Somalia: Finance minister tightens grip on oil sector

[Deeq A.]

MOGADISHU, Somalia – The Federal Government of Somalia has announced issuing and approving a new Petroleum Fiscal Regime Regulation, effective immediately. The decree (Ref: MOF/OM/0008/2025), signed by the Minister of Finance, H.E. Bihi Iman Egeh, was dated January 18, 2025.

The new regulation focuses specifically on the fiscal framework governing petroleum activities within the country. The Ministry of Finance stated that the regulation is intended to promote fiscal responsibility, improve transparency, and drive sustainable economic growth in Somalia’s emerging petroleum sector.

The Ministry highlighted the need for comprehensive regulations to complement the existing Extractive Industries Fiscal Regime Law of 2023, recognizing their importance in effectively implementing laws duly passed by Parliament.

The regulation issuance is also based on powers granted to the Minister of Finance under Article 6 of the Revenue Administration Law 2019.

Potential power shift

While the Ministry of Finance frames the regulation as a necessary step for good governance, particularly as the country attempts to develop its oil and gas resources and attract further investment, the direct control over petroleum fiscal matters being asserted by the Ministry of Finance has raised questions.

By placing the fiscal regulations of the petroleum sector under the Finance Ministry’s authority, the move shows diminished confidence in the Ministry of Petroleum’s ability to manage this aspect of the industry.

Furthermore, it effectively reduces the scope of authority held by the Minister of Petroleum regarding the financial aspects of their domain.

This comes at a time when Somalia is actively engaging in significant deals with foreign entities, such as the recent agreements with Turkey and Coastline Exploration, further emphasizing the critical role of the petroleum sector in the nation’s economic future.

According to the decree, the Petroleum Fiscal Regime Regulation has been made publicly available on the Ministry of Finance’s official website. Each page of the regulation bears the Minister’s initials for authentication.

Recent petroleum deals 

The issuance of these new regulations follows a period of heightened activity in Somalia’s petroleum sector. In February 2023, Somalia signed a landmark production-sharing agreement with Coastline Exploration, a US-based company, for seven offshore oil blocks.

Adding another layer to the sector’s development, Somalia signed a significant agreement with Turkey in early 2024. This agreement encompasses oil exploration in Somalia’s sea and land and also includes provisions for potential Turkish involvement in other aspects of the petroleum industry, including refining and infrastructure development.

The deal with Turkey, a close ally of Somalia, is a strategic move to diversify partnerships and accelerate the development of the country’s petroleum resources.

History of Somalia’s petroleum sector

Somalia is considered a frontier market in the oil and gas industry. While the country is believed to possess significant offshore hydrocarbon reserves, exploration and production have been hampered for decades by political instability, security concerns, and a lack of a comprehensive legal and regulatory framework.

Exploration activities in Somalia began in the 1950s, but discoveries were limited. Interest was renewed in the early 2010s, and some companies like Shell and Exxon Mobil had exploration blocks. They all declared force majeure due to insecurity.

The Ministry of Finance has not provided further details on the specific provisions within the new regulation. However, its issuance signals the Somali government’s commitment to establishing a robust regulatory environment for its petroleum industry, albeit one that potentially shifts the balance of power between ministries as the country navigates the complexities of developing its petroleum resources and managing new deals with foreign investors.