GOSS MINISTER ACCUSES NCP OF WITHHOLDING OIL

C O N F I D E N T I A L SECTION 01 OF 02 KHARTOUM 001608

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E.O. 12958: DECL: 10/31/2013
TAGS: PGOV PREL EFIN ASEC KPKO UNSC SU CH CFG
SUBJECT: GOSS MINISTER ACCUSES NCP OF WITHHOLDING OIL
REVENUE TO STRONGARM THEM TO GIVE UP HARD CURRENCY
RESERVES, SAYS CHINESE HOSTAGES DIED IN A FAILED RESCUE
ATTEMPT, AND SUSPECTS KHARTOUM OF RESUPPLYING THE LRA

REF: KHARTOUM 1578

Classified By: DCM Mark Asquino for reasons 1.4 (b) and (d)


1. (SBU) Summary: In an October 31 meeting, GOSS Minister
for Presidential Affairs Luka Biong Deng told ConGen Juba
that the NCP has reneged on an agreement to settle the hard
currency dispute between the GOSS and Khartoum (reftel),and
is withholding oil revenue to pressure the GOSS to turn over
GOSS hard currency reserves to the Central Bank. Deng said
that five of the nine Chinese oil field workers recently
taken hostage in Southern Kordofan died in the crossfire when
the SAF attacked the hostage takers in a failed rescue
attempt. On the Lord,s Resistance Army (LRA),Deng said he
had heard reports of helicopters landing in the DRC to
re-supply the LRA, and that one had landed in the wrong area
and was captured. It was said to be carrying ammunition,
farm tools, beans and rice. End Summary

HARD CURRENCY DISPUTE BACK ON THE FRONT BURNER
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2. (SBU) The conflict between the GOSS and the NCP over hard
currency reserves held in the South has re-emerged, despite
an earlier agreement to allow an independent technical team
to examine the issue and determine how best to settle the
dispute (the GOSS maintains it has the right to hold its hard
currency reserves in the South, and Khartoum argues all hard
currency reserves must be held by the Central Bank in the
North). Deng said that in order to force the South to turn
over its reserves to the Central Bank, Khartoum has
essentially cut off sending the South its share of oil
revenue income (i.e., 50 percent of revenues from oil
produced in the South),which is critical to the continuing
operation of the GOSS. (Note: The oil revenues account for
close to 100 pecent of GOSS income. End note.) According to
Deng, the GOSS is furious with the NCP for once again
reneging on an agreement. In his view, this action places
the finances of the Southern government in a very precarious
state that cannot be sustained.

SAF AMBUSH KILLED THE CHINESE OIL WORKERS
--------------


3. (C) Turning to the recent murder of five Chinese oil
workers kidnapped in Southern Kordofan, Deng said they were
not executed by their captors, but rather died in the
crossfire when SAF forces attacked the hostage takers. He
said the Chinese government is furious because they were in
negotiations to pay a ransom to get the workders released,
but the NCP didn't want ransom paid for fear it would fund
the rebels. This led to the disastrous SAF rescue attempt.
Deng said he had information that two of the hostages still
in rebel possession were wounded in the firefight, but are
doing well. He added that the SPLM would do what it could to
try and contact the rebels to get the wounded released. In
the confusion of the fight, two other hostages went missing,
and Deng said no one knows what has happened to them.

WHO IS SUPPLING THE LRA?
--------------


4. (C) On the Lord,s Resistance Army (LRA),Deng said that
due to an upsurge in LRA activity in the DRC, 5,000 refugees
have come into Western Equitoria from the DRC, and more are
expected. He had heard reports, he said, of helicopters
landing in the DRC to re-supply the LRA, and that one had
accidentally landed in the wrong area and was captured. It
was said to be carrying ammunition, farm tools, beans and
rice. Deng said the report indicated the helicopter was
destroyed, but the two pilots are now supposedly in the hands
of the DRC. If true, Deng said the SPLM would very much like
to know for whom they were working.

COMMENT
--------------


5. (C) This latest move by the NCP to cut off oil revenue to
the GOSS until it surrenders its foreign currency reserves
will certainly escalate tensions between the two parties.
That the NCP has once again reneged on an agreement

KHARTOUM 00001608 002 OF 002


reinforces the SPLM view that the NCP is not a partner it can
work with or trust. While the NCP,s legal argument
regarding foreign exchange is technically more convincing,
cutting off oil revenues is a major escalation in this
dispute. It also indicates that the NCP is trying to
restrict what the GOSS is able to purchase on the
international market, in the context of the pirated vessel
Faina with tanks destined for South Sudan.


6. (C) The rumor in Juba is that the Chinese were willing to
pay a $30 million ransom to free their kidnapped oil workers,
and had even made a good faith down payment of $30,000. That
the SAF moved to prevent the ransom from being paid is sure
to strain Bashir,s relations with that government.
Meanwhile, if the GOSS is able to negotiate the release of
the two wounded hostages still in rebel hands, it might raise
the standing of the GOSS with the Chinese.


7. (C) Deng seemed to imply that the NCP was backing Kony,
although he did not say this outright. If it is true that
the NCP is fully engaged in the business of re-supplying the
LRA, and this can be proven, even Bashir,s international
backers will have problems defending him.
FERNANDEZ