ISSN: 2226-3624
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This study examines the fiscal architecture of Somalia’s emerging petroleum sector, with a particular focus on the 2024 Somalia-Turkey offshore petroleum agreement and its associated Production Sharing Agreement (PSA). The purpose of the research is to evaluate whether the current fiscal regime can deliver optimal government revenue while maintaining investment attractiveness. The study adopts a qualitative research methodology based on documentary and content analysis of secondary data, including the Somalia Petroleum Law (2020), PSA models, contractual provisions, and comparative petroleum regimes from selected African countries such as Ghana, Uganda, Kenya, and Tanzania. The analysis focuses on key fiscal instruments, including royalties, cost recovery limits, profit oil sharing, and taxation mechanisms. The findings reveal significant fiscal gaps within the agreement, notably the absence of early-stage and recurring revenue instruments such as signature bonuses, surface rentals, and development-related payments. The study further identifies a relatively low royalty rate of 5% and a high cost recovery ceiling of 90%, both of which substantially delay government revenue flows and reduce the state’s effective share of gross revenue to approximately 11.175%. Although the profit oil-sharing mechanism appears progressive in relative terms, the overall fiscal structure remains weak due to limited statutory safeguards in the Petroleum Law (2020), allowing excessive reliance on negotiable contractual terms. The study concludes that while the agreement reflects the realities of a high-risk frontier market, its current fiscal design constrains early revenue generation and weakens the government’s capacity to maximise long-term economic benefits. Strengthening the legal framework, improving fiscal terms, and enhancing institutional capacity are essential to ensuring a more balanced and sustainable petroleum revenue system.
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