Sudan: AEC October 2009 Wealth Sharing Working Group Holds

UNCLAS SECTION 01 OF 02 KHARTOUM 001195 NSC FOR MGAVIN, LETIM DEPT PLS PASS USAID FOR AFR/SUDAN ADDIS ABABA ALSO FOR USAU SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV PREL ECON EFIN EPET ENRG SU SUBJECT: Sudan: AEC October 2009 Wealth Sharing Working Group Holds Long-Awaited Meeting ¶1. (SBU) Summary: U.S. Charge' D'Affaires Robert Whitehead, as coordinator of the Assessment and Evaluation Commission's Wealth Sharing Working Group (WSWG),chaired a meeting with the ruling National Congress Party (NCP),Sudan People's Liberation Movement (SPLM) and representatives of donor nations on October 13 to review the status of the Wealth-Sharing Protocol of the Comprehensive Peace Agreement. Among the unresolved wealth-sharing issues facing the two parties are the National Petroleum Commission's audit of the oil sector and the International Monetary Fund (IMF) review of the banking system. Both sides claimed the other had not honored its commitment to make unity attractive. The SPLM claimed that the NCP had not acted on land reform, employment for southerners in the Civil Service and in providing appropriate oversight and funding to the Bank of Southern Sudan (BoSS). The NCP countered with the claim that the South does not have the technical expertise to manage its share of the oil reserves, and that the SPLM's desire to allow the BoSS to act independently of the Central Bank runs counter to provisions in the 2005 Comprehensive Peace Agreement (CPA) and at variance with international banking practice regarding central control of foreign exchange assets. End Summary -------------- Management of Foreign Reserves Key Issue -------------- ¶2. (SBU) In his opening remarks, NCP representative Under Secretary of the Ministry of Finance El Fatih Siddig agreed that the WS Protocol is among the most successful working groups in the AEC although, according to the mid-term review, much remains to be accomplished. Among the most prominent challenges in the current banking system is the management of foreign reserves, which Siddig claimed to be the sole responsibility of the Central Bank (CBoS). One of the duties of the CBoS, he said, is to ensure a stable exchange rate, and to do that, the bank must control foreign exchange reserves. The SPLM representative, State Minister for the Ministry of Finance Dr. Lual Deng, argued that the Bank of Southern Sudan (BoSS) should have the right to control oil revenue generated in the South, with which Siddig disagreed, saying that all disbursement of the funds must be the responsibility of the Central 
Bank. The BoSS is a subsidiary branch of the Central Bank of Sudan, Siddig maintained. -------------- NCP: One Country, Two Banks Unworkable -------------- ¶3. (SBU) Siddig claimed that while the South wanted access to the funds, it lacked the capacity to develop a conventional banking system, and did not have the monetary instruments needed to collect revenue, including personal income taxes. To have one country with two banking systems was a problem, he told the working group, and added that the parties must discuss unity of the instruments to avoid neglecting overall monetary policy and creating a long-term dilemma. Siddig noted that the alleged discrepancy in oil revenue reporting claimed in a study by British non-governmental organization (NGO) Global Witness resulted from reporting the gross amount of oil produced, not net production after "cost oil" is deducted. He suggested that definitions must be clarified regarding price and intake. -------------- SPLM PowerPoint Outlines NCP Failures -------------- ¶4. (SBU) SPLM representative Deng presented the working group with a power-point briefing outlining the key components of the CPA wealth sharing provisions and commenting on those commitments to which the SPLM believed the NCP had failed to live up to its side of the agreement. Such alleged NCP lapses included on land reform, oil sector management, non-oil revenues, banking sector development and the Multi-Donor Trust Fund (MDTF). ¶5. (SBU) Elaborating, Deng said that the National Land Commission had not yet been established, and the Government of National Unity (GNU) has done nothing to incorporate in existing law customary laws and practices, local heritage and international trends related to land. He also stated that the NCP had not kept its obligation to manage the development of the petroleum sector in the national interest or in the interest of those in affected states or regions. He further claimed that the GOS had failed to honor agreed-upon environmental policies. The National Petroleum Commission (NPC),he said, should promote productive policies that encourage foreign direct-investment, support a stable economic environment, ensure that local populations benefit from oil resources and development, and assure that local populations are consulted on oil exploration KHARTOUM 00001195 002 OF 002 and development projects. Dr. Deng concluded that the NPC had not been functioning as envisioned in the CPA, and must establish a unit within the NPC Secretariat to publish daily oil production by well and block, quantities going to local refineries, exported quantities by well and block, importing country, and actual export price. With regard to the Global Witness report, Deng recommended that the IMF be allowed to verify the validity of the report and that the GOS allow the IMF access to all information pertaining to the oil sector, so as to ensure transparency and minimize mistrust on oil sector management. He proposed that there be a one-two day seminar in Khartoum, following the outside audit, at which Global Witness representatives would present their findings on oil revenue distribution and two parties, plus technical experts, would discuss them. -------------- -------------- Customs Appointments for Southerners Still Pending -------------- -------------- ¶6. (SBU) Dr. Deng said that GoSS's performance has been poor due to lack of qualified staff. Nonetheless, some 400 Southern Sudanese had been identified through a comprehensive interview process for federal civil service jobs. However, the national Presidency had not yet approved their appointments into the National Customs Administration, he said. -------------- BoSS Still Operating Without Legislation -------------- ¶7. (SBU) Deng maintained the CBoS had not been restructured to assure a dual banking system. Although the need for conventional banking facilities in the South was clear, that system had not been developed. In addition, although the BoSS had been established, no legislation had been passed to govern it. Deng questioned why the GOS would not allow the BoSS to manage its own reserves and resources generated in the south; as a part of the Central Bank, BoSS should have that right, he said. He admitted that the GoSS shared some responsibility for the problems but needed a BoSS in Juba to manage internal problems. Dr. Deng told the group that the Multi-Donor Trust Fund (MDTF) to support urgent recurrent and investment budget costs for both partners had not yet been established. Despite 90 percent implementation of the CPA's wealth-sharing provisions, key problems remained, he concluded. -------------- Wealth Sharing Main Sticking Points -------------- ¶8. (SBU) CDA Whitehead noted that, during the U.S.-led trilateral process, the United States had brought together high-level delegations from the parties and requested that they identify sticking points in implementation of the CPA. They focused on five points of which two have been resolved. These included the GNU's transfer of the full share of oil revenues to the South, and the GNU's payback of GoSS deductions for the national elections. Remaining issues were collection of national non-oil revenues in South Sudan, banking system-related issues, and a required National Petroleum Commission audit. CDA Whitehead added that on September 14, the BoSS had sent a letter to the International Monetary Fund (IMF) requesting a visit from an IMF technical assistance mission. He also asked for recommendations for an outside entity to conduct the oil audit on which both sides have reached agreement. ¶9. (SBU) The meeting concluded with a listing of next steps on which consensus/agreement between the two parties had been reached. These included: the need for an independent audit in consultation with the NPC on oil production; finding mechanisms to insure better reporting of and access to oil data to reduce mistrust that has developed. The United States offered to work with the parties through provision of de technical assistance on the issue of the two banking systems and how they might be structured. It was agreed that more discussions was needed on civil service employment in the Customs Service and on the collection of tax revenue in the south, and focusing on ways to make unity attractive in the next 14 months. The proposal of a donors meeting would be reviewed and include the U.S. Agency for International Development's transition from humanitarian assistance to development assistance. The parties would consider Norway's offer of technical assistance to make the NPC more efficient. Finally, the parties agreed that there should be a donors meeting after the independent audit was completed to review prioritization of ongoing international assistance. WHITEHEAD