SUDAN: STATE MINISTER OF FINANCE SHALLABI DENIES

C O N F I D E N T I A L SECTION 01 OF 02 KHARTOUM 000967 SENSITIVE SIPDIS NSC FOR MGAVIN AND LETIM E.O. 12958: DECL: 08/18/2016 TAGS: EFIN EPET PGOV PREL UNSC SU SUBJECT: SUDAN: STATE MINISTER OF FINANCE SHALLABI DENIES REPORTS OF ARREARS TO SOUTH SUDAN Classified By: Charge d'Affaires Robert Whitehead, reasons 1.4(b) and ( d ¶1. (C) Summary: State Minister of Finance, Dr. Tarig Shallabi, denies that the Government of Sudan (GOS) owes any arrears to the Government of South Sudan (GOSS) in contrast to GOSS and media reporting to the contrary. During a meeting with poloff on August 17, Shallabi said that the GOSS lacks expertise in the area of finance and is fueling the false reports for political gain, despite its participation on a joint GOSS-GOS wealth-sharing committee formed to monitor the distribution of oil revenue payments. Shallabi boasted that not only does the GOS pay half of revenues for oil sold on the international market to the GOSS, it also pays ten percent more, or 60 percent on revenues from oil sold on the domestic market. End note GOS Denies Owing Arrears -------------- ¶2. (C) State Finance Minister Shallabi told poloff that the claims the GOS has amassed arrears in distributing oil revenue payments to the GOSS are politically motivated and that there is overwhelming proof that the claim is not true. The proof, he said, is in the accounting records of the joint GOSS-GOS committee formed to monitor oil revenue payments. He characterized the GOSS as not being capable of keeping its own books or of developing and managing a budget and said that Southern officials have not only misrepresented oil revenue payments, but also irresponsibly spent money the GOS sends from the Central Bank to the South to pay administrative costs. Shallabi accused GOSS officials of taking the money without permission from the Central Bank Governor and of unauthorized use of Central Bank funds. The GOS has offered to assist the GOSS with bookkeeping and accounting Shallabi said but, the South has not accepted the offer and rumors of GOS malfeasance persist. Shallabi insisted that the GOS is respecting, to the letter, the Comprehensive Peace Agreement (CPA). He claimed that from the time the CPA was signed in 2005 until two months ago, the GOS had transferred more than USD 700 million to the GOSS. He said that no money is being held and that the joint committee consisting of SPLM and GOS officials could attest to the reported numbers. GOS Pays More than Its Share -------------- ¶3. (C) Shallabi says that when false reports of GOS arrears began circulating, an official query by the GOS requested that he account for all of the oil revenues, which, he claimed, he did. Shallabi told poloff that he was able to demonstrate that, in conformity with GOS official economic policy, the GOS pays to the GOSS 50 percent of earnings from the sale of oil sold on the international market. The GOS also gives the GOSS 10 percent more than its equal share when the GOS sells oil on the local market since The GOS sells oil on the local market at rates lower than that of the international market as a way to stabilize fuel prices. Shallabi offered to set up a meeting with the GOSS-GOS technical team and Embassy officers to brief them on distribution of oil revenues. GOSS Unreasonable Budget Demand -------------- ¶4. (C) Shallabi also contended that GOSS officials simply do not know what they are doing in the area of finance and budgeting. As an example, he said that the GOSS officials presented to the GOS their idea of a budget without any cost breakdowns or justifications, and asked for the equivalent of 100 million dollars. He added that the GOSS officials also do not understand the budget process which requires that any proposed budget be reviewed and line items approved by the GOS. Instead, Shallabi claimed, the GOSS thought that they could submit the budget and moneys would be automatically transferred without any GOS review. ¶5. (C) Comment: Shallabi,s comments indicate a deep resentment by the GOSS,s lack of acceptable accounting practices. This weakness has been highlighted by the media reports critical of the GOSS for its wasteful spending and for not doing anything to address the problem. The GOSS has admitted that it needs technical assistance in the area of finance and has accepted the advisory services of U.S. KHARTOUM 00000967 002 OF 002 Treasury and World Bank officials. It has not yet agreed to accept direct assistance from Northern technocrats and may be reluctant to do so over security concerns as well as resentment that the GOS continues to claim that it has line item review authority over forex expenditures, which is not consistent with the language of the CPA. Shallabi, a U.S.-trained certified public accountant has offered to help ensure the GOS's presence at the next Wealth-Sharing Working Group monthly meeting and to himself participate. WHITEHEAD