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How to ensure responsible oil production in Somalia

By Markus Virgil Hoehne

Prospects for oil production in Somalia look bright—the Somali Federal Government and its partners like the World Bank plan to begin producing oil and gas offshore by 2020. This article addresses the problem of “resource curse” experienced by many other African countries and argues for responsible oil and gas production in Somalia.

The general resource curse problem is well-known. On the one hand, oil is in high demand at a time when various former “second” or “third-world” states are about to industrialize, and industrialized countries are facing the decline of their natural resources. It promises quick wealth. On the other hand, oil, particularly in fragile or unstable settings, is likely to fuel conflict, stabilize authoritarian regimes or help to create new such regimes, prevent the development of alternative economic infrastructure, lead to environmental disaster and heighten corruption and social inequality.[1] But it is not only domestic factors that decide whether natural resources become a curse or a blessing. International organizations, like the World Bank, and transnational companies are involved. Key questions are: what are the preconditions for responsible oil production? And what will such a production look like? While there is no blueprint for this, one can try to learn from previous endeavors in settings that in some regards can be seen as structurally akin to, e.g., Somalia.

Oil and domestic politics: the example of Chad

One of the more recent examples where a well-planned initiative by the World Bank to foster responsible oil production failed is Chad. The country in the Sahel zone was characterized as fragile state, ruled by a military regime with huge levels of corruption and poverty in place when the World Bank, together with Exxon Mobil, began developing a framework for oil production in its southern Doba region in the late 1990s. A crucial part of the project was to develop binding legislation that, inspired by the “Norwegian model” of responsible resource exploitation, would provide for social and economic development, transparent revenue management and establishing a fund for future generations.[2] In 1998 Law 001 was passed by the Chadian government to ensure that “10% of revenues goes into a London-based escrow account to be used for future generations. Of the remaining 90%, 15% was intended for direct use within the Chadian government; 5% was to be dedicated directly to the development of the oil-producing area; while the remaining 80% was supposed to cater for poverty alleviation – notably the development of educational and health-related infrastructure and economic planning.”[3]

The project was considered a test case by the World Bank, bringing together one of the poorest and least stable countries in the world with one of the richest private corporations.

Oil production started in 2003. Already at that time, some actions of the Chadian government indicated that the spirit of the agreement with the World Bank, which had provided funds to start the project in the first place, had been violated. Some money was taken out of the revenue stream for private purposes by the president. In 2005, President Idriss Déby singlehandedly changed the constitution and extended his term of office indefinitely. This triggered a rebellion within the ruling elite, supported by parts of the military, who felt that they had been excluded from resource sharing, since the president could—sustained by oil money—rely on a small but well equipped security apparatus.

In 2006, the Chadian parliament changed Law 001 (using a legal loophole in the agreement with the World Bank) and replaced it by legislation that abandoned the future generations fund and other measures to ensure the responsible investment of the oil wealth, and instead allowed spending increasing amounts of money on countering rebellion and stabilizing the regime. The influence of supervision bodies that initially had been set up in 1998 to oversee the implementation of the project was dramatically restricted.[4] The World Bank withdrew, but the private companies extracting oil remained in Chad. What followed was an extended period of violent rebellion and repressive governance in the country.

The case of Somalia

Preliminary processes for exploring and producing oil in Somalia are underway. Balthasar reported that the “Federal Government of Somalia (FGS) announced in 2012 that it sought to auction some of its 308 newly delineated oil blocks during the course of 2013.”[5] Against the background of the increasingly successful military campaign against al-Shabaab currently ongoing in southern Somalia, some key players seem to have found that the time is ripe for concretizing exploration and exploitation plans in the area.

By early 2015, the World Bank in cooperation with Somali counterparts (mainly the Ministry for Petroleum and Mineral Resources) had started commissioning studies to assess the legal, economic and policy implications of oil exploration and exploitation in Somalia. Bob Sheppard, chief executive of Soma Oil and Gas, a London based company backed by a Russian billionaire, Alexander Djapardize, is confident that the regions’ geology looks positive.[6] The company recently completed a seismic survey, concentrating on possible offshore deposits. Soma Oil and Gas as well as Somali officials emphasize that there was tremendous improvement in security in Somalia over the recent year. Also older, well-established companies “like Royal Dutch Shell and Exxon Mobil are being encouraged to reactivate dormant contracts to explore for oil and gas. They withdrew from Somalia two decades ago after civil war broke out in 1991.”[7]

There are reasons, however, to view oil production in Somalia with suspicion, at least against the backdrop of the given political and military situation in the country. Somalia is far from stable. The government in Mogadishu has yet to establish authority in much of the south. Large junks of the hinterland are still under al-Shabaab control. Even if al-Shabaab further loses its grip on territory, the group can be expected to continue to be active as a terror cell operation in southern Somalia and also across the borders of Kenya and possibly Ethiopia.[8] The infrastructure necessary to exploit oil would certainly be sensitive to terror attacks.

