MASSIVE GRAIN CONTRACTS THREATEN SOUTHERN SUDAN BUDGET

UNCLAS SECTION 01 OF 02 KHARTOUM 000895

DEPT FOR SE GRATION, S/USSES, AF A/S CARSON, AF/E, DRL
NSC FOR MGAVIN
DEPT PLS PASS USAID FOR AFR/SUDAN
ADDIS ABABA ALSO FOR USAU

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV EPIN EAGR ECON SU
SUBJECT: MASSIVE GRAIN CONTRACTS THREATEN SOUTHERN SUDAN BUDGET

REF: Khartoum 880


1. (U) SUMMARY. Speaking on July 28 before the Southern Sudan
Legislative Assembly (SSLA),David Deng Athorbei, the Government of
Southern Sudan's (GOSS) newly-appointed Minister of Finance,
publicly confirmed that the GOSS has committed six billion Sudanese
pounds (appx. 2.7 billion USD) to off-budget purchases of grain.
These funds - equal to more than 150 percent of Southern Sudan's
entire budget for 2009 - were intended to create a strategic food
reserve, but the program has been riddled with bureaucratic
ineptitude and possible fraud. These contracts now represent a
potentially debilitating drain on government coffers. Faced with
strong legislative criticism, Athorbei pledged to report within 45
days on the results of the government's ongoing investigation. This
legislative oversight will be reinforced by Southern Sudan's donors,
who have made resolution of the grain contracts issue a prime focus
of the recent donor compact with the GOSS. END SUMMARY.

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STRATEGIC GRAIN RESERVE A BUDGET-BUSTING BUST
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2. (U) John Oromo Itorong, a National Congress Party (NCP) member of
the Southern Assembly, reported to the latter on June 28, that
beginning in 2008 the GOSS Ministry of Finance and Economic Planning
has issued contracts for the purchase of grain worth approximately
6.26 billion Sudanese pounds, or approximately $2.7 billion. The
value of these contracts, which were issued to Southern Sudanese
entrepreneurs for the purchase of some 50 million bags of maize and
sorghum, exceeds the Government of Southern Sudan's entire budget
for 2008 or 2009 (5.5 billion and 3.6 billion pounds, respectively.
No provision was made for these purchases in either year's
appropriations. Additionally, although the grain was purchased to
create a strategic food reserve, storage facilities and security
were inadequate in many of the areas to which grain was delivered.
Consequently, there has been spoilage and public "ransacking" of the
grain stores.


3. (U) Summoned before the Assembly, Athorbei, did not challenge
Itorong's report, which was consistent with information previously
released in donor-attended budget sector working groups. In
addition, he had no explanation of how the contracts had been
approved. Athorbei said that he suspended grain purchases upon
taking office after the May 30 cabinet reshuffle. The Ministry's
technocrats were unable to explain to him, he said, how the
contracts had been approved without authorization by the Council of
Ministers or the legislature. Ministry officials had also "lost
count," he said, of the value of grain contracts issued since
February.


4. (U) Athorbei committed to report, within 45 days, on the
government's ongoing investigation of the contracts. The Minister
noted that only 478 million pounds of the multi-billion pound total
have actually been paid out to date, but he expects that the
government may be legally obligated to pay many of the outstanding
contracts. Athorbei stated that future work to develop strategic
grain reserves would be handled outside the Ministry of Finance.


5. (SBU) COMMENT: Ministry advisors indicated to ConGen staff that
senior GOSS officials had ordered Finance Ministry staff to override
financial controls that would have prevented the issuing of these
contracts. Ministry officials confirmed that the Ministry also has
no account of actual grain deliveries, or the amount of grain in
storage, multiplying opportunities for fraud. Finance Ministry
staff and expatriate advisors are currently creating a central
registry for the grain contracts and tallying contract amounts. The
total liability may grow as previously-unknown contracts come to
light.

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ASSEMBLY MEMBERS BLAST GOVERNMENT, BUT WILLING TO WAIT
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6. (U) The Assembly members who participated in the debate were
sharply critical of the GOSS for jeopardizing Southern Sudan's
finances, but they trod lightly on the newly-installed Athorbei.
Itorong criticized what he called the Ministry of Finance's
"managerial diarrhea," charging that unregistered companies
regularly walked away with ministry funds under Athorbei's
predecessor. He also lamented that the performance of the grain
contracts had been particularly poor in areas where food insecurity
was the most extreme, including Northern Bahr el-Ghazal State.
Peter Bashir Bendi, a Sudan People's Liberation Movement (SPLM)
committee chairman who backed Itorong's push to debate the contracts
issue, expressed appreciation for Athorbei's candor, but compared

KHARTOUM 00000895 002 OF 002


the Ministry's actions to "committing genocide against our own
people." (Note: An unfortunate turn of phrase. End Note.)


7. (U) Given the otherwise sharp rhetoric, the Assembly members were
restrained in discussing next steps. The members voted to accept
Athorbei's timeline and declined, for now, to create an
investigative committee of their own. No member suggested summoning
the former Finance Minister, Kuol Athien Mawien, and only one called
for sanctions beyond seeking the return of the improperly authorized
funds.


8. (SBU) Placing the grain contracts issue on the Assembly's agenda
required months of pressure from members and exposed tensions within
the SPLM on the proper approach to government oversight. Itorong,
an NCP member, and a handful of supporters from other opposition
parties and the majority SPLM, first sought to raise the issue four
months ago. Members of the SPLM caucus pushed to debate the issue
in a less public forum, according to ConGen contacts in the
Assembly, but eventually relented. Still, an SPLM member tried to
interrupt Itorong's July 28 presentation with a procedural
objection, but was shouted down by Bashir Bendi and the Acting
Speaker, another NCP member. Bashir Bendi urged his peers not "to
hide behind the SPLM when we do wrong things."

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GOSS RESPONSE UNDER WAY, DEGREE OF COMMITMENT NOT YET CERTAIN
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9. (SBU) COMMENT. In its broad June 30 compact with donors, the
Government of Southern Sudan committed itself to undertake austerity
measures to freeze the issuance of grain contracts and review those
already issued. Athorbei is taking encouraging first steps, but
Ministry advisors are concerned that he has not ordered a
comprehensive legal review of the authorization behind each
contract. Such a review would help ensure that grain contracts are
paid on the basis of their validity, rather the political influence
of individual contractors.


10. (SBU) COMMENT CONTINUED. USAID and a TDY Treasury Department
advisor on detail to State are assisting the GOSS in strengthening
its contracting and expenditure procedures, The GOSS's endorsement
of the donor compact is arguably a sign of senior-level political
commitment to abide by these controls. Continued senior-level
follow-up will be an essential complement; however, to any technical
reforms. The stakes are high: as Athorbei noted, the gap between
monthly oil revenues and the monthly wage bill is forcing the
government to make hard choices, even in the absence of these
enormous, additional liabilities.

WHITEHEAD