Disputed Somaliland’s oil laws heighten stakes in volatile region

The self-declared state of Somaliland has ambitious plans to regulate its nascent oil sector. However, it is a step that could heighten tensions throughout the Somali-speaking region.

By RACHEL WILLIAMSON

The self-declared state of Somaliland has ambitious plans to regulate its nascent oil sector. However, it is a step that could heighten tensions throughout the Somali-speaking region.

Like other East African states such as Tanzania and Kenya with lucrative new oil discoveries, Somaliland is developing resources laws in preparation to reap the benefits of expected - although as yet unconfirmed - petroleum deposits.

But analysts warn that access to oil could bring the question of autonomy from the internationally recognised state of Somalia to a head. Though technically still part of Somalia, Somaliland has existed as an unofficial state since unilaterally declaring independence in 1991.

The question of autonomy remains charged, although an uneasy status quo and Somalia’s weak central government have allowed Somaliland to operate more or less independently for over two decades. Access to oil finds, however, could shift the calculus of the official Somali government in Mogadishu in favor of quashing the autonomy claim for good.

Internal expectations could also destabilise Somaliland, an oasis of relative calm since 1993 within the fractious Somali ethnic triangle that includes Ethiopia and Kenya.

Both countries have large populations of ethnic Somalis, with whom the state has fraught relations. Ethiopia stands accused of human rights abuses against its restive Somali citizens in the eastern Ogaden region, while Kenya is trying to stamp out a fresh wave of attacks by the Somalia-based terrorist group Al Shabab.

Copies of three June 2014 draft bills seen by the writer address petroleum regulation and revenue allocation in Somaliland. They show that Hargeisa, Somaliland’s unofficial capital, is planning to establish a sovereign wealth fund, and has firmly rejected using Somaliland petroleum to subsidise fuel for its citizenry. The bills, designed by Norwegian law firm Simonsen Vogt Wiig, are still being held within the energy ministry and have not been presented to Cabinet yet.

The reaction of the internationally recognised state of Somalia to Somaliland’s efforts towards developing its own petroleum legislation has been muted so far, largely due to infighting that has paralysed the government in Mogadishu for months.

Instead, Mogadishu has ramped up development of a parallel oil sector, and has aimed its threats at oil companies.

The Federal Government of Somalia (FGS) in Mogadishu has made it clear it considers contracts signed with Somaliland void.

In September, it said companies that signed deals with regional governments were "adding fire to conflicts" and “destroying the international community's effort to build the peace and the security of the country”.

It singled out Norwegian oil explorer DNO International, which signed a production sharing agreement with Somaliland in April 2013, and threatened to lodge a complaint with the United Nations Security Council.

Somalia expects to finish a seismic study of the country by the end of this year, in order to start a licensing round next year. The FSG hopes to be producing hydrocarbons offshore by 2020 from a total national reserve that’s estimated to be as high as 110 billion barrels of oil - a figure equivalent to Kuwaiti oil reserves.

The FGS is also talking to oil companies about reviving concessions abandoned under force majeure in 1991, when the country disintegrated into civil war following the ouster of dictator Siad Barre.

However, Africa Oil’s thwarted attempts to explore a concession partially in Somaliland, yet awarded by the Puntland government, indicate the challenges Mogadishu faces if it wishes to enforce Chevron's or ConocoPhilips’ old concessions granted in the same area.

“Somaliland has already concessioned out those areas...If Mogadishu moves actively to grant a concession, a new concession, in territory that is in Somaliland - that will be a really robust signal from them of intent," Chatham House fellow Jason Mosely explains.

In October, the UN Monitoring Group on Somalia and Eritrea warned of security risks from rival claims over oil licences, unless the competing authorities create a joint approach to resources management.

Yet Somaliland’s foreign minister Mohamed Bihi claimed in a July interview with the author that oil had not come up in the Turkey-sponsored talks between Somalia and Somaliland, indicating that dialogue between the two countries on the issue could be moving more slowly than developments on the ground.

Internal frictions

If oil management is being marked as a source of future conflict between regional Somali authorities, several internal controversies already flaring within Somaliland indicate how divisive the topic could be on a larger scale.

Public opposition to a perceived lack of transparency and participation in Somaliland’s oil sector is building as disputes over land use, alleged oil payments and local employment have tainted the sector since its inception two years ago.

In 2013, Anglo-Turkish explorer Genel Energy suspended its operations citing security concerns, after problems with a local community escalated.

Oil is also feeding the cause of separatist a movement Khaatumo state. The group claims territory in Somaliland and Ethiopia and is agitating to become an autonomous state under the FGS, and sees the oil blocks within its territory as potential bargaining chips.

According to Mr Mosely, although the movement’s roots precede Somaliland’s oil finds “it would be accurate to say that oil certainly did not make anything any easier”.

From the perspective of the separatists, Hargeisa’s lack of grassroots consultation on oil exploration deals is compounding a view that the distant capital has no right to claim the region's resources wealth, let alone govern over Khaatumo-claimed land.

And the Somaliland government’s refusal to submit the four already-signed production sharing agreements for Parliamentary approval is exacerbating friction with the legislature.

"In the absence of transparency, alternative scenarios come into being and anyone who fails to be transparent is obviously hiding something," Ibrahim Jama, an MP from the eastern Sanaag region, says.

He claims the constitution requires all international agreements to be scrutinised by Parliament, a detail energy minister Hussein Abdi Dualeh disagrees with. Mr Dualeh claims responsibility for resources is vested in the state, so it is up to the government to decide how to manage them.

"We do not want to have a food fight over who owns what,” he says.

Aggravating these problems will be the Somaliland government's limited ability to implement the ambitious laws it has drafted. The possible outcome could be continuing public disputes between separatists, diaspora activists and the government, and the growing mistrust of grassroots communities residing in Somaliland’s oil rich eastern territories.

Dominik Balthazar, a fellow at the United States Institute for Peace (USIP), doubts whether Somaliland has the bureaucratic capacity to implement the proposals, or the economic size to resist over-focusing on hydrocarbons, causing other sectors to wither.

"It is not necessarily the question of whether Somaliland can establish such institutions, it has proven in the past that it can," he says."[But it is] currently not in the best of positions to bear the political and economic shocks the commercial production of hydrocarbons is likely to be accompanied with." 

Oil finds have heightened the stakes in the Somali region, with possible destabilising consequences if the issue is not addressed head on. Mr Mosely argues that Somaliland and the government in Mogadishu must cut a deal not only to clarify basics like concession ownership, but to prevent violent clashes between regional authorities and private actors.

“Eventually you have got to deal with the fact that none of the entities...are really competent jurisdictions to grant concessions in an international sense,” he says.

“Somaliland does not exist, internationally… and [the government in Mogadishu] is the sovereign entity for which responsibility to grant these concessions, in international law terms, rests.”