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    Puntland Oil & Mining Deal: The Offspring of an Affair between Greed and Incompetence (Part I)
    By:Omar M. Abdi & Salah Fatah
    April 28,2006

    Imagine a group of greedy businessmen and their cohorts in a room with utterly incompetent representatives of a government in desperate financial situation. Throw in some cash in the mix and it is very likely that you will end up with something similar to the oil and mining exploration deal Puntland authorities signed with Consort Private, a disturbingly dubious company, with the consent and blessing of the TFG administration.
    The essence of the deal is as follows: the regional administration of Puntland signed a concession agreement with Consort Private Ltd on August 30, 2005. The agreement gives Consort Private Ltd the sole and exclusive rights to all mineral and oil exploration, as well as development on and offshore in an area of approximately 212,000 square kilometers in Puntland. Consort Private sold 50.1% of their rights to Range Resources Ltd, a small Australian firm, which is trying to raise $3.45 million dollars to fund the deal.
    The deal was initially opposed by Somalia’s TFG Prime Minister Mr. Geedi who raised strong objections to the agreement in a letter to the Australian Security Exchange (ASX). The letter sparked a worry among investors who heavily traded Range’s shares to the point where the company requested ASX to remove its name from the trading board temporarily. However, in a mysterious turn of events, Mr. Geedi changed his mind shortly after his initial opposition and fully endorsed the deal. To this date, Mr. Geedi has not been forthcoming in explaining the rationale for his sudden change of heart.
    Having successfully obtained the blessing of Somalia’s TFG Range Resources Ltd announced, on April 21, 2006, that it secured a letter of intent from Korean National Oil Corporation to buy exclusive rights to 75% of the land covered by Range’s concession. If the deal with the Korean company goes through, Range Resources will receive US $10 million signing bonus, more than twice the amount they plan to raise.
    The Puntland oil and mining deal has been the subject of intensive debate among Somalis and has created tensions, particularly amongst the founding groups of Puntland and its current administration. The government’s action provoked violent confrontations resulting in loss of innocent lives in the areas targeted for initial contract works, specifically Majayahan and Dhalan in Sanaag Region.
    There are many unanswered questions about this deal:
    • Do the TFG (a temporary care taker), much less the regional administration of Puntland, have the authority to sign an agreement with far reaching consequences for the economic outlook of the country for decades to come? Shouldn’t this kind of decision be left to a duly elected Federal Somali administration and parliament after appropriate laws governing the exploration and development of underground resources are put in place?

    • Why is the agreement between Puntland and Consort Private Ltd. a tightly kept secret that is forbidden to share with the Somali public? Does the public have a right to know what is in this agreement and demand that it should be made public?
    • Why were the negotiations of a deal of this magnitude trusted in the hands of few private individuals (the documents we found contain at least one such name) who have no knowledge and experience in oil and mining negotiations and may be driven by personal gain?
    • Why did members of the Somali Federal parliament and members of the Puntland parliament decide to abandon their constitutional responsibility to scrutinize and debate this serious matter? Don’t they have an obligation to stand up to the unconstitutional transgression and breach of their authority by the executive branches? Are they even aware they have role in his matter?
    • What is it that Prime Minister Geedi saw in the deal that led to his strong objection initially as reported by Australian newspapers? More importantly, what changed his mind and force him to flip-flop and endorse the deal wholeheartedly?
    • Why are the president and speaker of the parliament silent about an issue that, if allowed to go through, has the potential to seal the fate of our resources for generations to come? The Speaker’s silence is particularly disturbing. It implies an endorsement for agreement with Consort Private Ltd and Puntland administration’s unprovoked attacks on innocent citizens of the region.
    • Given the failure of governments at all levels, do the Somali people have an obligation to intervene and do what is right for their country?
    Is this a good deal for the Somali people? Obviously, we—the authors of this piece—do not think so. Like many Somalis we’re suspicious about the secrecy surrounding this agreement and wanted to know more about it. With some search on internet and help from friends we were able to obtain substantial amount of publicly available documents which shed strong light on many aspects of this deal. These documents include:
    • The speech Puntland President gave at the signing ceremony at Dubai Hilton.

