UPDATE ON PETROLEUM SECTOR IN SOUTH SUDAN

C O N F I D E N T I A L SECTION 01 OF 02 KHARTOUM 001817

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/30/2016
TAGS: EPET PGOV PINS PREL EINV SU
SUBJECT: UPDATE ON PETROLEUM SECTOR IN SOUTH SUDAN

Classified By: P/E Chief Eric whitaker for reason: Section 1.4(b) and (
d).


1. (C) Summary: Conversations with Government of Southern
Sudan (GoSS) ministers and a Total representative indicate
some movement on resolution of controversies in the petroleum
sector in Southern Sudan, possibly to the advantage of Total.
A committee to study the matter is recommending that GoSS
split Super Block B, but give Total the right to choose which
area to develop. Additional evidence of corruption and
mismanagement of the petroleum sector is beginning to come to
light. Also on the oil front, the GoSS reportedly is intent
on replacing northern security forces in the petroleum fields
of north Southern Sudan with southern forces. End summary.

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Recommendation on Total/White Nile Controversy
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2. (C) GoSS Minister of Mines, Energy and Industry Albino
Akol Akol says that the three-person ad hoc ministerial
committee of which he is a member has delivered to GoSS
President Kiir a recommendation for resolving the competing
claims of Total and White Nile Ltd. (WNL) over who maintains
what exploration and production rights in Super Block B.
Once Kiir has reviewed the decision, he can transmit it to
the Council of Ministers for final approval, at which time it
would be presented to the National Petroleum Commission (NPC)
as the official position of the GoSS.


3. (C) Akol said that the heated debate that ensued when the
three-person ministerial committee was formed - Vice
President Machar and other supports of WNL opposed any debate
of the question - will pale in comparison to what will erupt
when the recommendation is publicized. Akol said that the
committee recommends that the contesting parties share Block
B - the WNL position - but that right of first choice for
choosing the area it wishes to exploit should go to the party
with the longest standing contract - which would be the Total
Consortium.


4. (C) The Total representative in Juba said that he had
received the same information and that the choice was simple;
if given the chance, Total would resume work in Bor, the
basin with the greatest potential. This would displace WNL,
which has been conducting seismic work near Padak, and
Moldovan firm Ascom, which has appropriated the Total site
south of Bor as Ascom's supply site for its operations on the
western bank of the White Nile. The Total representative
said that the northern delegates to the NPC would probably
approve a decision to split Block B based on the
recommendation. He added that his greatest concern was the
timeline for a final decision. Should WNL manage to sink a
well and find oil before the decision was final, displacement
of WNL would be more difficult. Also, the delay had weakened
the consortium. He said that Akol had told him that the GoSS
believed that Houston-based Marathon Oil, which holds the
same share as Total, was seeking to sell its interests.

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Evidence of Misdeeds
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5. (C) A freight forwarder has provided us a letter that he
has used to import materials into Southern Sudan without
paying duties or taxes. Addressed to "to whom in may
concern" on GoSS letterhead dated March 9, the letter is
signed by Vice President Riek Machar, who is rumored to have
interests in WNL as well as Ascom. The letter states the
GoSS confirms that petroleum exploration firm Ascom Sudd
operates on a concession in Southern Sudan in partnership
with Nile Petroleum Corporation, the GoSS oil parastatal.
Based on another GoSS letter dated October 29, the Machar
letters states that Ascom Sudd and its subcontractors "are
exempted of all taxes, fees and charges of all types which
would normally have attached to their equipment, machinery,
vehicles and consumables, including fuels, construction
materials, food, medicines, into Southern Sudan." The letter
continues that Ascom is also exempted from all local,
provincial, regional, or municipal taxes.


6. (C) The exemptions granted Ascom are not on the surface
unreasonable concessions for the putative partner of a GoSS
parastatal. Procedurally, however, there are serious flaws.
We have learned that Ascom has not been registered by the
GoSS, and as such has no legal operational status. Normally,
the decision to grant Ascom tax exempt status should be
issued as a public decree, but we have been unable to locate
any decree of this nature released by the GoSS during the
period in question. The lack of transparency is troubling.

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Tug of War over Security

KHARTOUM 00001817 002 OF 002


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7. (C) During a recent conversation, Minister of Police and
Security Daniel Awet said that elements of the 18,000 strong
SPLA contingent that had been transferred to his ministry
would be trained to provide protection for diplomatic and
international facilities in the South. Another group would
be trained as "petroleum police" to provide security to
oilfield near Bentiu and Heglig as well as Bor and other
exploration sites. The SPLA forces in those areas would be
withdrawn. He said that he had communicated with his
Government of National Unity (GoNU) counterpart in Khartoum
to tell him that the GoNU should also withdraw all non-Joint
Integrated Unit (JIU) Northern forces from the petroleum
zones as the Southern police element deployed.

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Analysis
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8. (C) We do not expect the supporters of WNL to accept the
"first come, first served" committee recommendation without a
fight. WNL's current operation is reportedly suffering from
serious cash flow problems, and its displacement from Bor,
the most promising site, would negate all WNL's efforts to
date and probably send its market value plummeting. Further
to the North, we do not expect the GoNU to accept Awet's
invitation to turn oil security over to his police forces
gracefully. A recent clash between the SPLA and SAF troops -
or between two factions of the SPLA, depending upon which
version that one accepts - near Bentiu temporarily displaced
Chinese oilfield workers from their sites, according to a
report from UNMIS.
STEINFELD