Thursday, April 18, 2024
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Adding Missing Points to the Natural Resources Agreement

By Mohamed Mukhtar Ibrahim

I would like to congratulate the Federal Government of Somalia (FGS) and Federal Member States (FMS) on agreeing on the 2020 Election Model and the Ownership, Management and Revenue Sharing from Natural Resources (Petroleum and Minerals). As a former minister of petroleum, I was deeply involved in the negotiation of natural resources and I want to thank those who worked tirelessly to help the two levels of governments negotiate and reach an agreement as Article 44 of the Provisional Constitution stipulates.

As the current Minister of Petroleum, Abdirashid Mohamed Ahmed, said in his press release on 7th June 2018, this agreement was 3 years in the making. As soon as I took over the ministry in February 2015, I started a regional outreach initiative aiming to reach an agreement on resource ownership, control and sharing revenue from natural resources. A negotiation team was appointed to set a clear strategy to identify and approach federal member states. The negotiation team visited member states for the first time in March 2015 to exchange views and share issues related to the development and management of the petroleum sector.

The Federal Government of Somalia and Federal Member States held a meeting in Mogadishu on the 21 st of October 2015 to develop a common political understanding of petroleum and mineral resources. The negotiation process was long and difficult as participants were negotiating with emotions. Special thanks go to the hard-working staff members of the Ministry of Petroleum.

In March 2016, The FGS reached with South West and Galmudug states an interim agreement on management and revenue sharing from natural resources. The negotiation came to a halt due to the 2016 general election.

The negotiation resumed earlier this year when the Council of Interstate Cooperation and the Federal Government appointed representatives for the intergovernmental negotiations. An agreement was reached on the 5 th of June 2018 in Baidao.

As a former Chairman of the natural resources negotiation, I am in a prime position to inform on where we performed well and what needs further improving in regard to the natural resources agreement. In this document, I will highlight key points that are missing from this agreement so that we can find the right political and economic balance that considers the spatial distribution of natural resources and the associated regional equity concerns.

First, it is worth celebrating that the FGS and FMS have collaborated in reviewing the Provisional Constitution with respect to ownership, management and revenue sharing from natural resources. It is also worth noting that leaders have used the natural resource dialogue as an opportunity for dialogue and reconciliation. That is a positive move.

This Agreement is entitled “The Agreement on Ownership, Management and Revenue Sharing from Natural Resources (Petroleum and Minerals)” which means it is a formal agreement and not an interim agreement. An agreement with four (4) pages is difficult to cover the ownership, management and revenue sharing from natural resources in the country. Furthermore, it does not have the provisions for amendment or addendum.

As the name shows, it combines petrol and minerals. Although petroleum and minerals share a significant number of similar characteristics but that does not mean they can be treated same. Combining the two under one agreement will create institutional and legal challenges. Furthermore, the agreement does not call for the creation of a Somali Mineral Authority. Does that mean the Somali Petroleum Authority will manage minerals?

Somalia constitutional review process is underway, this agreement does not separate which articles that will go into the constitution and which ones that will belong to the wider petroleum legal regime. It is difficult to change once an agreement is enshrined into the constitution.

Article 1 of the agreement states that “the Federal Government and the Federal Member States shall manage Somalia’s natural resources on behalf of Somali people.” This means joint-management. According to the Provisional Constitution, the Federal Government is mandated to run (A) foreign affairs, (B) National Defence (C) Citizenship and Immigration, and (D) Finance. However, the Gulf crisis has shown the jostling between the Federal Government and Federal Member States in the foreign affairs domain. Is true joint management of natural resources between federal and state governments attainable in Somalia?

Article 2 deals with the management of natural resources. In general, the petroleum industry is not easy to manage and requires significant professional capacity. If that is not enough, on top of the federal ministry of petroleum and state ministries of petroleum, this agreement calls for the creation of different institutions (National Oil Company, State Oil Companies and Somali Petroleum Authority). Without clear separation of duties and technical capacity, it is difficult to avoid confusion.

Article 3 declares that revenue from natural resources shall be shared equally between the Federal Government and Member States. It eliminates poverty consideration.

Article 4 of the agreement stipulates revenue will be deposited into a Special Account to be opened at the Central Bank of Somalia. But it does not address how to manage the financial impact at a macro-economic level and macro fiscal effects.

This agreement does not reflect what will happen if a federal member state or states have no oil at all such as Fujairah of the United Arab Emirates.

This Agreement does not specify the relationship between the allocation of responsibilities in a federation. Now we see Mogadishu complaining of the heavy burden it shoulders.

The Agreement does not address the process of resolving oil agreements reached after 1991, the legacy data (data before 1991) and the new data (data collected since 1991).

The agreement does not specify when the sharing formula (percentage) can be changed. Because the country and the economic climate can change.

Generally, if there is no stated effective date, a contract goes into effect when the parties sign it. This agreement does not state when it will have legal force and effect or if it needs further approval from the Federal or State Parliaments.

To conclude, the resource sharing agreement is a step in the right direction, but it needs to provide the Somali people with further clarifications in relation to the ownership, management and revenue sharing from natural resources.

Upcoming research will explore what would be the possible outcomes and consequences of Somalia proceeding with the exploitation of its oil reserves prior to the ratification of the required political and legal frameworks.

Mohamed Mukhtar Ibrahim
Former Minister of Petroleum and Mineral Resources
Email: [email protected]

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