Federal Government of Somalia is reviewing its Production Sharing Agreement

The Ministry of Petroleum and Mineral Resources of the Federal Government of Somalia has adopted a Production-Sharing Agreement (PSA) model to maximize public benefits from oil and gas and to uphold national ownership of resources. The ratification of Petroleum Law by Parliament of Somalia in 2008 has codified that principle and repealed the legacy concession agreements that were previously entered into by the prior Somali Government.

The Ministry is reviewing the details of the adopted PSA model. PSA’s are the most appropriate type of contractual arrangements for petroleum exploration and development where an oil company carries the entire exploration risk and the government owns both the resource and the installations. It is after finalizing this model that Somalia will be able to enter into PSA agreements. Thus, the Ministry has not entered into any PSA agreement with any company.

Furthermore, Somalia has adopted a federal system of governance as opposed to the previous unitary system. As a result, the country will address the ownership, control and revenue sharing of the natural resources and address any constitutional issues. These issues include the precise division of governmental powers over oil and gas. The Ministry has been working on a sustainable model for revenue sharing through consultations with relevant stakeholders. It is in our firm belief that agreements on revenue sharing are on the horizon.