VZCZCXRO8210
PP RUEHROV
DE RUEHKH #0163/01 0341444
ZNR UUUUU ZZH
P 031444Z FEB 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 9866
INFO RUCNIAD/IGAD COLLECTIVE

UNCLAS SECTION 01 OF 02 KHARTOUM 000163 
 
SIPDIS 
 
DEPT FOR AF/SPG, AF/EPS, EB/IFD, AND EB/ESC 
DEPT PLS PASS USAID FOR AFR, AND ALSO PASS USAID 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: PREL PGOV EFIN ECON EAID SU
SUBJECT: SUDAN'S OIL - DEBT, DYSFUNCTION, AND DISTRUST 
 
REF: KHARTOUM 1719 
 
¶1.  (SBU)  SUMMARY:  In separate meetings with econoffs from January 
24-31, leading oil experts expressed concern about significant 
northern oil revenue arrears to the south estimated to be between 
$150-250 million USD.  Contacts were also critical of the 
dysfunctional institutions managing petroleum in both the North and 
in the South. The meetings also reveal a startling lack of attention 
by the GoSS to oil industry revenues, which are available for them 
to review.  These leading oil experts, including the Norwegian 
Petroleum Envoy and the Director General of the GoSS Petroleum Unit, 
urged greater transparency, institutional development, and planning 
for the oil industry, warning that disagreements over petroleum 
could lead to war if the South secedes in 2011.  END SUMMARY. 
 
¶2.  (U) Meetings:  On January 24, EconOff met Catriona Laing and 
Andrew Hall, the Country Director and lead Economist for the U.K's 
Department for International Development (DFID).  On January 29, 
EconOffs met Yousif Ramadan, the Director General of the Petroleum 
Unit, and one of the few southerners working on oil issues in 
Khartoum.  On January 31, econoffs met Anders Hannevik, the 
Norwegian Petroleum Envoy to Sudan.  Hannevik has been in Sudan for 
approximately 5 months of his two year tour. 
 
NORTHERN OIL ARREARS 
-------------------- 
¶3.  (SBU) According to figures compiled by Yousif Ramadan, the 
Director General of the Petroleum Unit of the Government of South 
Sudan (GoSS), northern arrears to the South by the end of November 
2007 amount to approximately 177 million U.S. dollars.  (Note: With 
estimates as high as one-quarter of a billion dollars, neither 
Ramadan nor Hannevik were able to verify the exact amount of 
arrears, as debts from 2005 are disputed. End note.)  Ramadan stated 
that he has voiced concern to senior GoSS leaders such as President 
Salva Kiir about the size of the arrears, but that senior leaders 
have not raised the issue with GNU politicians.  The Norwegian 
Petroleum Envoy, Anders Hannevik, said that Ramadan's figures for 
the arrears are accurate and that it is "absolutely worth pushing 
this issue with senior politicians, as this is a significant amount 
of money." (Note: Ramadan's report is available at 
www.petrolgoss.net and the November figures for the GoSS share from 
oil revenues published by the Ministry of Finance have been sent to 
AF/SPG.  End Note.) 
 
DYSFUNCTIONAL INSTITUTIONS 
-------------------------- 
¶4.  (SBU) Ramadan stated that the National Petroleum Commission 
(formed by a Presidential decree in 2005) still does not have an 
office, representatives, or any functioning bodies except for the 
joint technical committee which distributes revenues.  Working out 
of a decrepit office rented from the Sudanese Council of Churches, 
Ramadan said he remains physically isolated from other colleagues at 
the Ministry of Finance (MoF) and the Ministry of Energy and Mining 
(MEM), and that there is still no indication that the NPC will build 
a physical office any time soon.  The Norwegian Petroleum Envoy 
confirmed that the NPC is dysfunctional, meeting only once in the 
summer of 2007 to decide the fate of Block B.  (Note:  The 
Assessment and Evaluation Commission's factual report on the Status 
of the CPA Implementation, from October 2007, notes that "The NPC 
has been established.  Internal regulations were adopted April 19, 
¶2007. The Joint Technical Committee on Oil Revenue has been formed 
and is functioning.  The Secretariat is partially functioning, but 
is awaiting GOSS nominees." End Note.) 
 
¶5.  (SBU)  Ramadan also stated that "the amount of information that 
we receive from the Ministry of Energy and Mining is in decline." 
He complained that key government ministries are not anywhere close 
to the CPA's goal of having 20-30% of all civil service positions 
designated to southern Sudanese (as stipulated in the power sharing 
protocols of the CPA, 2.6).  Ramadan was equally critical of his own 
southern government, saying "We need our GoSS ministers to do 
something to put our house in order.  Our representatives at the 
Ministry of Energy and Mining say the same thing over and over and 
there is a lot of indifference about oil issues."  Ramadan said that 
despite his position as one of the lead interpreters of oil revenue, 
senior southern leaders have only called on him "once or twice" to 
ask questions or seek more information about the figures. 
 
