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The Somalia Oil Conundrum: Questionable deals and double salaries

Storyline:National News

By T. Roble

IN AUGUST 6, 2013, the government of Somalia signed an offshore Seismic Option Agreement, SOA with the UK based oil firm, Soma Oil and Gas, a company chaired by the then Tory leader Michael Howard.

Subsequent to this, the two parties inked a Capacity Building Agreement (CBA) which would see Soma Oil facilitate capacity building for the Ministry of Petroleum staff as a tradition in such situation especially for emerging oil countries which may not the requisite capacity.

In the first agreement, SOA, Soma Oil was granted the right to “conduct seismic surveying in Somalia’s territorial waters in agreed areas with the government and in certain limited onshore areas.”

In a note on its website dated August 6, 2013, Soma Oil notes, “The survey that Soma Oil & Gas conducts will give it the right to nominate and obtain exploration and drilling rights under Production Sharing Agreements for prospective areas.”

CBA terms

Under the CBA, the two parties agreed that Soma Oil would finance the rehabilitation of the ministry offices in Mogadishu, furnish and equip the Ministry’s office including the establishment of a data room and hiring and contracting of qualified technical staff, consultants and advisors.

In addition, Soma Oil would facilitate training programmes for ministry staff besides helping the ministry develop a petroleum regime which includes petroleum policy, regulations and harmonisation of the various natural resource legislations with the Provisional Constitution 2012.

In general therefore Soma Oil was to pay the Ministry a total sum of $400,000 referred to in the agreement as Total Capacity Support.

However, a leaked UN report has cast aspersions on the two agreements with particular concern over the goings on regarding the CBA, a matter which prompted the UK Serious Fraud Office to launch criminal investigations on Soma Oil and Gas for what it terms as ‘allegations of corruption in Somalia’.

In a scathing indictment on senior people who were hired as consultants by the Ministry under the CBA, the U N Monitoring Group on Somalia and Eritrea (UNMGES) says the CBA was likely a part of a quid pro quo arrangement by the Ministry to protect Soma’s contract from potential negative consequences.

Due diligence

Soma Oil agreed in principal to pay salaries, consulting fees, accommodation and business related travel to the Ministry in line with the agreement. However, UNMGES questions the criteria used to hire the capacity building staff. At least six officials on the CBA payroll drew salaries from the government besides the Soma pay. The motives of Soma are brought into question for failure to conduct any due diligence before transferring the funds. Out of all the CBA staff, only one, Dr. Abdi Mohamed Siad, a senior lecturer at the university of the Western Cape in South Africa, the group said was the only one whose contract did not present a conflict of interest.

Regarding the SOA, UNMGES raises concerns from the onset on the nature of agreement stating the Ministry single sourced the bidder, for this case Soma Oil without any competitive process and equally not disclosing the agreements to the public as common practice. Equally, the UNMGES questions the manner in which the contracts were entered into without proper legal and institutional mechanisms in the country capable of steering the process.

UNMGES echoes a UK commissioned report conducted by an international consulting firm Adam Smith International which recommended the establishment of an Extractives Technical Advisory Panel consisting of international and local experts and the provision of long term and significant technical support to Somali institutions engaged in the extractives sector.

Seismic survey rights

Besides the seismic survey rights as captured in the August 6, 2014 agreement, under a Second Amendment Agreement, Soma Oil negotiated territorial allowance as well as a draft agreement that would grant Soma a larger share of profits from potential production. Subsequently,  Soma was awarded right to exploit 12 offshore oil and gas blocks amounting to 60,000 km2.

“In a scathing indictment on senior people who were hired as consultants by the Ministry under the CBA, the U N Monitoring Group on Somalia and Eritrea (UNMGES) says the CBA was likely a part of a quid pro quo arrangement by the Ministry to protect Soma’s contract from potential negative consequences.’

Soma Oil has, in its response to the UNMGES report said all its transactions with the government of Somalia were above board and that the Monitoring Group instead failed to understand the nature of the agreements. ” UNMGES has fundamentally misunderstood the nature, purpose and destination of the payments made under the terms of the Capacity Building Agreement (CBA) signed by Soma Oil & Gas (Soma) and the Federal Government of the Republic of Somalia (the Somali Government),” said Soma Oil in a statement on its website August 9, 2015.

It further said, “The CBA was entered into at the request of the Somali Government to provide the much needed resources, technical capacity and infrastructure to support the Seismic Option Agreement (SOA).

Predatory capitalism

Analysts say the UN indictment was no surprise given the questionable manner in which the whole process had been conducted from the beginning. Former Somali Special Envoy to the United States and foreign policy analyst Abuka Arman says the country had all but to lose on this deal from the onset. “When it first made its debut in the oil business and immediately landed this coveted deal, I described Soma Oil & Gas as a classic case of predatory capitalism exploiting a failed state without institutions of checks and balances. In other words, if the current arrangement continues, not only would it facilitate the process of taking Somalia to the cleaners, it would sow the seed of perpetual war over the national resources. Likely outcome is a resource curse of epical proportions,” said Arman.

