Navigating Somalia’s Potential Oil Wealth: A Strategic Guide for Responsible Resource Management
Somalia sits at the crossroads of potential prosperity and considerable challenges as it delves into significant oil and gas exploration followed by exploitation if hydrocarbon is discovered. In this article, we delve into a roadmap that addresses the intricate aspects of responsible resource exploitation. From the initial steps post-Production Sharing Agreement (PSA) signing with Coastline to establishing key institutions and laws, we explore strategic measures that can guide Somalia towards sustainable development, mindful governance, and equitable distribution of benefits.
Somalia’s recent oil and gas contracts with Coastline Exploration marks a significant step forward in its efforts to tap into its vast hydrocarbon potential. The agreements covering seven offshore blocks are expected to pave the way for further exploration and development plans, potentially attracting other international oil and gas companies to invest in Somalia’s oil and gas sector. Since the Somali Government has not entered into an oil and gas exploration agreement since 1990, the country is essentially entering a new era of oil and gas exploration, requiring careful planning and preparation to ensure a sustainable and equitable exploration of its potential natural resources.
While the potential benefits of oil wealth can only materialise if commercial oil deposits are found, the strategic measures outlined in this article provide a roadmap for navigating the challenges and harnessing the potential of this resource. While this article does not aim to present a comprehensive roadmap for Somalia’s oil and gas sector development journey, it highlights the essential steps that need to be taken to navigate these transformative phases effectively. Though not strictly arranged in chronological order, these steps provide a general framework for the country’s approach to oil and gas exploration and sector development. Some actions can be pursued simultaneously, while others may require a sequential approach, depending on the specific circumstances and priorities.
Establishing Foundations for an Effective Sector Development
Political Agreement
Fostering a shared understanding and consensus among political stakeholders, particularly fostering cohesion between the Federal Government of Somalia (FGS) and Federal Member States (FMS), is imperative. This collaborative and united approach is not a crucial and mitigating factor against internal conflicts only. Still, it also facilitates the fair and just distribution of benefits arising from the oil and gas sector. Highlighting the significance of this unity, it is essential to look closely at the COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT, published by the World Bank in 2022. This document states, “Not all FMS have accepted the legitimacy of the Petroleum Act and the Somalia Petroleum Authority, thus creating the potential for political dispute in case of any FGS award in their territory.”
Revisit the Baidoa Agreement for Somalia’s Petroleum Sector Development
Undertaking a thoughtful revision of the Baidoa agreement, explicitly focusing on rectifying concerns related to equitable revenue sharing and conducting periodic reviews of the formula are critical issues. The imminent need to put the Baidoa agreement into action is essential, as it mandates the creation of the National Resources Council—a body comprising the Prime Minister of the Federal Government and the Presidents of the Federal Member States, paving the way for collaborative decision-making on crucial matters. For the Baidoa Agreement to work effectively, the FGS and FMS must meet and resolve any outstanding legal issues.
Establishing a Robust Legal Framework for Effective Governance in Somalia’s Petroleum Sector
Establishing a robust legal framework is imperative to fortify and enhance the governance structure within Somalia’s petroleum sector. This framework should encompass comprehensive regulations and policies tailored to address the unique challenges and opportunities inherent in the country’s new oil and gas industry. Emphasising transparency, accountability, and inclusivity, such a legal framework would guide the exploration, extraction, and utilisation of petroleum resources if discovered and ensure equitable distribution of benefits among various stakeholders. This legal infrastructure will lay the foundation for sustainable development, economic growth, and social stability within Somalia’s petroleum sector by fostering a conducive environment for investment, mitigating risks, and promoting responsible practices.
Strengthening Governance and Integrity
Revisiting the establishment act of the Independent Anti-Corruption Commission and appointing its members, along with other robust mechanisms, is imperative to safeguard the integrity of the oil industry in Somalia. This dedicated commission will be pivotal in preventing and combating corruption, ensuring transparency, and upholding ethical standards throughout oil-related activities. By implementing stringent anti-corruption measures, Somalia can fortify its commitment to responsible governance, instil confidence in domestic and international stakeholders, and foster an environment conducive to sustainable and equitable development in the oil and gas sector.
Empowering the Somali Petroleum Authority
A multifaceted approach is needed to bolster the Somali Petroleum Authority’s (SPA) capacity for effective oversight and management. Firstly, investing in targeted training programs for SPA personnel, encompassing the petroleum industry’s technical, legal, and regulatory aspects, will enhance their expertise and competence. Secondly, collaborative partnerships with international organisations and experienced consultants can facilitate knowledge transfer and provide invaluable insights. Thirdly, fostering an organisational culture that encourages continuous learning, innovation, and adaptability will empower SPA to stay abreast of evolving industry dynamics. Finally, adequate financial resources should be allocated to SPA, ensuring the authority has the necessary workforce, tools, technology, and infrastructure to carry out its responsibilities seamlessly.