    • The speech Puntland finance minister gave at the signing ceremony.

    • Exclusive Rights to All Minerals in Puntland: This document describes key highlights of the agreement between Range Resources Ltd and Consort Private Ltd and contains detailed information about the scope of the work and financial compensation to Consort Private and its partner, Puntland government.

    • Copy of a letter from Puntland president to Mr. Anthony Black, director of Consort Private Ltd. The president reaffirms Puntland administration’s commitment to deal following a strong rejection by Prime Minister Geedi days earlier.
    • Copy of a letter from Prime Minister Geedi to Puntland’s Vice President in which Mr. Geedi expressed strong support for the agreement with Consort Private Ltd.
    • Copy of a letter by the CEO of Range Resources Ltd, Mr. Mike Povey to the Australian Stock Exchange in which Mr. Povey announced his firm’s intention to sell 75% of its rights to Korean Nation Oil Corporation.
    Unfortunately, we were unable to get hold of the agreement between Puntland Administration and Consort Private Ltd, but we will continue our effort in that direction. It is ironic that while the TFG and Puntland administrations were covering their tracks with pathetic secrets, their counterparts were making full disclosures of the deal in order to attract investors around world.
    In the first installment of this two part article, we will present the facts of the deal based on the documents as well as other sources we obtained. In part two, we share more documents and present our take on why this deal is bad for Somalia and for the people of Puntland in particular.
    Facts of Puntland Oil and Mining Deal: Chronology of Events
    August 30, 2005: Consort Private, which is believed to be registered in the Maldives and operates through a London law firm, signed a contract with Puntland government at the Hilton Hotel in Dubai. The content of the agreement has not been made public yet. Individuals present at the signing ceremony included Puntland’s President, Mr. Mohamed Muse Hersi and his finance minister both of whom gave speeches on the occasion. Consort Private Ltd was represented by Mr. Anthony Black, a London lawyer who is also the director of the company.
    President’s speech at the signing ceremony:
    http://www.rangeresources.com.au/docs/The%20President%20speech%20on%
    20the%20night%20of%20the%20signing.pdf
    Finance Minister’s speech at the signing ceremony:
    http://www.rangeresources.com.au/docs/Ministers%20Speech.pdf

    October 5, 2005: Range Resources Ltd, a small Australian firm, announced that it had entered into a conditional heads of agreement with an overseas company, Consort Private Ltd, to buy 50.1 per cent of the sole and exclusive rights to all mineral and oil exploration and development in Puntland. Under the terms of the agreement, Range Resources will pay Consort Private $US2.5 million and make a further 17 monthly payments of $US 200,000. Consort will also be given 85 million Range Resources shares and 85 million Range share options. It is not known how much of these payments Consort will pass over to Puntland government. However, an official document produced by Range Resources and presented in the company’s annual meeting on November 28, 2005 estimated Puntland royalty payments to be 5 to 10 percent. We will present this document in the second part of this article. Key highlights of the agreement between Range Resources Ltd and Consort Private Ltd is available at this link: http://www.rangeresources.com.au/docs/267613.pdf

