Sudan: Implementing the Wealth-Sharing Provisions of the CPA is Vital
October 13, 2006
The Sudan Comprehensive Peace Agreement (CPA), signed in January 2005 by the government of Sudan the southern Sudanese Peoples Liberation Movement (SPLM), put an end to a civil conflict that had lasted over two decades and taken the lives of over 2 million Sudanese. The agreement opened the way to a more equitable distribution of the revenues deriving from the country’s energy sector – revenues critically needed to rebuild a southern Sudan devastated by decades of conflict and neglect. But implementation of the CPA’s wealth-sharing components has been frustratingly slow.
Both parties express dissatisfaction with the way the accords are being implemented, but neither is acting with speed or diligence to fulfill their obligations. Delays are rooted to some extent in the disputes that were finessed in order to conclude the CPA. But they also stem from fundamental uncertainty surrounding the question of whether, after a six-year interim period, southern Sudan will vote to secede or to remain within a unified Sudan. Failure to achieve substantial progress in fulfilling the wealth-sharing provisions of the CPA could make a vote in favor of national unity almost unrealizable. Meanwhile, the lack of progress in implementation is delaying the flow of revenues and the reconstruction that the people of southern Sudan so desperately need.
A Scorecard on the Key Provisions
The CPA called for the establishment of a National Petroleum Commission (NPC) to formulate public policies, approve new oil contracts, and monitor implementation of existing ones. The agreement granted the newly-created Government of Southern Sudan (GoSS) 50 percent of revenues from all oil produced in southern Sudan, net of 2 percent to the producing state and an as-yet undetermined deduction for an Oil Stabilization Fund. It gave the SPLM access to existing contracts but barred renegotiation of any contract that pre-dated the CPA. It called for revenue at all levels of government to be held in public accounts subject to public scrutiny and accountability.
The scorecard on these commitments is decidedly mixed. The NPC has been established but has neither operating rules, subcommittees to perform real work, or a secretariat. There are disputes over whether it is a policymaking or advisory body; and whether it is an independent body or part of the Energy Ministry, where the GoSS, despite oral promises to the contrary, is marginalized. Wealth sharing remains stalled by boundary disputes. The ruling National Congress Party (NCP) and GoSS dispute whether the Heglig field, which produces 37 percent of Sudan’s oil, is in the North or South; and in the current stand-off, the GoSS is not receiving 50 percent of Heglig revenues. Disputes persist over other fields in the Melut Basin, and while a North-South Border Commission has been established, it is currently not functioning.
The district of Abyei is another potential flashpoint, and the results of an Abyei boundary commission report were rejected by the NCP. Despite international offers of help, the GoSS has not hired technical advisors to assist with the development and management of their oil sector. They do not lack for funds. The South was granted permission to read all oil contracts and to get advice on them, but has not done so. A Technical Team empowered to review contracts within 30 days of the signing of the CPA was never established. The GoSS and NCP disagree over the rights to sign oil contracts and over the status of existing oil contracts. The GoSS is a minority owner of the White Nile Petroleum Corporation, with which it signed an agreement to develop an oil block already subject to a contract. This action appears to flout the plain terms of the CPA.White Nile itself is a shell of a company with no apparent capacity to exploit the block in question.
There is very little transparency at any level. The arrangements between the government and its investors for production rights, contracts, refineries, and pipelines is not public, and the country’s oil production is not verified. There is no public accounting for funds received by the GoSS from oil revenue, or even donor aid. In June 2005, a Joint National Transition Team announced a new national accounting system, but there has been no visible progress since. Vice President Salva Kiir nominated four appointees to the Southern Sudan Audit Chamber, but the body is still without a legislative basis and is not functioning.
