PREVIEW
Corruption investigators are looking in the British oil company’s payments to individuals within the oil ministry
A secret financial report, seen by Africa Confidential, claims that the British company Soma Oil and Gas Holdings Limited has made substantial payments over the last 18 months to top officials in the Mogadishu government who influence decisions on oil and gas policy. This report was produced prior to the announcement by the Serious Fraud Office in London on 1 August that it had opened a criminal investigation into Soma's operations in Somalia. The SFO’s investigation is based, we understand, on a leak of a report by the United Nations Monitoring Group on Somalia and Eritrea (UNMGSE) into Soma.
Already under fire over claimed conflicts of interest and defying UN calls not to go ahead with oil exploration and licences, Soma denies all wrongdoing (AC Vol 54 No 20, Oil bids defy security crisis). It said, ‘Soma Oil & Gas has always conducted its activities in a completely lawful and ethical manner and expects this matter to be resolved in the near future.’ However, the affair is acutely embarrassing for British Prime Minister David Cameron because Soma is chaired by Lord Michael Howard, a former leader of the governing Conservative Party and a political ally. Cameron is also credited with pushing for closer ties with Mogadishu, after he organised the London Conference on Somalia in February 2012 and with President Hassan Sheikh Mohamud's government after he came to power that September (AC Vol 53 No 4, No great expectations).
Soma set up in Somalia in 2013 with an agreement to do an offshore seismic survey. In return, it was promised first pick of the blocks it wanted to exploit. According to the report which AC has seen, Soma made payments to key individuals in the Ministry of Petroleum and Mineral Resources in line with a 'capacity building programme' that was agreed with the Ministry in April 2014.
Soma paid US$295,800 to 14 individuals at the Ministry between March 2014 and February 2015: they received between $1,600 and $36,000 each. The company has made no secret that it pays wages in the Ministry, stating in its public accounts that it would ‘cover the salaries of a small number of experts, including geologists and geoscientists.’
Yet the report we have seen also shows that the recipients include at least two individuals who have played a pivotal role in representing the government in its dealings with oil companies. The first is Abdullahi Haider, for years a central figure at the Ministry through whom all major decisions must pass. He is known to be close to President Hassan Sheikh, serving as an unofficial advisor, according to the UNMGSE's 2013 report.
The second is the Ministry’s Deputy Director General, Jabril Mohamud Geddi. He is a relatively new arrival in the Ministry’s senior ranks who made his public debut at a Soma-sponsored Somalia Oil Conference in London in April, where he was seen in the company of many top industry players. He is a presidential relative and, like Abdullahi Haider, is seen as the President’s man in the Ministry. Geddi and Haider received $36,000 and $15,000 respectively from Soma between March 2014 and February 2015 under the capacity building programme. Neither man could be contacted.
Soma claims that the Monitoring Group, whose report is thought to be the basis of the SFO investigation, has ‘fundamentally misunderstood the nature, purpose and destination of the payments made under the terms of the Capacity Building Agreement’. It insists, ‘All payments pursuant to the CBA … were made directly to the Somali Government following appropriate due diligence and the implementation of various legal safeguards pursuant to independent legal advice provided to the Company. Soma has never made payments to individual government officials. Furthermore, the CBA provides for all payments to be offset against future monies due to the Government of Somalia under potential PSAs.’
Conflicting interests
The background of several other individuals involved in the Soma deal indicates possible conflicts of interest. Soma’s man on the ground is Norwegian-Somali Hassan Khaire, the director of the company’s Mogadishu office who also served until recently as Regional Director of the Norwegian Refugee Council. He is also on the board of Soma Management Ltd. in addition to being an unofficial advisor to the President. One source said that at the London conference in April, Khaire was the man to speak to if you wanted to see the Oil Minister.