Community Engagement
Launching inclusive community engagement initiatives is necessary to proactively inform and involve local communities in the areas adjacent to the offshore oil blocks. These programs should strategically collect and address community concerns transparently, foster a collaborative dialogue that seeks to understand and incorporate local perspectives, and ultimately secure broad-based local support for oil exploration operations.
Environmental Impact Assessment (EIA)
Initiating a comprehensive Environmental Impact Assessment (EIA) is indispensable for the conscientious management of oil and gas exploration projects. The EIA is a crucial tool to systematically identify and address potential environmental risks associated with such endeavours. It goes beyond a superficial examination, delving into intricate analyses and assessments of the impacts on ecosystems, biodiversity, water quality, the fishing sector, and various environmental factors. This meticulous scrutiny is essential to ensure that oil companies meet regulatory requirements and, more importantly, adhere to sustainable and environmentally responsible practices throughout the entire oil and gas exploration process.
Master Plan
Crafting a comprehensive petroleum master plan is imperative for strategically harnessing resources in Somalia. This plan should intricately outline strategies for economic diversification, laying down the framework for infrastructure development and incorporating social welfare programs. Such a holistic approach ensures the sustainability and balanced growth of the nation. By carefully integrating economic, social, and environmental considerations, the master plan becomes a guiding blueprint that maximises the benefits of the petroleum sector and mitigates potential risks and challenges. Emphasising long-term vision and adaptability, the plan becomes a dynamic tool that aligns the interests of various domestic and international stakeholders while fostering a resilient and inclusive economy.
Private Sector Participation
Facilitating the active participation of Somali-owned national companies in the oil and gas industry represents a transformative step that contributes to local economic growth and instils a profound sense of ownership among the populace regarding the nation’s valuable resources. The country can harness its oil and gas potential to create a more inclusive and sustainable economic landscape by empowering indigenous businesses. Through strategic policies and initiatives, such as preferential treatment for local enterprises and capacity-building programs, Somalia can foster the growth of a skilled workforce and a thriving business ecosystem. This enhances the nation’s economic resilience and ensures that the benefits of the petroleum sector reach a broader spectrum of the population.
Education and Training
Committing to substantial investments in education and vocational training is imperative to cultivate a skilled workforce essential for active participation in all facets of the oil industry. The current workforce in Somalia lacks experience in the oil and gas sector. Therefore, it is crucial to bridge this gap while considering that petroleum operations in the country ceased before 1991. By prioritising education and vocational training, Somalia can effectively equip its workforce with the necessary expertise to contribute meaningfully to the revived oil and gas industry.
Increase Capacity for Negotiation
Cultivating a cadre of skilled negotiators well-versed in the intricacies of the oil industry is imperative to secure resource contracts that are fair, transparent, and mutually beneficial. Notably, Somalia’s absence from the oil and gas sector between 1991 and now underscores the lack of experienced negotiators and lawyers. It is essential, therefore, to invest in specialised training and capacity-building programs to equip Somali negotiators and lawyers with the expertise required for effective engagement in the intricacies of the oil sector.
Active Civil Society
Promoting the active engagement of the country’s civil society, particularly in the decision-making processes, is crucial as it ensures the representation and protection of the broader population’s interests in the oil and gas sector activities. This inclusive approach also enhances transparency and fosters a sense of ownership and accountability in managing the nation’s oil and gas resources. By encouraging civil society’s participation, Somalia can leverage diverse perspectives, ultimately contributing to developing policies aligned with its citizens’ welfare and promoting sustainable and equitable growth.
Establishing Key Institutions and Laws
Harnessing Somalia’s hydrocarbon potential demands establishing robust institutions and comprehensive legal frameworks to ensure responsible and sustainable resource management. A central element is creating an independent National Oil Company (NOC). NOC’s multi-faceted role encompasses upstream, downstream, and revenue management, optimising resource exploitation for domestic consumption and export. Taxation regulations and environmental protection measures would establish a transparent regulatory environment. An independent judiciary specialising in oil and gas matters would resolve disputes and uphold legal standards.
Infrastructure Development
While Somalia’s current financial constraints may limit direct investments in infrastructure development, strategic planning remains an essential step in preparing for the potential of oil discovery. By meticulously outlining infrastructure requirements, feasibility studies, and cost estimations, Somalia can establish a roadmap for future infrastructure development.
As Somalia stands on the cusp of oil exploration, it is crucial to acknowledge that the potential benefits of oil wealth can only materialise if commercial oil deposits are discovered. While the steps outlined in this article provide a roadmap for navigating the challenges and harnessing the potential of this resource, the success of these strategies hinges on the presence of oil reserves. Nonetheless, by implementing the proposed measures, Somalia can create an environment conducive to attracting investment and fostering responsible oil exploration practices. With strategic planning, robust governance structures, and inclusive community engagement, Somalia can transform its economy, improve the lives of its citizens, and build a prosperous future, even amidst the uncertainty of oil discovery.