Chinese Poly GCL Regains Natural Gas Concession In Somali Region

Natural gas policy, proclamation, regulation in the making at Mines Ministry

The federal government has backtracked on its decision to strip a Chinese multinational of a natural gas concession in the country’s east nearly two years after the permit was revoked by Takele Uma, former minister of Mines, over production delays.

Poly GCL, a joint venture between the Chinese Poly Group Corporation and Hong Kong’s Golden Concord Group, was first granted a concession to explore and produce natural gas in the Somali region in 2013.

Despite conducting exploration works and pilot production trials in the Calub and Hilala drill areas, the company failed to begin natural gas production before 2017 as was stipulated in the initial agreement with the federal government.

In 2022, Netherland, Sewell & Associates, an American firm specializing in petroleum resource analysis, certified Ethiopia as having seven trillion cubic feet of natural gas in Ogaden, Somali region.

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When Poly GCL’s license was terminated in 2022, Takele stated that the company had also failed to comply with terms relating to financial capability.

However, a report from the Ministry of Mines few weeks ago reveals that following negotiations with the Chinese government and ‘thorough’ due diligence on Poly GCL, the federal government has decided to allow the firm to resume its work in the Somali region.

“We have conducted repeated negotiations and consultations with the company that was previously awarded the contract to develop the natural gas in the eastern part of the country. We conducted the same discussions with its country of origin. We have deployed teams and several stakeholders to conduct in-depth and thorough due diligence on the company. The company and its country of origin have presented to us all evidence and confirmation. Therefore, we have agreed to allow the company to resume the natural gas development work,” reads the report.

The report was presented to Parliament’s standing committee for Industrial and Mining Development a few weeks ago by Minister Habtamu Tegegn (Eng.) and his deputies during a closed session.

The Ministry presented a nine-month performance report to lawmakers two weeks later on May 30, 2024. Issues that were on the agenda during the first report were not mentioned during the performance review.

Documents from the closed session obtained by The Reporter reveal that several pieces of legislation for the regulation of the soon-to-be natural gas industry are in the pipeline. The Ministry had plans to finalize a natural gas development policy and the related proclamation, regulations, and directives within the last nine months. However, none of the legislation has made it past the draft stage, according to the nine-month report.

It urges that natural gas production should start as soon as possible in order to initiate a fertilizer production project that has been touted as a mega-project for several years now.

“The company’s [Poly GCL] resumption of work on the natural gas project is essential for the realization of the fertilizer project,” reads the report.

The Reporter has been following the natural gas license issues for months. Sources disclose that Poly GCL has been in protracted negotiations with the federal government to regain the concession that was revoked in 2022. Some sources confirmed to The Reporter that the company’s representatives recently met with Deputy PM Temesgen Tiruneh.

“The company is arguing that it has invested a lot in the exploration of natural gas and does not want to abandon the license. But the main bone of contention is not only regarding financial guarantees, but also the scientific production modalities of the natural gas,” said a source close to the matter, who spoke on condition of anonymity.

“Ethiopia wants the natural gas both for energy and for fertilizer input. Poly GCL wants the natural gas primarily for energy and because it can also generate carbon credit finances for the company. This is the big difference,” said the source. “Ethiopia cannot force the company to produce fertilizer input, which was not in the initial agreement. There is also disagreement on how the company wants to export the natural gas. It’s unclear how the company and the government reached a consensus on these huge points of disagreement.”

The Ministry’s plans to finalize exploration and feasibility studies for potassium mining projects in the Afar region have also failed to materialize in its nine-month report.

Habtamu, speaking implicitly and without naming Poly GCL, told MPs that work is in progress regarding natural gas.

“All regions in Ethiopia have their own unique natural resources. The Somali region has oil and natural gas. Particularly because the region has been relatively stable and conflict free, we’ve done good work there. There has been big progress on the project that has taken over a decade in Somali. We’ll present the report when it’s finalized,” the Minister told parliamentarians.

He also mentioned the project’s importance to Ethiopia’s fertilizer production aspirations.

Neither Habtamu nor Sofia Abdulkadir, head of licensing and mineral administration at the Ministry, responded to The Reporter’s requests for comment.

However, Awoke Tesfaye, communications director at the Ministry, did respond.

“As far as I know, Poly GCL has not been granted a license,” he said.