VZCZCXRO9801
PP RUEHROV
DE RUEHKH #0718/01 1291125
ZNR UUUUU ZZH
P 091125Z MAY 07
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 7122
INFO RUCNIAD/IGAD COLLECTIVE

UNCLAS SECTION 01 OF 02 KHARTOUM 000718 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR AF/SPG AND SE NATSIOS 
DEPT PLS PASS USAID FOR AFR 
 
E.O. 12958:  N/A 
TAGS: PREL PGOV EFIN ECON EAID SU
SUBJECT: MAY 3 AEC WEALTH SHARING WORKING GROUP 
 
 
¶1. Summary: The May meeting of the wealth sharing working group of 
the Assessment and Evaluation Commission (AEC) featured two 
presentations on intergovernmental transfers. For the first time, 
representatives from the Government (GNU) of National Unity (GNU) 
and the Government of Southern Sudan (GOSS) made joint presentations 
to the working group. The GNU and GOSS representatives pledged to 
improve coordination and cooperation. End Summary. 
 
¶2. The May 3 meeting of the Assessment and Evaluation Commission 
working group on wealth sharing was chaired by the U.S. and attended 
by representatives from NCP, Norway, Kenya, U.K., U.S. and observers 
from EU (Germany) and EC, World Bank and UN. The representatives 
from the SPLM were not present. 
 
GNU Presentation Critical of GOSS 
--------------------------------- 
 
¶3. Government of National Unity (GNU) Undersecretary of the Ministry 
of Finance and National Economy (MFNE) El Sheikh El Mak gave a 
presentation on Intergovernmental Transfers. The Undersecretary said 
all revenue goes into the National Revenue Fund (NRF) in accordance 
with the CPA.  The NRF reallocations are made to three levels: the 
Federal Government, the GOSS, and the National States Support Fund 
(NSSF).  The latter exclusively handles transfers to states in the 
North, in contravention of the CPA's wealth-sharing provisions. 
 
¶4. El Mak noted that the GNU Ministry of Finance lacks the capacity 
to implement the Fiscal Financial Allocation and Monitoring 
Commission (FFAMC)'s recommendations for direct transfers to 
Northern state governments. The UN representative called into 
question the continuing NSSF role, and called for increased 
transparency within financial transfers in the North. The World Bank 
representative also voice concern over the NSSF's continued 
existence, noting that the NSSF is outside the control of the 
Ministry of Finance.  Its continued inclusion in a process of fiscal 
decentralization therefore creates problems of timeliness and 
discretion of criteria. (Comment: The NSSF is able to use its own 
discretion in making transfers to state governments. The concern is 
that it will not follow the criteria established by the FFAMC. End 
comment.)   More changes and reforms are needed, he emphasized. 
(NOTE: A report on the ongoing World Bank capacity building program 
with the MFNE is due to be published in June. END NOTE.) 
 
¶5. El Mak responded that the "status" of the NSSF was under review. 
The U.S. representative asked that the parties plan to brief future 
working groups on what steps are being taken to ensure the Ministry 
of Finance is able to implement fiscal decentralization in 
accordance with the CPA. (Note: The NSSF Council of Trustees decided 
to decrease State fund allocations by 6% during the last transfer, 
giving Northern states a smaller revenue share than originally 
allocated to them by the FFAMC. End Note.) The percentage breakdown 
between the three levels is 56% to the Federal Government, 28% to 
the Northern States and 16% to the GOSS. 
 
 
Acting GOSS Minister of Finance Speaks 
--------------------------------------- 
 
 ¶6. The Acting Minister of Finance for the Government of Southern 
Sudan Gabriel Changson Chang discussed the financial system in the 
South. GOSS budgets for the past two years have been based almost 
entirely on the 50% share of oil revenues.  (Note: The monthly 
figures for oil revenues transferred to the GOSS for January, 
February and March 2007 were: $67 million, $58 million and $44 
million, respectively. El Mak complained that the GOSS unfairly 
benefited from the domestic oil subsidy, since the value of the oil 
sent to local refineries is calculated on international export 
prices, rather than the actual domestic price. End Note.) 
 
¶7. Block grants totalling $100 million were made to the ten southern 
states in 2006.  The bulk of this disbursement covers personnel 
costs and state operating costs. State governments are also able to 
raise revenue through local taxes and fees. The GOSS also awarded 
development grants targeting the education and health sectors of 
individual states.  Planning was underway to ensure that during the 
2008 budget cycle southern states would be able to table individual 
budget requests to Juba. 
 
¶8. Undersecretary El Mak criticized GOSS book-keeping, noting the 
GOSS' budget lack of detailed breakdown and that state budgets have 
classification problems. He contended that non-oil revenues from 
Southern sources have not been shared with the GNU, as required by 
the CPA. GNU customs officials have not been allowed to operate in 
the South, and revenue transfers since July 2005 between Juba and 
Khartoum have totalled only $2 million. 
 
¶9. Changson agreed that a more realistic approach to the GOSS budget 
was required, and the current $1.5 billion revenue estimate in 
particular, will have to re-examined. The generation and collection 
 
KHARTOUM 00000718  002 OF 002 
 
 
of non-oil revenues needs to be improved, he noted, and a legal 
framework established for its transfer to Khartoum. He explained 
that the deployment of national customs officials to southern Sudan 
was not  received well because it was poorly explained, and hoped 
that his presence in Khartoum for meetings would lead to a smoother 
GNU/GOSS relationship in the financial sector. Changson admitted 
that the GOSS was not adequately sharing non-oil revenues with 
Khartoum.  He noted his desire to remedy this, and assure that the 
system of exemptions from customs and taxes is not abused.   There 
is a need to maintain the same rates of foreign exchange in the 
south and the north in order to avoid arbitrage, the Acting Minister 
stated. 
 
¶10. The Acting Minister said that the GOSS is working on developing 
criteria for horizontal transfers within the South and that he is 
working on improving coordinating mechanisms between the GNU and the 
GOSS. Under Secretary El Mak commended the GOSS for its efforts to 
improve its systems, and the North/South relationship overall. The 
World Bank commended the GNU's compliance with FFAMC recommendations 
on transparency, particularly with respect to transfers to the 
South.  He called for similarly transparent measures to be 
implemented within the NSSF. 
 
BERNSTEIN