Leading the Petroleum Ministry’s team of international advisors is Canadian lawyer J. Jay Park QC, formerly of the law firm Norton Rose Fulbright and now of Park Energy Law. Through his consultancy Petroleum Regimes Advisory, Park has been advising the Mogadishu government on legal matters, including the drafting of the Petroleum Bill. In a draft report produced by British development consultancy Adam Smith International in March 2014 and seen by AC, a Soma source is cited as saying Park’s role is to ‘protect all interests’, including Soma’s. The draft goes on to say that the advisors provided their services pro bono with the expectation of compensation by the successful oil company. These remarks were removed from the final report released to donors, allegedly after the intervention of the Oil Ministry.
Park was previously involved in a separate scandal involving Canada’s Griffiths Energy International in Chad. Park led a team of Calgary-based lawyers at Macleod Dixon which paid US$2 million on behalf of their client to the wife of a Chadian diplomat in 2011 to influence the award of acreage. A Canadian court fined Griffiths a record C$10.35 mn. (US$7.87 mn.) in January 2013 after a new management team at the company made the payments public. Norton Rose, which bought Macleod Dixon in 2012, said the lawyers had thought the payment was going to a long-standing consultant. Park quietly left the firm shortly after.
Howard’s end
Soma’s highest-profile appointment was that of Lord Michael Howard, the former British cabinet minister and ex-Tory Party leader. His selection as Soma’s Chairman in 2013, alongside the appointment of several other prominent Conservatives to the board has drawn persistent allegations that the British government was supporting Soma (see Box).
Correspondence, which we have seen, between Howard and British government officials reveals the proximity of Britain’s Foreign and Commonwealth Office to the deal. In a letter of May 2014 to Michael Fallon, who was then Minister of State for Business and Energy and is now Defence Minister, Howard says he accepted the appointment as Chairman of Soma ‘with the encouragement of the FCO’. He goes on to ask Fallon to meet Daud Mohamed Omar, who was then Somalia’s Minister of Petroleum and Mineral Resources, to advise on the country’s new hydrocarbon regime.
Both Soma and the FCO have fervently denied any form of encouragement in relation to Howard’s appointment, saying that this is a misinterpretation of the letter. Others, however, see the FCO’s involvement as more than narrow commercial interest. By facilitating such a landmark deal, the theory goes, British policy-makers hope to build closer relations with the new authorities in Mogadishu to assist the UK’s other strategic priorities in the region, namely intelligence-sharing and counter-terrorism.
Dicey in D.C.
Soma’s activities in Somalia have not been welcomed in Washington. The United States’ opposition to the Soma deal is twofold. The first concern is that the deal contains the potential for disputes over resources which could inflame clan tensions in Somalia and undermine the long-running international efforts to put the country back on its feet. The UN also objected for that reason. The second relates to the USA’s own commercial self-interest. American oil majors, including ConocoPhillips and Chevron, have a long-standing presence in Somalia and hold rights to concessions awarded before the collapse of the late President Mohamed Siad Barre's regime in 1991.
Although Soma’s seismic survey did not encroach on any concessions already held, there is a fear that the deal would hand British firms an advantage in future licensing rounds.
We hear the US Embassy in Kenya has been lobbying for a review of the Soma deal but to no avail. Daud Mohamed was considering a review but lost his job in January 2015, to be replaced by Mohamed Mukhtar Ibrahim. The new Minister is a close ally of the President and is also a member of the Muslim Brotherhood splinter group Damul Jadiid (New Blood) which is so influential in Hassan Sheikh’s government (AC Vol 55 No 3, New blood in old bottles). His appointment means a review of one of the President’s priority projects is unlikely unless Western donors apply significant pressure.
Uncertain legal ground
Critics of petroleum exploration in Somalia cite the absence of regulatory safeguards as one reason a rush for oil could further destabilise the country. Under the constitution, oil licences may be awarded only after negotiation with the relevant regional authorities. This is contradicted by the 2008 Petroleum Bill, put together by Park and his team, which states that oil licensing is solely a federal matter. Mogadishu insists the Petroleum Bill should provide the basis for negotiation, despite the fact that it has not been passed into law and is unlikely to be so during the current Parliament.
