The Somali Senate has ruled federal government efforts to attract suitors to an auction of offshore oil blocks is unconstitutional in the absence of enabling legislation and pursuant regulations, writes Barry Morgan.

“The putative federal law that deals with the mechanism for revenue sharing between central government and the regional states remains incomplete and serious consequences may ensue if the exercise proceeds,” said the Senate.

Somali opposition party Wadajir said the Federal Government of Somalia (FGS) should stop doing “deals behind closed doors” and open up on contract awards.

However, government officials at an offshore licensing roadshow in London said the bidding process for acreage will be transparent.

FGS Petroleum Minister Abdirashid Mohamed denied that a full-fledged auction was underway, but admitted that proposed amendments to the 2008 petroleum code had been discussed and that the roadshow is only intended to present the prospectivity of Somali acreage following the interpretation of 2D seismic data.

The London event drew immediate reaction from Somalia’s autonomous province of Puntland, emerging from elections this week in which Said Abdullahi Deni was elected to the presidency for a five-year term.

One-time Puntland presidential candidate Ali Abdullahi said the FGS is generating confusion and “risks creating even more questionable ownership structures by toying with this auction concept rather than having a planned, formal licensing round.” Abdullahi, a former Lundin Petroleum executive and now chief executive of Amsas Consulting, which operates the onshore Afgoye-Coriole Area block in Lower Shebelle, believes the legality, validity, timing and transparency of the proposed auction is “vexed and baseless”.

He said the Federal Provisional Constitution of 2012 was never approved by referendum, and has neither de facto nor de jure powers over Somali territory.

“No company with good governance will raise their hands for this auction and that will surely result in the undervaluation of oil and gas assets,” Abdullahi told Upstream on the phone from the Puntland capital Garowe.

Abdullahi contends that even if the fiscal terms are deemed reasonable, the “proposed $2 million signature bonuses will scare away serious suitors from (5000-square kilometre) frontier blocks, way smaller than in neighbouring Kenya where the signature bonus is much lower.”

Four Somali states — Southwest, Galmudug, Jubbaland and Hirshabelle — are all undergoing elections set to conclude before the end of 2019 and all may wish to determine their own upstream regimes.

Weekly

Somalia Senate says block auctions method unconstitutional