GOSS OFFICIALS COMPLAIN OF LACK OF OIL REVENUE TRANSPARENCY

UNCLAS SECTION 01 OF 03 KHARTOUM 000620

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV PREL KSCA OTRA EAID CDC SU
SUBJECT: GOSS OFFICIALS COMPLAIN OF LACK OF OIL REVENUE TRANSPARENCY



1. (U) SUMMARY: Organized by the US Embassy in its role as
Coordinator, the AEC's Wealth Sharing Working Group (WSWG) traveled
to the South Sudanese capital of Juba April 16 for a field visit.
The purpose of the trip, besides the symbolism of holding a session
in Juba, was to gather information for the WSWG section of the AEC's
Mid-Term Evaluation (MTE). The WSWG heard from the GOSS Minister of
Finance, as well as the Director General of Hydrocarbons in the
Ministry of Industry and Mines. The officials continue to express
frustration with what they termed a lack of transparency with
information on oil revenues from the Government of National Unity
(GoNU). However, these appear to be relatively minor problems
dwarfed by the significant amounts of oil and non-oil revenues --
most, indeed, of what the South is entitled to under the
Comprehensive Peace Agreement (CPA) -- being transferred to the
South. End Summary.

WELCOME TO JUBA (BUT STILL NO SPLM)
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2. (U) CDA Fernandez welcomed the WSWG members and observers to
Juba, noting that the field visit served to facilitate participation
in the CPA process by the GoSS (despite the glaring absence yet
again of a WSWG representative from the SPLM),and underlined the
fact that the CPA was a bilateral agreement. The session was held
in the Juba offices of the AEC, which are funded by the USG.

GOSS FINANCE MINISTER: TRANSPARENCY STILL LACKING
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3. (U) The first speaker was Kuol Athian Mawein, GoSS Minister fFinance and Economic Planning since July 2007. Mawein raised
several issues he wishes to see addressed. To begin, he complained
that the GoSS is not given daily production figures, but is only
informed as to the dollar amount of revenue transfers. This means,
he said, that "we have no way of verifying whether the revenue
entitlements reported to us by the GNU are correct." In fact, he
said in an aside from his written remarks, the GoSS knows the
figures are not correct, as they are aware of accounting "tricks"
that can be used. However, "since we want to maintain the peace,"
the GoSS has not made an issue of this, he said.

BUT THE MONEY IS ROLLING IN
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4. (U) Since 2005, he readily admitted, the GoSS has received over
3.5 billion (USD) in oil revenue from the GNU, including 1.39
billion USD in 2007. Mawein complained that monthly oil transfers
are extremely irregular in amount, fluctuating between 38 million
(in March 2007) and 243 million USD per month over the past two
years. Further, transfers are made on an irregular schedule. There
can be a delay of up to three weeks from the reported date of the
transfer until funds actually reach GoSS accounts. Mawein said he
intends to discuss these issues with both the GNU and the Bank of
Southern Sudan. He will be traveling soon to Khartoum to meet with
the new GNU Minister of Finance.

ARREARS CONTINUE TO MOUNT
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5. (U) The Minister complained that the GoNU had built up 176
million USD in oil revenue arrears to the GoSS, including $80
million from 2005 and over $90 million from 2006 and 2007. He noted
GoNU promises to pay off the arrears, "but so far, it has not done
anything. Instead, the arrears keep increasing. This year, they
amount to $4 million already."

NON-OIL REVENUES
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6. (U) The GoSS and GoNU have established a Joint Non-Oil Revenue
Sharing Committee to oversee sharing of these revenues (customs,
taxes, etc.) collected in the South, Mawein reported. This body has
now established a system for depositing such revenues collected in
the South into a joint account, and then dividing them according to
the CPA. However, he complained that the GoSS had not received any
of the arrears for non-oil revenues collected in the South between
2005 and 2007, before the new system was put into place.

GOSS FISCAL ALLOCATIONS TO SOUTHERN STATES
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7. (U) The Finance Minister reported that in 2008, the GoSS has
budgeted 154 million USD in block grants to be transferred to the
various southern states. That amount was simply divided equally
among the states, as suggested by the state governors. Once the
GoSS obtains data from the upcoming census, however, the GOSS will
use that data to develop a more equitable formula for the transfer
of these block grants. The formula will take into account such
factors as population, geographical area, and "natural endowments."


8. (U) In conclusion, Mawain reiterated that the main improvements

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the GoSS seeks are: 1) elimination of delays in transfers of oil
revenues; 2) payments of arrears for both oil and non-oil revenues;
and 3) access to daily oil production data so that the GoSS can
verify that it is receiving the correct amount of revenues.

