Somalia Petroleum Authority Pushes Back on Voice of America Reporting

Friday, April 22, 2022

22 April 2022 Mogadishu, Somalia

The Somalia Petroleum Authority (“SPA”) notes the article published by Voice of America on 19 April and issues the following response.

The analysis published in the article was entirely inaccurate and based on an early draft of the Production Sharing Agreement (PSA), which is no longer relevant.

The facts, which provide an equitable framework for both parties, are as follows:

• The royalty rate is fixed at 5%
• Throughout the commercial lifecycle of a project, normally 20 to 25 years, the profit split is set at 50-50 between Somalia and the oil company, regardless of the commercial price of oil
• Somalia’s share never dips below 50%, even if oil prices fall below $55 per barrel
• If the price of a barrel of oil falls below $55, the oil company will reduce its share so Somalia’s share in fact increases in these circumstances
• During the cost recovery phase, normally the first 5 years, the terms of the PSA allow the company to recoup the costs of exploration
• If no oil is discovered then the oil company has no recourse to recover the costs of exploration, ensuring that there is no material risk to Somalia and its people
• Furthermore, Somalia will benefit from corporate tax at 30% and capital gains tax at 20%

Background

The Resource Sharing Agreement signed on 5th June, 2018 mandated the establishment of the Somali Petroleum Authority (SPA), nominated by the Federal Government States. The SPA’s objective is to review exploration and production agreements with international petroleum companies to ensure they are internationally competitive and also serve the best interests of the Somali people.

In addition, the Resource Sharing Agreement and subsequent Petroleum Law require that PSAs must be approved by Government ministries and the Inter-Ministerial Concessions Committee (“IMCC”) as being fair and equitable. The IMCC is an intergovernmental body charged with scrutinizing such agreements with representatives from the Ministry of Finance and other stakeholders including the Ministry of Justice and Judiciary Affairs, Ministry of Commerce and Industries, Ministry of Planning and Ministry of Foreign Affairs.

The IMCC recommended certain modifications to the Coastline PSAs in October 2021. These modifications were negotiated among the Ministry of Petroleum and Mineral Resources, SPA and Coastline in January of 2022.

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