve up oil blocks before the Mogadishu government even controls the whole national territory are undermining efforts to bring peace and stability to a state that has been shattered by 22 years of war and that exports terrorism. The race to lay claim to resources risks triggering wider conflicts: regional authorities have been hostile to central government since the 22-year military dictatorship of Siad Barre. When he was deposed in 1991, warlords carved up the country – and several clan-based militias still hold sway, sometimes cutting deals with al-Shabaab.

The danger is that the race for oil will feed a destabilising rivalry between Mogadishu and other regions – some still influenced by former warlords – just as the international community is celebrating progress. UK ambassador Matt Baugh says the situation remains “very, very fragile”. Rival administrations have issued several companies rights to a clutch of overlapping oil blocks, redrawing the political map of Somalia in line with their own interests.

The federal system combining shared rule and self-rule is also reflected in the draft Provisional Constitution provisions on land and natural resources. The regulation of natural resources and their use is subject to negotiations between the Federal Government and the Federal Member

State governments – see Article 44. With regard to land, the draft

Provisional Constitution allows the Federal Government to develop a national land policy that provides for equity in the allocation of land and the use of its resources as a national standard but needs also to provide for the freedom of the Federal Member States to formulate their own regional land policies – see Article 43.

The protection of the environment is a priority duty of the Federal

Government, but the Federal Member States governments equally have a duty for the protection of the environment and the Federal Government needs to consult the Federal Member State governments when adopting the general environment policies of the country – see Article 45.

On an international level, disagreement between Kenya and Somalia over their maritime boundary has also created what one diplomat terms a “triangle of confusion” reaching across 120,000 square kilometres.

Kenyan troops defend the port of Kismayo, south of Mogadishu, notionally in support of the Mogadishu government, but Somali officials worry Kenya is keener on securing oil rights.

Lord Howard, who joined newly formed company Soma Oil and Gas as non-executive chairman only three months ago, signed the deal in Mogadishu, the shelled-out capital of Somalia where al-Qaeda-linked jihadists mount regular suicide bomb attacks, during his first visit there on Tuesday.

Interest in oil and gas exploration along the east African coast has surged after commercial quantities of oil were discovered in Kenya and Uganda along with gas in Tanzania and Mozambique further south sending many wildcat explorers into high-risk nearby prospective areas including Somalia.

“Because of the obvious reasons it’s very much underexplored,” Robert Sheppard, Soma’s chief executive who is also an adviser to BP, told the Financial Times after the signing, citing the many security issues.

His company, formed this year, will put armed guards on board ships to ward off Somali pirates who have previously commandeered vessels and demanded millions in ransom pay-offs.

The weak new government, the most representative in years, said earlier this year the broken state was too fragile to risk oil exploration because it was likely to pit different regions and warlords against each other. UN investigators also said in a report this year that inconsistencies in the legal framework regulating oil “risk exacerbating clan divisions and therefore threaten peace and security”.

Mr Sheppard said he believed his survey would instead increase stability by helping generate revenues. He said Soma will undertake a seismic survey costing “north of $20 million”, largely offshore in deep waters, with right to explore onshore as well.

As the UK, Norway, Turkey, Qatar and others vie to gain influence in Somalia’s oil-rich waters, analysts fear big-power oil politics could put its fragile recovery off course. A UN panel of experts cautioned in a report last month that oil could lead to conflict between rival groups – some of which have previously been allied to al-Qaeda-affiliated jihadists – and threaten peace.

“[Oil] companies should cease and desist negotiations with Somali authorities,” the UN panel said in last month’s report to the Security Council.

The Somali cabinet has already approved the Somali investment bill. "For obvious reasons, we have been starved for foreign investment for decades," Prime Minister Abdi Farah Shirdon said when signing the bill June 10th. "Anyone looking at our economy today knows how much we need it in all sectors. Investors need a secure legal framework and that is what we will provide."

Somali people expect lawmakers to debate the proposed law within the next month before the parliamentary recess. "It is a good opportunity if parliament passes it at a time when an increasing number of foreign investment proposals are reaching parliament.