Arman says even the prospect of the Soma Oil sharing the seismic data with the government of Somalia is another matter which should worry the country the most. “Neither the contract nor the specific obligations of each party is clear. The agreement with Soma Oil & Gas is non-transparent deal; a carte blanche signed in a dark room, so to speak,” observes Arman.

The East African Energy Forum (EAEF), a group of Somali resource experts and lawyers has questioned the capacity of Soma Oil to conduct such a venture which industry experts say requires considerable experience.

“How can a company barely four months in existence be given the reigns to explore in our offshore waters? Who are their sub-contractors that will actually do the work? Why aren’t reputable seismic companies being allowed to bid on this project in public as is the industry norm?” said Feysal Mayow, the EAEF’s technical director.

Names and faces

But who are the faces behind the Soma Oil deal with the government?

The UNMGES report identifies 14 people who were hired by the Somali Ministry of Petroleum under the Capacity Building Agreement. Out of these, only one Dr. Abdi Mohamed Siad, the Group said his contract did not pose any conflict of interest as he was an independent consultant.

Six out of the 14 concurrently drew civil servant salaries from the Government. The Group identifies them as Farah Abdi Hassan (Director General), Jabril Mohamoud Geeddi (Senior Advisor and Deputy Director), Mohamed Ali-nur Hagi (Permanent Secretary, Prime Minister’s office), Abdulkadir Abiikar Hussein (Senior Petroleum Geologist and Director of Exploration),  Hussein Ali Ahmed (Managing Director, Somali Petroleum Corporation and Senior Economic Advisor) and Leila Ali Ahmed  (Administration Assistant).

The rest, whose salary, the Group says were paid only by Soma Oil are, Yusuf Hassan Isaack (Head of PR and Media Expert),  Abdinor Mohamed Ahmed (Media Coverage & PR), Abdullahi Mohamed Warfaa (International Relations), Mohamed Yousuf Ali (Senior Legal Expert and Director of Legal Affairs), Dr. Abdi Mohamed Siad (Senior Advisor and Minerologist), Abdirizak Hassan Awed (Personal Assistant) and Farah Ahmed Isama’il (Personal Assistant).

The UNMGES notes that all these employees received a total of $295,800 between March 2014 and February 2015 with the highest, the Director General Farah Abdi Hassan pocketing $ 36,000 and the least, a personal assistant, Farah Ahmed Isma’il receiving $ 1,600.

Forged signatures

But perhaps of much interest is the allegation that some of the employees only received a fraction of the amount allocated to them on paper. The Monitoring Group for instance says Dr. Abdi Mohamed Siad (Senior Advisor and Minerologist), tendered his resignation on October 14, 2014 but apparently a pay slip dated November 30, 2014 allegedly displays his signature. In total, the Monitoring Group says ‘someone’ collected $28,000 remaining from Dr. Siad’s contract.

Goobjoog News has however gone at length to afford those adversely mentioned a right of reply. Director General, Farah Abdi acknowledged seeing the Monitoring Group Report but promised to issue a comprehensive response but by the time of publishing this story he was still to do the same.

Right of reply

However, the Ministry of Petroleum and Mineral Resources responded to our request with regards to the contents of the Monitoring Group report. In its reply, the Ministry categorically denies any conflict of interest in regards to CBA payments.

“Evidently, the UNMGES’s investigative report shows that there is a written agreement entered on 25 April 2014 between the Ministry of Petroleum and Mineral Resources and Soma Oil & Gas Holdings Limited (Soma), clear financial recording mechanism for the payment of capacity building targeted salaries and names of who received the funds,” reads the response in part.

The Ministry further asserts that, “Good governance, transparency and accountability are of greater essence to Somalia in the proper management of its resources. Transparency in public service pay and procurements are a national priority and monitored through our internal and international mechanism such as the Financial Governance Committee (FGC).”

On allegations by the Monitoring Group that the CBA agreement was a quid pro quo arrangement, External Affairs head in the Ministry, Ibrahim Hussein rubbishes it as ‘simply inaccurate and misleading’.

In the last part of our series, The Oil Contracts, we explore allegations by the Monitoring Group on how senior Ministry officials went ahead to sign other Memorandum of Understanding with other oil companies by simply deploying the same Soma Oil agreements template in gross contravention of already legally binding contracts with Soma Oil. We will also look at allegations that the same officials used the oil deals to supposedly seek scholarships for their children and why the Data Room which was to be built in Mogadishu as part of the CBA has not materialised so far.