HYDROCARBONS DG: LACK OF TRANSPARENCY IN "EXCESS OIL"
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9. (U) Archangelo Okwang, Director General of Hydrocarbons in the
GOSS Ministry of Industry and Mines, next addressed the WSWG.
Speaking confidently and without prepared remarks, he described in
detail the mechanism for allocating oil revenues, the oil industry
in the South and noted how light and viscous oil from different
blocks (often, from North and South) is blended to produce a mixture
that is more easily transported.


10. (U) Okwang said the Joint Technical Committee on oil production
has not been able to gain access to production contracts negotiated
before the CPA was signed in 2005. He explained the concept of
"excess oil" under those oil contracts, noting that revenue from
such "excess oil" is supposed to be allocated to the Central
Government (and then divided according to the CPA). However, the
JTC has been provided no figures on excess oil, which "is a big
problem with the lack of transparency of the oil contracts," he
said.

OIL PRODUCTION FLUCTUATIONS: BLAMING THE BIRDS
-------------- -


11. (U) Referring to the monthly fluctuations in oil revenue
transfers noted by the Finance Minister, Okwang too complained of a
lack of transparency. For instance, he said that when GoSS
officials had inquired about unusually low production for March
2007, the GNU had provided what he said was an unsatisfactory
explanation, blaming a "big flock of birds" for somehow disrupting
oil production.

TRAINING AND CAPACITY PROBLEMS
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12. (U) Without assigning blame, the Director General lamented a
lack of capacity in his own government's oil expertise. NOTE:
While he did not say those problems contributed to the lack of
transparency, that was the clear implication. End Note.) The GoSS
needs economists able to monitor sales, and it needs trained
chemists in the laboratories to make sense of and draw conclusions
from oil production information.

COMPLAINTS OF U.S. SANCTIONS
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13. (U) Okwang also complained of U.S. economic sanctions against
Sudan, and appealed for an exemption for oil production in the
South. Because of the U.S. sanctions, Western oil companies are
prevented from entering the Sudanese market, which left the field
open to unscrupulous Asian companies. This resulted, for example,
in greater problems with human rights (treatment of oil workers,
etc) and environment than would have been the case with western
companies. CDA Fernandez replied, acknowledging that U.S. sanctions
do indeed act against all Sudanese oil, no matter where it is
produced. One of the tragedies of Sudan, he added, is that the U.S.
is a world leader in refining the type of heavy oil produced in the
South. Also, he noted the "image problem" facing Sudan: Western
companies shy away from investing in Sudan because of the country's
poor human rights record. In turn, the NCP rep said merely that the
GNU had been forced to turn to Asian companies on drilling and
production contracts because of the American sanctions.


14. (U) Among other issues raised by the Hydrocarbons Director
General:

-- Community development funds are being paid by oil companies, but
the funds are not being used for development. The fund should not
be managed just by one side (i.e., the North).

-- Abyei oil: Asked by one of the foreign delegates of his
government's position on de-coupling the issues of territory from
that of oil production in Abyei, Okwang said the South "does not
understand" why none of the oil from Abyei is being shared with the
South despite provisions of the CPA. For the South, Abyei is an
issue of borders, he said. He urged that the CPA's international
"witnesses" stand up and demand that the South's 42% share of
Abyei's oil revenues be implemented.

NCP REPLIES: DEMAND FOR EQUAL TIME
--------------


15. (U) The NCP representative spoke up, saying he was "surprised"
to hear of the complaints made against the national Ministry of
Energy and Mining (MEM). Many of the questions should better have
been directed to the Joint Technical Committee, as that body
includes representatives of both sides, he said. He alleged a lack

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of a "clear-cut agenda" for the Juba meeting, and said GNU officials
should have been given the opportunity to speak. In particular, he
"officially suggested" that the new GNU Energy Minister be invited
to address the WSWG. CDA Fernandez noted that it had taken over a
year of effort by the WSWG to arrange an appearance by the former
Energy Minister in late 2007. He said he would welcome an
appearance, but hoped the new minister would be more readily
available. The NCP rep promised to facilitate the Finance
Minister's appearance before the WSWG.


16. (SBU) COMMENT: The Juba meeting was a useful exercise that
produced much information for the AEC MTE. We continue to be
frustrated, and puzzled, by the inability of the SPLM to provide
representatives for WSWG meetings - this is the second in a row that
they have not attended. We were, however, able to ensure that the
GOSS representatives from the two ministries attended. We will
continue to push the SPLM to take a more active part in the AEC
process. To some extent, the lack of transparency complained of by
the GoSS and the SPLM is more indicative of their own limited
capacity: they are simply not equipped to take advantage of some of
the sources of information available to them. Moreover, one of the
points of agreement that enabled the SPLM to return its ministers to
the GNU in December was an arrangement regarding transparency to
allow access by GOSS technical experts to oil installations.
Nonetheless, the larger point on wealth sharing remains clear: while
some relatively minor problems persist, the process of wealth
sharing continues largely to be a success, responsible for the
transfer of very significant sums of money to the South.

FERNANDEZ