Impact of the Delay
The consequences of this lack of implementation are several. First, there is no effective Government of National Unity functioning in the energy sector, but instead competing and oppositional factions. Second, the flow of revenue to the GoSS is diminished by the border disputes, undermining a core element of the anticipated peace dividend for the South. Third, interest by credible companies in developing the South’s oil resources is minimal due to uncertainty surrounding GoSS respect for contracts, the possible impact of a southern vote for secession, and the current sanctions regime.Finally, there is little transparency in contracts, the accounting of production, or the accounting of oil revenues in the South. This creates enormous potential for mismanagement, waste, and corruption; and indeed risks that the GoSS will become yet another example of a resource-rich entity whose governance is blighted by the resource curse.
Motivation of the Parties
The motivations for the NCP in delaying implementation are perhaps easiest to interpret. The commission has an obvious interest in maintaining control of the oil sector, and no interest in defining a North-South border which leaves substantial assets to the South as long as secession remains a possibility. Inaction leaves the NPC with control of the export infrastructure, a share of current production from Heglig; and the potential to explore and tap reserves in the Melut Basin, which may lie on both sides of future border. With strong investment support from China, India, and Malaysia, the NPC suffers no investment loss from current sanctions.
The motivations of the GoSS are harder to interpret. Capacity for administration in the South is exceedingly weak, and the GoSS may simply be overwhelmed by the pressure it faces. But another explanation is that the South is deeply divided over support for eventual unity. If a vote for secession is assumed or desired, the need to master current institutions and existing contracts diminishes; and there is little incentive to develop fields from which the South will gain 50 percent of revenues today rather than 100 percent in the future.
What Should be Done?
Pressure and persuasion will need to be brought to bear on both sides to move implementation forward. The donor community should urge the GoSS to take implementation seriously. It should insist on transparency in the accounting for oil wealth. Nearly $800 million in oil revenues and $400 million donor aid flowed to the GoSS in the past year. Any future aid flows should be conditioned on published and audited accounts.
The United States can play a more active role in promoting unity in management of the energy sector. For example, no credible study has been undertaken analyzing the financial consequences of unity versus secession. Such a study could help to clarify a number of questions that have a bearing on the secession issue. What are the consequences of development of the southern fields using the existing pipeline infrastructure? What are the costs and returns of adding a Kenya-Uganda line? Is there enough oil for both? What is the net present value of integration versus disaggregation over a twenty year period? What are the returns, through revenue sharing, of the supply of refineries sited in the north to the GoSS? The U.S. Congress could fund an independent study to assess such scenarios, followed by a conference in Sudan to discuss the fundamental issues they raise.
At the same time, the United States and the international community should push the government of Sudan to define the disputed border, staff the new institutions and commissions, and involve GoSS deputies in ministerial decisions. It should be clear to the NCP that U.S. support for the CPA and for unity is only sustainable if they allow the CPA institutions, like the National Petroleum Commission, to function. Finally it is time for some creative engagement with China. To date, most U.S. diplomacy appears to have focused on obtaining China’s cooperation in the Security Council on Darfur. But the donor community should engage China on Sudan’s long-term stability. China’s own energy interests and investments are at stake in Sudan. A unified Sudan could vastly increase the value of their investments, while resumed war could destroy them. Surely this is a sufficient beginning of a conversation on how China can help to promote national unity and implementation of the CPA.
With the situation in Darfur deteriorating, it is easy for international attention to be diverted from implementation of the North-South accords. But the provisions of the CPA represent hard won gains are worth preserving. Sharing oil wealth will be key to the survival of southern Sudan and to the long-term future of the entire country. There are ample gains to be had from Sudanese unity – greater exploration, larger long-term earnings, and the development gains that can flow from well managed oil resources and peace. Success will require consistent pressure on the NCP, but also quiet but frank talks with the southern government as well as the forceful nurturing of the confidence of southern leaders in a Government of National Unity.
David Goldwyn is Chairman, Goldwyn International Strategies. He served in the Clinton Administration as Assistant Secretary of Energy for International Affairs, Counselor to the Secretary of Energy, and national security deputy to the U.S. Permanent Representative to the United Nations.
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