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Business: Much vaunted Chinese POLY-GCL facing ultimatum over unregistered equity capital, more than $10M in community devt and failed exploration fees

A ceremony when POLY-GCL Petroleum Group Holdings Limited (POLY-GCL) kick started to produce its first-ever barrel of crude oil in the Ogaden basin on 28 June 2018. Picture: gcl-power

Addis Abeba – In a letter of ultimatum sent to Chinese owned POLY-GCL Petroleum Group Holding Limited, the Ministry of Mines and Petroleum issued a list of conditions to be met by the company related to its activities in the resource rich Ogaden Basin, in Somali regional state. The Ministry warned the company that failure to comply with the ultimatum will result in the “termination of the PPSAs… without a need for further notice.”

The letter, seen by Addis Standard, says that the Ministry is “convinced that POLY-GCL failed to maintain the required financial capability and it is necessary to take corrective measures to that effect.” Accordingly, the Ministry set three ultimatums to be met by the petroleum group.

It required POLY-GCL to register 30% equity capital of the $4.2 billion total investment needed for the project at the National Bank of Ethiopia on or before June 30 2022. “The Ministry requires POLY GCL to bring to Ethiopia and register the equity capital (in which you have mentioned at the consultative meeting the arrangement to be 30% of the total investment and 70 % from the debit financing),” the letter said. Furthermore, Ministry demanded POLY-GCL to communicate the debit financing status for the remaining amount during the same time frame.

The Ministry also accused POLY-GCL of failing to pay annual contribution amounting to $50,000 per year since 2017, resulting in outstanding minimum amount of $1.7 million for “community development”. The company should the amount in full “no later than 24th May, 2022.”

Lastly, the Ministry said POLY-CGL’s failure “to explore Block 17 & 20” has led to the termination of the PPSA on 15 February 15, 2021. However, the Ministry said it had provided a time extension for the company to pay for the unfulfilled obligation during the development and production period of Calub and Hilala, but “POLY-GCL has not made any endeavor to commence development and commercial production to this date.”

“To this effect, the Ministry has lifted (removed) the time extension it has provided for the payment of $10 million USD on Blocks 17 & 20 for the unfulfilled obligation. Therefore, in accordance with Article 5.2.2 of the PPSA, the outstanding amount of $10 million USD shall be paid in full no later than 24 May, 2022.”

POLY-GCL has been exploring petroleum & natural gas in the Ogaden basin since 2013. On June 28, 2018 it officially started crude oil production tests in the Hilala oil fields in the presence of then regional officials and representatives of the federal government. It was hailed as important milestone in the history of the oil & gas development in Ethiopia with Prime Minister Abiy saying that 450 barrels would be produced on a trial basis. However, four years later in June last year, the Ministry issued a warning letter to the company citing its failures to meet the government’s plans.

The history of oil exploration in the Ogaden Basin dates back to three successive Ethiopian regimes: Emperor Haile Selassie I, The Derg, the EPRDF and its successor Prosperity Party. Between 1955-1991, 46 wells have been drilled in Calub and Hilala oil sites. Aside from recently discovered wells and ongoing explorations, Calub and Hilala oil exploration sites comprise of nearly 32 wells.

However, Somali academicians, local community leaders and organizers have been raising serious concerns including health, lack of jobs for local communities and lack of transparency around extraction activities and economic development for local communities.

In February 2020, a Guardian article exposed the presence of a “deadly sickness … spreading through villages near a Chinese natural gas project in Ethiopia’s Somali region.”

On 22 March, the Ministry signed an an agreement with an American company, Netherlands, Sewell, & Associates, “to assess the potential of Ethiopia’s oil & gas resources” in the Ogaden basin.

Takele Uma, Minister of Mines and Petroleum, said after the signing ceremony that the “study will help us use our oil and natural gas resources for fertilizer and energy investments, as well as provide international investment institutions with assurances about the size and type of our oil and natural gas resources.”

The letter to POLY-GCL stated that the Ministry was willing “to disclose its national plan for the domestic consumption of the Natural Gas”, but it requires the “financial capacity” of the company for the development of this project. “Thus, your assurance of financial capacity and clear disclosure of financial arrangement stated above is a pillar to convince the Ministry and the Government of Ethiopia to provide the National Natural gas domestic consumption plan for fertilizer.” AS

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