Wednesday, 5 November 2014

Somalia to rewrite contracts in response to corruption concerns

Somalia is cancelling or renegotiating a series of high-profile contracts ranging from oil exploration to port operations as the country struggles to stave off donors’ concerns about government corruption.
The contracts – nine multi-million-dollars deals – include a contentious agreement with Shulman Rogers, a US law firm, and an oil exploration deal with Soma Oil and Gas, a new UK company headed by the former leader of the Conservative party, Michael Howard.
The government in Mogadishu wants to rewrite or cancel the contracts following the advice of a new donor-backed committee, which identified irregularities ranging from mild to egregious, officials say. The committee, which was set up in the wake of a series of scandals at the central bank, includes senior Somalis and officials from the International Monetary Fund, the World Bank and the African Development Bank.
Somalia has started to attract foreign investors as Mogadishu enjoys the first internationally recognised government in more than 20 years. But the country remains fragile and the al-Qaeda-linked al-Shabaab jihadi group still controls large swaths of the countryside.
Nigel Roberts, a World Bank official on the committee, said that none of the contracts they had examined had a competitive tender process.
Mogadishu has cancelled one of the nine contracts looked at by the committee and is renegotiating or amending the rest, officials said.
The terminated deal is an agreement with Shulman Rogers to recover Somali assets overseas. The law firm has already charged Somalia $2.7m in fees and expenses – equal to nearly 30 per cent of the $9.6m in cash it transferred last year from overseas accounts that had been frozen since civil war started in 1991.
“We are coming out of the mud, of the jungle, of the bad systems, and we say to donors OK that was wrong, but it has ended,” said Bashir Issa Ali, the governor of the country’s central bank and member on the committee, in reference to the deal with Shulman. “It’s a great relief for us,” he added.
Somalia is now using a free asset recovery process backed by the World Bank and the UN Office on Drugs and Crime.
Mr Ali wants lawyers to fight a clause in the agreement with Shulman – which denies any wrongdoing – that says the law firm is due its cut of any future assets recovered even in the event of contract termination, so long as it can show it made efforts to recover them at some point. “It’s like a Sword of Damocles over us,” said Mr Ali.
Jeremy Schulman, of the US law firm, said on Wednesday that “the government has approached us about reinstating the contract and we are in continuing discussions with the relevant officials on this issue”.
However, a draft letter from Mr Ali seen by the FT proposes to reconfirm the termination, note the appointment of new legal representation and request the return of client files and accounts. Somali and international officials say Mr Schulman did however meet with finance minister Hussein Abdi Halane and, separately, Somalia president Hassan Sheikh Mohamud in recent weeks in an effort to reactivate the contract. Mr Schulman said he could not comment on specific meetings but said he met Mr Halane in late July.
Mr Halane said that although at one point the pair had discussed renegotiating rather than terminating the contract, the government ultimately backed cancellation. “The government has made its decision and we are all behind it,” he said.
The eight contracts the committee wants changed include one with Favori of Turkey, which is building Mogadishu’s airport. The committee has also asked the ministry of Petrolium that “modifications be made” to the oil contract with Soma, which signed its exploration deal in August 2013.
“We’ve not been contacted and have no knowledge of this committee,” said a spokesman for Soma.
Muhammud Abdi Jama, Favori operations manager, said: “We have not received any formal communication from the Somali government, we cannot comment on anything for now.”
This appears to contradict the contents of a September 8 letter from Mr Halane that read: “the Government and Favori have agreed in principle to renegotiate the terms of this contract”.
Mr Ali took over as governor of the central bank after his predecessor fled the country after only seven weeks in the job citing corruption concerns, leading to a significant loss of confidence by donors. Western countries last year pledged $2.4bn to rebuild the Somalia economy after 23 years of civil war.

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