For Soma, which has dealt exclusively with the federal government, the Petroleum Bill is the most convenient option, not least in that it provides no specifics on production sharing. Soma has been negotiating production-sharing agreements with the government since at least the beginning of the year, despite the fact that it has yet to hand over the findings of the seismic survey completed in April. A draft of the production-sharing agreement – with only one party in the negotiations aware of the value of the blocks – was leaked to Bloomberg news agency in May, showing a 90-10% split in revenue in Soma’s favour. This news has left transparency campaigners aghast; they claim such a deal is almost unheard of, regardless of the obvious risks of doing business in Somalia. Both Soma and Mogadishu have said the draft does not represent a final deal but few have any faith in the government’s ability to manage the deal properly.
Other companies are faring less well. In late June, Canada’s Africa Energy and Australian-British Range Resources announced they were withdrawing from Puntland, citing the dispute between federal and regional authorities over awarding rights. Its departure means no foreign oil companies now operate in Puntland.
They followed Anglo-Turkish company Genel, which suspended operations in Somaliland in 2013 citing ‘security’ as the reason (AC Vol 54 No 8, Deferring democracy). The company’s partner in the block, Sterling Energy, announced on 27 July that Genel was planning to return to Somaliland next year after receiving assurances from Hargeisa that an oilfield protection unit would be deployed to provide security. These same security units receive a prominent mention in the UNMGSE’s 2014 report, which warned they could worsen security in the region. The report said Genel had paid for the ‘blueprint’ of the oilfield protection unit, which the Somaliland government subsequently commissioned a British private security company, James Hopkinson's Assaye Risk, to organise.
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The men behind Soma
Lord Michael Howard of Lympne CH, QC is not the only well-known face on the board of Soma Oil and Gas. Other senior figures with links to Britain’s Conservative Party include the company’s founding Director, Basil Shiblaq, a financier and party donor. Executive Deputy Chairman Shiblaq has run a series of unsuccessful natural resource ventures across Africa and has been a defendant in a past fraud case. These include a claim that in 1999 in which both Shiblaq and his son Iyad were among dozens of defendants accused of assisting New York-based brokerage A.R. Baron and Company of defrauding customers of millions of dollars. The case against Shiblaq and Iyad was dismissed in May 2013.
Another leading Tory is the Earl of Clanwilliam, Patrick James Meade, previously Baron Gillford and known as Paddy Gillford. A former special advisor to the Conservative Party, he is a Non-Executive Director at Soma. Since 2006, his public relations firm Meade Hall and Associates has lobbied on behalf of the government of Bahrain, a role that has attracted greater public attention as questions over the country’s human rights records have increased since the failed 2011 uprising. In 2014, it emerged that Gillford had attended a Tory Party fundraiser in which he was sat next to the then Defence Secretary, Philip Hammond (now Foreign Secretary), prompting questions in Parliament over the possibility of undue influence.
A Russian oligarch of Georgian descent by the name of Georgy Djaparidze is thought to be the main investor behind Soma. His arrival on the board came shortly after an obscure British Virgin Islands company called Winter Sky bought a 30% stake in Soma for $50 million. Djaparidze’s billionaire father, Alexander, is believed to be the money behind Winter Sky. Djaparidze Senior is founding Chief Executive Officer of Russia’s largest oilfield services provider, Eurasia Drilling, where Gillford is Chairman.
The man credited with bringing Djaparidze to the table is Lebanese businessman Mohamad Ajami, who joined Soma as a Non-Executive Director in January 2014 at the same time as Winter Sky’s funding was secured. The Wall Street Journal reported in December that Ajami was under investigation by the United States Department of Justice and the Securities Exchange Commission over a placement fee paid to the Libyan Investment Authority at the time of Colonel Moammar el Gadaffi (AC Vol 55 No 7, Libya links worry Wall Street). According to the report, Ajami acted as an intermediary for the London-based hedge fund Och-Ziff to facilitate a $300 mn. investment in a property development.
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