    October 6, 2005: In a letter to the Australian Stock Exchange (ASX), TFG Prime Minister Mr. Geedi strongly objected to the agreement between Range Resources Ltd and Consort Private. The letter obtained by The Age, an Australian newspaper, said, “the deal with the regional government in the eastern Somali state of Puntland was invalid because only the country's transitional federal government had the power to negotiate the sale of mineral and oil rights ……
    We understand that this event, if not stopped on time, will have an impact on Range Resources Ltd and the market of the Australian Stock Exchange and we ask you as a matter of urgency to inform your market of this event."………..
    "Any violation against this statement will result in negative consequences and the external and/or internal culprits will take the responsibilities on their shoulders,"
    October 18, 2005: The President of Puntland, Mohamed Muse Hersi reaffirmed Puntland’s commitment to the agreement with Consort Private Ltd in letter to its Director Anthony Black. A copy of the letter is available at this link http://www.rangeresources.com.au/asx/PresidentsLetter.pdf.
    November 2, 2005: The Prime Minister of Somalia, Mr. Ali Mohamed Geedi mysteriously changed his mind and strongly endorsed the Puntland deal. He did so in a letter to Hassan Dahir Mohamud, the Vice President of Puntland. A copy of Mr. Geedi’s letter is available at http://www.rangeresources.com.au/asx/
    primeMinistersLetter.pdf.
    April 21, 2006: In a letter filed with Australian Stock Exchange (ASX), Range Resources Ltd announced that it secured a letter of intent from the Korea National Oil Corporation (KNOC) in respect of a 75% farm in to a concession area in the Nugal area comprising a portion of the former Blocks 28 and 29 following key meetings held in the middle east last week. A copy of the letter is available at the link below. http://www.asx.com.au/asxpdf/20060421/pdf/3wdg8d2z322gc.pdf
    We hope these documents will shed light on the mystery surrounding the Puntland Oil and Mining exploration deal.
    Omar M. Abdi
    Fairfax, Virginia
    USA
    E-Mail:[email protected]
    Salah Fatah
    Laurel, Maryland
    USA
    E-Mail:[email protected]
    We welcome the submission of all articles for possible publication on WardheerNews.com. So please email your article today Opinions expressed in this article are those of the author and do not necessarily reflect the views of WardheerNews
    Maqaalkani wuxuu ka turjumayaa aragtida Qoraaga loomana fasiran karo tan WardheerNews



    Puntland Oil & Mining Deal: The Offspring of an Affair between Greed and Incompetence (part II)
    By Omar M. Abdi & Salah Fatah
    May 09, 2006


    If you were in a position to sell one third of Somalia’s underground natural resources, everything under the ground except water, how much would you sell it for? Would you seek the advice and consultation of your fellow citizens and listen to their concerns about the idea? Would you seek expert advice to guide you through the process and warn you of potential consequences of your decisions? Would you seek legal advice? These are some of the questions on the minds of many people regarding Puntland Oil and Mining agreement. In the second part of this article, we will present our opinions of the agreement and try to shed light on answers to some of the questions. We will try our best to provide corroborating documentation supporting our assessment. This approach is particularly appropriate when discussing financial aspects of the agreement.
    Based on what we have learned so far about the subject matter, we strongly believe that the approach and leadership with which Puntland administration has handled this agreement was debilitated by ineptitude, greed, lack of vision, and was beset with arrogance and inflated egos. We identified three major flaws of the deal.
    Strategic Flaws of the Agreement

    The readers of Part I of this article know that few individuals at the top of the leadership in Puntland and TFG administrations signed an agreement which gave away over 90% of the ownership of oil and minerals in Puntland regions to a foreign company, Consort Private Ltd. This firm seems to exist only in name and has no business track in the world. The agreement is so unfavorable to Somalia that oil and gas industry experts were bewildered when its news was announced late last year. Steve Rothertham of EnergyView, an Australian oil and gas industry news magazine, wrote about it in an article titled “A Punt too far?” He interviewed Dr. Ali Abullaahi Barkadle, a Somali resource and management consultant living in Melbourne, who criticized the deal on several grounds. He said,
    1. “The Puntland contract gave an unfair advantage to Consort Pvt Ltd and Range Resources by lumping together mining and oil concessions and giving the whole state – roughly 212,000 square kilometers – to a single company was unheard of.”
    2. “It seems the negotiators had a very limited understanding of the mining and oil industry or were in need of quick money.”
    3. “Puntland can be divided into many blocks using modern GIS systems. The area of 212,000sq.km is too huge for a viable study to be done on. Even multinational corporations with huge budgets for explorations cannot bite into such a huge cake without damaging shareholder value.”
    4. “Somalia had issued a number of concessions and prospecting licenses to a number of international oil companies in the 80s when Hunt Oil discovered oil in Yemen that protruded into Somalia. Ownership questions still remain since most of these companies declared force majeure.”
    A copy of the article is available at http://www.energyreview.net/storyview.asp?storyid=48122§ionsource=s0
    Environmental Flaws of the Agreement

