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. -------------- - Recommendation on Total/White Nile Controversy -------------- - ¶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. -------------- Evidence of Misdeeds -------------- ¶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. -------------- Tug of War over Security KHARTOUM 00001817 002 OF 002 -------------- ¶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. -------------- Analysis -------------- ¶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