By Alastair O’Dell
Wednesday August 12, 2020
Newly appointed Somali Petroleum Authority chairman and CEO Ibrahim Ali Hussein speaks to Petroleum Economist about his hopes for the Somali oil and gas industry
Ibrahim Ali Hussein was appointed the first chairman and CEO and of the Somali Petroleum Authority (SPA), at the end of July, at a critical point in the development of the country’s nascent hydrocarbons industry.
The establishment of the SPA is the last major milestone in establishing the set of institutions necessary to create a promising industry in the frontier East African economy.
The minister of petroleum led the creation of the SPA, according to the terms of the Petroleum Law passed in February this year. Its establishment happened shortly before the first licensing round was launched on 4 August and it will be a key institution for exploitation of hydrocarbons in the country.
What are your main objectives for the SPA?Hussein: The main short-term objective of the SPA is to ensure a very effective and successful licensing round. In the next year, one of the key objectives is to ensure that the first offshore contract is awarded. Also, that drilling starts next year. The members of the board have not yet had a meeting—so very soon we will meet to develop a plan for the next three years.
How will the SPA be structured?
Hussein: The structure exactly follows the Somali Petroleum Law and articles, which state that each member state nominates one member to the board. Seven members of the board come from the member states and the remaining two come from the federal government.
This structure is based on the ownership, management and revenue-sharing agreement between the federal government and the member states. It was agreed that the SPA and the Somali National Oil Company would be inclusive.
How delicate is the agreement between member states?
Hussein: First of all, the composition of the board is absolutely set… and absolutely fair. Secondly, states’ governments have procedures for how they nominate. We do not impose anyone on them. So long as they follow the criteria and the requirements —it is absolutely, entirely, up to them.
Thirdly, we are lucky that all the member states have an offshore. They all have access to the ocean and the exploitation starts off in these states simultaneously. It is fair. It is inclusive. It is good for everyone.
There is a formula agreed for how to share revenues, and how the oil-producing state shares with the federal government and other states. This formula is absolutely agreed. It is absolutely clear.
Are there any big challenges still to overcome?
Hussein: There were several critical milestones: agreeing the revenue-sharing agreement, creating the Petroleum Law [and] establishing the SPA, and the last one is the establishment of the Somali National Oil Company.
What follows are the activities, such as the licensing round we launched on 4 August, negotiations with the oil companies and negotiations with the prior holders, those who hold the legacy contracts. We will be planning activities according to the timeframe that we set in our strategic plan.
You conducted a virtual roadshow for the round. How did it go? Do you have any indication of interest?
Hussein: Interest is absolutely enormous. For the first virtual licensing round, 180 people attended from different oil companies and investors. And for the second virtual meeting, 260 attended. It was a live event and the interactions, questions and clarifications absolutely showed a great deal of interest.
It is a tough environment for licensing rounds. What are your expectations, what would you consider to be a success?
Hussein: Even though there is Covid-19, even though there is a global economic downturn and there are effects on oil and gas sector, we are still hoping that many oil and gas companies will participate. The list of oil and gas companies that viewed our data is absolutely enormous. And the list of those communicating with us is absolutely great.
We are hoping for a good number of oil and gas companies. To make sure, we have a dispersed licensing round—we launched seven blocks that are very prospective. Also, we have very attractive commercial terms. We have made every effort to create a great deal of interest from the oil and gas companies. Hopefully they will be very interested.
There was a vote of no confidence in the prime minister recently. How may this play out?
Hussein: The removal of the prime minister will not affect the ability of government institutions to carry out their duties. The government institutions remained working after the prime minister was gone, and we are hoping to have a new prime minister very soon. Nothing will change.
According to the constitution, the president appoints the prime minister. Then the parliament has to endorse and give a vote of confidence. The president has one month to appoint a new prime minister [from 25 July].
Who is likely to emerge as the next prime minister?
Hussein: The Somali government structure is based on power sharing. There are four major clans and another fifth one, and they share based on this. If the president comes from one big clan, then the prime minister has to come from another clan. And the speaker of the parliament has to come from another clan.
How important is the identity of the next prime minister to the development of the oil industry?
Hussein: Not very important, in a sense. The Ministry of Petroleum and Mineral Resources and SPA are government institutions. The prime minister is in charge of all the government institutions, including the ministry of petroleum, but the role is leadership, that is it. Delivery and the mandate of any activities related to oil is up to the ministry of petroleum and SPA.
How do you view the security situation in the country?
Hussein: The security situation is improving tremendously. There are stories of just pockets [of insurgents] somewhere in the country. They do not have strongholds that are a threat, just small pockets here and there. Oil and gas operations will be offshore, which is 100pc safe.
How much commitment to local content are you looking for?
Hussein: This sector will contribute tremendously to the job opportunities to these young Somali people. 70pc of the Somali population is young. They need jobs, they need education and they need opportunities.
We are putting much emphasis on local content. This is one of the areas where oil companies need to demonstrate their desire for local content, local business and local employment. They will have to demonstrate their plan for that.
Somalia is a frontier country but it offers great potential and prospects. We have been trying to attract investors, oil companies, to come into our country and start exploration. We have geological potential, very attractive commercial terms and a law that protects investors that invest in our country. We are looking forward to seeing investors to flow into our country.