SOMALIA'S PETROLEUM SECTOR: OPPORTUNITIES AND CHALLENGES

by Abdullahi Warfa Monday, September 08, 2014 The strategic plan of the Somalia government is based on the six pillars that president Hassan Sheikh committed to as a way to reverse war torn Somalia back to the international community. In his six pillars, economic and development strategy is recognized as one of the factors that could potentially generate stabilization in Somalia, and it is this reason that petroleum and Mineral resources portfolio has been created to contribute to the government’s vision for 2016. Somalia has abundant natural resources that can be sustainably exploited to generate economic growth and transform the country from predominantly being dependent on international community to self-sufficient country. However, the government recognizes that the economy has structural problems that resulted from more than 20 years of civil war and destroyed all infrastructures necessary for the government to function.    In light of this, the Ministry of petroleum and natural resources has taken steps to protect and promote the sector through the formulation of clear petroleum and mineral policy. Petroleum development Somalia is often thought of as a semi-nomadic society with little focus on agricultural activities. Consequently, the petroleum and mineral sector has not been utilized. Lack of technical capacity and inadequate foreign and local investment also contributed to the lack of sector development. There is high potential y for gas and oil discovery in Somalia and other expensive mineral resources such as uranium, heavy minerals, strontianite, phosphates, bauxite,gypsum, vermiculite, limestone, dimension stone silica and coal. Adequate and up to date geological information is very important for attracting investment in this field. Based on data collected about geological frameworks, there is ageneral conviction that full mineral and petroleum capacity of the country is yet unknown. The available data shows high potential for gas and oil and mineral resources in the country but not sufficient enough to specify the exact capacity available for production. Therefore basic geology work is required to determine and confirm the exact potential.  Modern technological advances would be needed to discover potential area and the amount of gas and oil in the country. This was the driving force for the recent agreement the government signed with the company Soma Oil and Gas - to do seismic surveying and establish the full extent of the country’s oil and gas potential.  The ministry of petroleum and Natural minerals took this step to overcome the challenges that has been present in the form of; a) inadequate geological data and information about potential oil and gas in Somalia, b) insufficient financial resources for generation and updating of basic geological data available, and c) lack of analytical laboratory technologies and human resources within the country. The development of the sector also requires capacity building, training and technological development as the country suffers from lack of enough facilities for training centers,and technical capacity and skilled personnel. Local participation and support infrastructure For long time even, before the civil war in Somalia, local participation was hindered by lack of financial and technical capacity and expertise in the sector. The Minister’s policy for this matter is to encourage joint ventures with companies that have the needed resources, with long term aim of empowering local participation. On the other hand, most of the infrastructure has been destroyed during the civil war in Somalia and the government recognizes that the sector is unlikely to develop unless improvements are made with regards to security, transport network, water, and electricity. The Ministry of petroleum is working with other government departments and agencies to put together efforts for developing an infrastructure strategy to overcome these challenges. Investment opportunity and governance of the sector The key to development and sustainable economy depends largely on number of factors including long-term political, security and macro-economic stability. Therefore, the Ministry of Petroleum is committed to creating a favorable climate that is attractive to potential investors. Such strategy includes establishing an integrated and enabling environment consistent with real practice that can provide a confidence to the investors.As matter of fact, security and Macro-economic stability tops government’s priorities in this matter.  Also, the practices and management of the sector is important to investing in the sector. The ministry’s role in this regard is to (1) provide information in relation to geological surveys to the investing companies, (2) Monitor and regulate the sector and (3) creating secure environment or investors.   Institutional arrangements and Legislative and regulatory framework The country does not have enough institutional capacity for managing all government affairs. The minister of Petroleum Hon. Daud Bisinle brought in more than 10 Somali experts in the field and working across all departments of the ministry.  These experts formulate appropriate policies to facilitate and accelerate sustainable development in the sector. They also review and scrutinize all applications for gas and oil rights and report to the ministry their recommendations. In regards to the regulatory framework, several acts have been in place but not activated. Among these acts is the Petroleum law 2008. This defines rights, duties and obligations of the government. The ministry of Petroleum and Natural resources is in process of reviewing the petroleum law and harmonizing it with other legislation. Environmental management and other related issues Petroleum and gas exploration activities cause environmental degradation and sometimes companies do not comply with international standards for occupational health and safety. Also companies often do not comply with environmental management during operations. The government will make sure companies comply and follow international standards put place to safeguard the environment.   Social issues also should be taken into consideration when exploring Gas and Oil,including empowering local people and being socially responsible, for example by avoiding child labor and other social injustices.