    One of the most awful aspects of the agreement is that it contained no provisions to address potential environmental problems associated with mining activities which could have severe negative impacts on the quality of land, air and water resources. These problems are widely recognized in the world and include:
    • Watershed deterioration caused by increased erosion and runoff rates as result of large scale mining excavations. Rangelands, the backbone of livelihood in the region, are extremely vulnerable to this kind of damage.
    • Mining related activities such as digging of underground tunnels and trenches can increase the risk of groundwater contamination. Human health concerns include hazardous substances disposed at surface which could find their way into the ground through these structures, thus, providing an easy migration pathway for contaminants to reach the groundwater.
    • Unsafe waste disposal practices could be rampant throughout mining sites in the region due to lack of regulatory oversight. This could lead to wide spread dumping of chemicals and other toxic substances used in mining operations into the ground.
    • Risk of massive land deformation due to collapsing of mining tunnels. This is particularly true if the design and operation of these structures are not planned and monitored carefully by qualified institutions.
    • Lastly and most importantly, all of the above risks are likely to happen because Somalia has neither the environmental protection laws nor the qualified workforce and institutional support to oversee complex oil and mining operations in order to protect human health and the environment.
    Failure to address these issues in a well thought-out manner carries the risk of ecological disasters which linger in the region for along time. The communities who live in areas targeted for contract works should be aware of the health and safety risks as well as economic deprivations to their land and way of life. If governments at all levels failed them, they do have a right to look out for themselves and they deserve the support of their fellow citizens.
    We believe Range Resources has mixed feelings about the gross negligence by their Somali counterparts to protect human health and the environment. On one hand, they see it as a risk to the project since future Somali authorities could impose strict laws which could increase the cost of operations. On the other hand, they seem to use it as selling point to investors by mentioning that there are no regulatory requirements from local and Federal governments. In other words, this is a high profit project. A statement to this effect is mentioned in the prospectus document Range Resources put together to raise $3.45 million from investors in Australia and New Zealand. You can find the document at the link below. See Section 7.0 which discusses government regulatory compliance.

    http://www.rangeresources.com.au/asx/Rights%20Issue%20Prospectus%20Draft%206%20(2-12-05)%20CLEAN.pdf
    The above observations led us to believe that country is not ready to enter agreements such as the one signed by Puntland at this time, and the Somali public has the right to rise against the actions of few individuals driven by irrational greed and irresponsible behavior that endangers the lives of many citizens.
    Financial Flaws of the Agreement

