PSA CONUNDRUM: Roble, Farmaajo were ‘supportive’, Coastline Exploration ‘perplexed’

By T. Roble

BOTH PRIME MINISTER Mohamed Roble and outgoing President Mohamed Farmaajo were aware and supportive of the Petroleum Sharing Agreement (PSA) between US-based oil company Coastline Exploration and Petroleum Minister Abdirashid Ahmed, a source privy to the deal has said noting the oil company is ‘perplexed’ by the turn of events.

An impeccable source close Coastal Exploration and the signing of the PSA on February 19 told Goobjoog News that contrary to the PM’s argument that the signing did not meet the requisite threshold, ‘all legal requirements and procedures were attained before the two sides inked the deal.’

The source who sought anonymity over the sensitivity of the matter said Coastline Exploration was ‘taken aback and perplexed’ by the remarks from the country’s leadership both of whom denounced the agreement.

The PSA provides that the Signature Bonus be paid before any agreement is signed

“The alleged production sharing agreement purportedly signed by the Minister of Petroleum with a foreign entity regarding Somali oil reserves is illegal, unacceptable since it wasn’t done through legal avenues,” PM Roble said of the agreement announced by the Petroleum Minister.

On his part, Farmaajo said he had nullified the agreement noting it contravened his Presidential Decree 7/8/2021 which put a moratorium on such consequential deals during an election period. With both sides distancing themselves from the deal, Abdirashid was on his own but maintained he had the support of Farmaajo.

According to our source, Coastline Exploration is now awaiting the outcome of investigations by Attorney General Suleiman Mohamud.

HOT POTATO

Former Petroleum Minister Mohamed Mukhtar who was in office between 2015 and 2017 told Goobjoog News the oil deal announcement was a hot potato for both the Prime Minister and Farmaajo considering its timing.

“Given the timing, anybody dealing with a matter of such nature is likely to be accused of corruption that’s why neither of them (Farmaajo and Roble) did want to be associated with it,” Mukhtar said.

The former minister also opines that the two leaders did not want to be seen to be supporting a deal that went counter to the debt relief process. The Financial Governance Committee which comprises Somali officials, and IMF, World Bank among other donors warned in its 2021 report against entering into an oil deal before the completion of the requisite legal frameworks. In particular, the FGC said the award of PSAs should come after the passage of the Extractives Industries Income Tax (EIIT) Bill which governs the fiscal terms of the PSA, including royalty rates and the applicable taxation regime.

SIGNATURE BONUS

The Bill is currently at the Lower House awaiting the first reading. The FGC also called for the operationalisation of the Petroleum Act and the review of the 2020 Petroleum Sharing Agreement. Mukhtar also questions the signing of the PSA on account that the Signature Bonus has not been paid. Our Coastline Exploration source told Goobjoog News the oil company expected to pay the bonus which amounts to $7 million ‘soon after the signing.’

“The PSA provides that the Signature Bonus be paid before any PSA is signed,” Mukhtar said. The push and pull among the three parties- Roble, Farmaajo and Coastline could serve to confirm a warning by FGC in its 2021 report. The report noted that the Ministry of Petroleum had made ‘extensive changes’ to the 2019 PSA fiscal terms watering down provisions developed by the World Bank noting, ‘’The intent appeared to be to bring forward revenues to FGS in the early years of oil production, at the expense of the revenues in the later years.”

WHAT NEXT?

Such was the rush by mandarins in government to award the PSAs without fulfilling all the legal requirements that Coastal Exploration and Liberty Petroleum trooped to Mogadishu on January 4, 2021, to attend a ‘well organised’ signing event only for it to be called off the last minute when journalists were also set to roll on their cameras. Petroleum Minister Abdirashid Ahmed would later tell journalists there was unfinished business before the signing.

By distancing itself from the Coastline PSA deal, Somalia finds itself in an awkward position, Mukhtar says noting such a move could present the country as a dishonest broker and tarnish its reputation among major oil investors. For Coastline Exploration, the former minister argues, either it waits for a new government to negotiate afresh or proceed to the Court of Arbitration.

But as an underdog in the oil industry with little financial muscle, Coastal Exploration may find the court process too burdensome, the former minister says.