¶6.  (SBU)  The Norwegian Petroleum envoy also emphasized that the 
institutions responsible for managing Sudanese oil need to be 
improved.  Hannevik stated that there is an unnecessary delay in 
calculating and transferring the revenue owed to the south. 
According to Hannevik, the Ministry of Energy and Mining receives 
daily production reports and this information should be immediately 
available to the GoSS.  Hannevik stated that there is no system or 
schedule for distributing revenue, for analyzing the data, or for 
withdrawing money from the Oil Revenue Stabilization Account (ORSA). 
 Hannevik stated that given the amount of money and the dependence 
on this revenue, it is ridiculous that there are not firm procedures 
 
KHARTOUM 00000163  002 OF 002 
 
 
in place. According to Hannevik, the Government of Southern Sudan 
still has not received any funds since January 1, 2008 and that this 
may start to affect their ability to function. 
 
SECESSION AND OIL 
----------------- 
¶7.  (SBU)  Returning to themes from his November 2007 presentation 
to S/E Natsios (reftel), Hannevik stated that the latest oil figures 
show even more dramatically that the North will lose almost all of 
its oil revenue if the South secedes in 2011.  He said that his 
current modeling of the net value of projected total production 
shows that this revenue drop to the North may be unacceptable for 
the NCP and could potentially lead to disastrous results including a 
return to war.  According to Hannevik, production in the North is 
declining dramatically, while it is gradually increasing in the 
South.  Hannevik added that production in block 6 located in the 
North is declining and all of it is going to Sudanese refineries for 
local consumption, leaving essentially no oil for export produced in 
the North.  Hannevik said that Abyei's declining oil reserves "make 
it less of an issue than the larger question about the 2011 
referendum."  Hannevik said that he has shared his oil prediction 
estimates with many senior GoSS leaders including Salva Kiir, and is 
scheduled to give his first presentation to senior NCP leaders the 
week of February 3.  Yousif Ramadan agreed that oil could be a 
destabilizing factor following secession, saying "I am afraid of 
2011," adding "all of the oil in the South will belong to us in 
2011, but the North will not accept a sudden decline in revenues." 
 
 
INCENTIVES FOR 2011 PLANNING 
--------------------------------------------- -- 
¶8.  (SBU)  Hannevik emphasized that it may be possible to offer 
incentives to the North and the South for planning for the oil 
industry after 2011. Hannevik emphasized that this would require 
close cooperation with China, noting that the Norwegian Foreign 
Minister is currently in China and that the Norwegian MFA had even 
considered sending Hannevik on this trip to discuss Sudanese oil 
issues.  Hannevik stated, "The oil contracts were written when the 
price of oil was $18 a barrel.  It is now around $100 a barrel and 
it is my personal opinion that too much oil revenue is going out of 
the country."  Hannevik stated that he believes that if pressured, 
the Chinese might be willing to renegotiate oil contracts, as they 
are more concerned about energy security and access to oil than to 
its price.  "They could spare to lose a few dollars and still be 
happy with their arrangement in Sudan," stated Hannevik. 
 
¶9.  (SBU)  DFID's Catriona Laing and Andrew Hall also told econoff 
that the U.K. is  interested in long-term planning for the oil 
industry. Laing stated that the British have modeled different 
options for post-2011 revenue sharing and are interested in offering 
incentives such as debt relief for the North and the South should 
they agree to a deal.  Laing said that one scenario would establish 
milestones for cooperation (the first being the 2009 mid-term 
elections) that would be tied to oil revenue post-2011.  Laing 
emphasized that the British are interested in debt relief as one 
option, and that the U.S. might be able to give other incentives in 
a larger package.  Laing stated that linking secession and petroleum 
in one discussion is a sensitive issue that will require support 
from the U.S., UK, Norway, the Netherlands, and China. 
 
¶10.  (SBU)  COMMENT:  Contacts painted a bleak picture of the 
Sudanese oil industry, hampered by non-existent institutions, 
disorganization, shocking lack of oversight by the South, and great 
distrust.  The GoSS appears paralyzed by these challenges, satisfied 
with its current revenues, distracted by constant crises, and 
disadvantaged by its lack of experience in the industry.  The elite 
in the GNU appear to benefit from this, making key decisions by 
themselves, building up arrears to the South to make them even more 
dependent, and doing little to make the industry more transparent, 
comprehensible, and inclusive. Much can be done to improve the 
industry including: training key GoSS personnel; facilitating 
information-sharing between the North and the South; supporting 
southern representation in key government ministries; and 
standardizing procedures and timelines associated with revenue 
transfers.  The meetings also reveal a startling lack of attention 
by the GoSS to oil industry revenues, which are available for them 
to review.  Absolutely essential for long-term peace and stability, 
the discussion on post-secession oil revenue sharing should commence 
as soon as possible and should be linked to discussions on Abyei. 
 
FERNANDEZ