A critical issue is that security in southern Somalia is largely the domain of the thousands of foreign troops on the ground. As these troops come from neighbouring states like Kenya and Ethiopia, and other potential oil producers in the region such as Uganda, it cannot be expected that the possible oil production in southern Somalia will be sufficiently controlled by the Somali people. Somali leaders in Mogadishu are marred by a record of inefficiency and alleged corruption. The neighbouring states exercise pressure on the Somalia government. Furthermore, there is a lack of downward accountability of the Somali leaders, transparency in financial and economic transactions and administrative capacity of the government. All these factors mean that a huge leak of oil revenue has to be expected if drilling starts without assuring the full sovereignty of the Somali people over their national resources.

Besides these immediate problems, Balthasar outlined that the planning and the infrastructure necessary to translate oil wealth into sustainable development is absent in Somalia.[9]

A final major problem with regard to oil production in Somalia would be that the relations between the central government in Mogadishu and the various regional governments, particularly in Somaliland and Puntland, but also in Jubbaland, Galmudug and elsewhere, are unclear and conflict-ridden. Somaliland does not accept any authority of Mogadishu over its claimed territory. Puntland is highly suspicious of any attempts of Mogadishu to monopolize resources. Against this background, oil production in Somalia is—at least in the foreseeable future—a very risky business that may lead to massive conflict which, given the history of the country, may well turn into large-scale violence.

Caution is the mother of wisdom

Above, the example of Chad was used to indicate how an agreement between the World Bank and a fragile state that, however, at the time of entering into the agreement faced much less internal problems than Somalia, worsened the situation for much of the local population once oil production began. What would be needed at the moment in Somalia would be a cautious approach and a combination of activism and restraint by Somali people and their civic partners worldwide. Somalis including diaspora actors and international nongovernmental organizations would have to develop a united position and voice their concerns about unsustainable and premature plans to explore and extract oil.

The natural resources of Somalia can only provide for nation-wide prosperity if the country truly is at peace. This will take many years. The tasks on this way are threefold. First, Somalia must regain national sovereignty vis-à-vis its neighbours and actors in the “global north”. Second, the successful settlement of domestic conflicts over regional administrations, wealth sharing, and the provision of security are prerequisites for responsible oil production. Third, transparency and downward accountability of the central government and the regional authorities need to be firmly established. Only afterwards can Somalis have a chance to explore the riches of their country in a responsible and truly beneficial way.

Markus Virgil Hoehne, PhD, is lecturer for Social Anthropology at the University of Leipzig. Contact: markus.hoehne@uni-leipzig.de.

 

[1] For a good summary of this debate, see Balthasar, Dominik 2014: Adding Fuel to the Fire? Heritage Institute for Policy Studies, pp. 5-6. Online: http://www.heritageinstitute.org/wp-content/uploads/2014/06/HIPS-Oil_in_Somalia-ENGLISH.pdf
 
[2] Oil production in Norway began in the 1970s. From the 1990s onward, numerous measures to ensure social and other benefits deriving from the oil wealth were implemented. This model for responsible oil production is being exported by the Norwegian Agency for Development Cooperation (NORAD) that administrates the Oil for Development Program launched by the Norwegian government in 2005. Under this program, “economically, environmentally and socially responsible management of petroleum resources which safeguards the needs of future generations” shall be promoted. See: http://www.negotiationsupport.org/matrix/norwegian-agency-development-cooperation-%E2%80%93-oil-development-programme
 
[3] Hoinathy, Remadji and Andrea Behrends 2014: Does rationality travel? Translating a World Bank Model for fair oil revenue distribution in Chad. In: Andrea Behrends, Sung-Joon Park and Richard Rottenburg (eds.): Travelling Models in African Conflict Management: Translating technologies of social ordering. Leiden: Brill, pp. 76-91, p. 81.
 
[4] Ibid., pp. 82-83.
 
[5] Balthasar, Adding Fuel to the Fire, p. 2.
 
[6] This seems to be one of the usual statements by company heads to keep shareholder interest alive and increase the market value. Purcell, Peter 2014: Myths of oil riches drive resource conflict. Horn of Africa Bulletin 26(4), p. 3.
 
[7] BBC World Service 8 December 2014: Somalia invites energy companies to explore for oil. Online: http://www.bbc.co.uk/news/business-29993447
 
[8] DW 2 December 2014: Kenya shocked by al-Shabab terror. Online: http://www.dw.de/kenya-shocked-by-al-shabab-terror/a-18106001
 
[9] Balthasar, Adding Fuel to the Fire, p. 7.

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