    The flaws in the agreement defy logic and common sense to the point one has to ask what were Somali representatives in the negotiation table doing. Who were they looking out for? Based on what we know now, they were there just to pick up the check. That is the only rational conclusion a reasonable person can deduce from their actions. There are a lot of speculations about how much money changed hands in this deal. We don’t know exactly how much money Puntland and TFG governments received for signing the deal, since the agreement between Puntland and Consort Private Ltd is a highly kept secret known to few. However, based on two documents released by Range Resources, we were able to make a reasonable estimate of the amount of money Range Resources will pay to Consort Private Ltd and Puntland/TFG administrations to get a majority ownership of oil and mineral rights in the region.
    The payments made by Range Resources are in three categories. It is important to understand the differences and the value of each one of them to get a realistic sense of the actual money going to the payees.
    Cash payments: Direct cash payments to the payee.
    Company shares: These are shares paid upon Completion Date (after signing all necessary papers.) To calculate the value of these shares we obtained price of Range shares as reported by the Australian Stock Exchange and then converted it to US dollar using the exchange rate at the time of this article ( 4 cents per share, 1 Australian dollar=0.768332 US dollar). We don’t know when these shares can be exercised (sold). However Range did not put a time restriction on them, so we assumed they can be cashed at any time.
    Company Share Options: These shares are subject to conditions which payee has to fulfill to the satisfaction of Range Resources. These conditions include but not limited to ensure contract work schedule is not interrupted/delayed and availability of third party investors to raise additional funds for the project.
    The leaders of Puntland and TFG, based on our estimation, sold 1/3 of Somalia’s underground resources for the following benefits:
    • A cash amount of about US $ 5.9 million.
    • About US $ 2.6 million in the form of Range Resources shares.
    • About US 2.6 million in the form of Range Resources share options.
    • A royalty payment of 5 to 10 percent of the revenue generated in production phase, if the deal gets that far. This means that the maximum benefit the Somali people can hope to get out of this agreement is 10% of the revenue.
    It is possible that Consort Private Ltd will receive some of the above money, although an insignificant share. There is also a chance that Somali officials may never cash the share options in the amount of US $ 2.6 million since it comes with a number of conditions which may not be fulfilled. Having said this, as of May 31, 2006 the total cash amount that would be paid to Puntland/TFG officials is about US $ 2.6 million excluding any payment from company shares and share options. We don’t know who the beneficiaries of the shares offered by Range Resources are. For its part, Consort Private Ltd will get most of its payment when 3rd party investors come on board. Not a bad deal for a one man company. See the tables below for details.
    Payments to Puntland/TFG Administrations
    Payment Description US Dollar Status
    Cash advance (refundable if Somalia/Consort side doesn’t meet their obligation to Range Resources). The obligation here was to sign the papers. 1,500,000 Paid
    Cash ( to be paid when all agreement approvals or signatures are obtained) 1,000,000 Paid
    Cash (17 monthly payments of 200,000 starting Nov. 15, 2005). 3,400,000 Partially paid
    85,000,000 Range Resource shares to be given at agreement completion date. These shares can be cashed in any time. The only condition was to sign the papers. 2,624,800 Paid
    85,000,000 Range share options. We don’t know what conditions are attached to exercise these shares. We believe these shares will be paid if third party investors come on board. 2,624,800 Not likely to be paid soon.
    Total 11,149,600 Partially Paid
    Source: Agreement between Range Resources and Private Consort. Please see Part I of the article.
    Payments Promised to Consort Private after 3rd Party Investors come on Board
    Payment Description US Dollar Status
    Cash (To be paid after Consort Private brings third party investors). We think that Puntland/TFG will not get the significant share of Consort Private payments. 500,000 Not paid
    85,000,000 Range Resource shares to be paid after Consort Private bring third party investors. 2,612,329 Not Paid
    255,000,000 Range share options. Shares to be paid after Consort Private brings third party investors. 7,836,986 Not paid
    Total 10,949,315 Not paid
    Source: Agreement between Range Resources and Private Consort. Please see Part I of the article.
    The source for royal payments is a document presented at Range’s annual company meeting in November 28, 2005. It contains interesting scientific details, unknown to many Somalis, regarding the prospect of oil in north eastern regions of Somalia. Range Resources acquired substantial data from former oil companies suggesting the existence oil reserves estimated at more than 500 million barrels. For details see the document at the link: http://www.www.rangeresources.com.au/docs/slide.ppt
    Note: you need to download it first and then view it with Microsoft PowerPoint. Look at slide #16 for royalty payments.
    Conclusion
    We wonder if any other country has been robbed of its wealth as belligerently as the Puntland Oil and Mining Agreement did to the people of Somalia. An interesting analogy to this deal, in our opinion, is when the Dutch bought the island of Manhattan in New York in early 18th century from the native Indians for a bunch of beads amounting to 60 Dutch Guilders, which was later converted to about 24 US dollars.
    Omar M. Abdi Salah Fatah
    Fairfax VA Laurel, MD
    [email protected]
    [email protected]

    _________________________________________________________________

    We welcome the submission of all articles for possible publication on WardheerNews.com. So please email your article today Opinions expressed in this article are those of the author and do not necessarily reflect the views of WardheerNews
    Maqaalkani wuxuu ka turjumayaa aragtida Qoraaga loomana fasiran karo tan WardheerNews

    Copyright © 2006 Wardheernews.com

 
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