VZCZCXRO3656
PP RUEHROV
DE RUEHKH #0620/01 1121603
ZNR UUUUU ZZH
P 211603Z APR 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 0624
INFO RUCNIAD/IGAD COLLECTIVE

UNCLAS SECTION 01 OF 03 KHARTOUM 000620 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL KSCA OTRA EAID CDC SU
SUBJECT: GOSS OFFICIALS COMPLAIN OF LACK OF OIL REVENUE TRANSPARENCY 
 
 
¶1.  (U) SUMMARY:  Organized by the US Embassy in its role as 
Coordinator, the AEC's Wealth Sharing Working Group (WSWG) traveled 
to the South Sudanese capital of Juba April 16 for a field visit. 
The purpose of the trip, besides the symbolism of holding a session 
in Juba, was to gather information for the WSWG section of the AEC's 
Mid-Term Evaluation (MTE).  The WSWG heard from the GOSS Minister of 
Finance, as well as the Director General of Hydrocarbons in the 
Ministry of Industry and Mines.  The officials continue to express 
frustration with what they termed a lack of transparency with 
information on oil revenues from the Government of National Unity 
(GoNU).  However, these appear to be relatively minor problems 
dwarfed by the significant amounts of oil and non-oil revenues -- 
most, indeed, of what the South is entitled to under the 
Comprehensive Peace Agreement (CPA) -- being transferred to the 
South.  End Summary. 
 
WELCOME TO JUBA (BUT STILL NO SPLM) 
----------------------------------- 
 
¶2.  (U) CDA Fernandez welcomed the WSWG members and observers to 
Juba, noting that the field visit served to facilitate participation 
in the CPA process by the GoSS (despite the glaring absence yet 
again of a WSWG representative from the SPLM), and underlined the 
fact that the CPA was a bilateral agreement.  The session was held 
in the Juba offices of the AEC, which are funded by the USG. 
 
GOSS FINANCE MINISTER: TRANSPARENCY STILL LACKING 
--------------------------------------------- ---- 
 
¶3.  (U) The first speaker was Kuol Athian Mawein, GoSS Minister fFinance and Economic Planning since July 2007.  Mawein raised 
several issues he wishes to see addressed.  To begin, he complained 
that the GoSS is not given daily production figures, but is only 
informed as to the dollar amount of revenue transfers.  This means, 
he said, that "we have no way of verifying whether the revenue 
entitlements reported to us by the GNU are correct."  In fact, he 
said in an aside from his written remarks, the GoSS knows the 
figures are not correct, as they are aware of accounting "tricks" 
that can be used.  However, "since we want to maintain the peace," 
the GoSS has not made an issue of this, he said. 
 
BUT THE MONEY IS ROLLING IN 
--------------------------- 
 
¶4.  (U) Since 2005, he readily admitted, the GoSS has received over 
3.5 billion (USD) in oil revenue from the GNU, including 1.39 
billion USD in 2007.  Mawein complained that monthly oil transfers 
are extremely irregular in amount, fluctuating between 38 million 
(in March 2007) and 243 million USD per month over the past two 
years.  Further, transfers are made on an irregular schedule.  There 
can be a delay of up to three weeks from the reported date of the 
transfer until funds actually reach GoSS accounts.  Mawein said he 
intends to discuss these issues with both the GNU and the Bank of 
Southern Sudan.  He will be traveling soon to Khartoum to meet with 
the new GNU Minister of Finance. 
 
ARREARS CONTINUE TO MOUNT 
------------------------- 
 
¶5.  (U) The Minister complained that the GoNU had built up 176 
million USD in oil revenue arrears to the GoSS, including $80 
million from 2005 and over $90 million from 2006 and 2007.  He noted 
GoNU promises to pay off the arrears, "but so far, it has not done 
anything.  Instead, the arrears keep increasing.  This year, they 
amount to $4 million already." 
 
NON-OIL REVENUES 
---------------- 
 
¶6.  (U) The GoSS and GoNU have established a Joint Non-Oil Revenue 
Sharing Committee to oversee sharing of these revenues (customs, 
taxes, etc.) collected in the South, Mawein reported.  This body has 
now established a system for depositing such revenues collected in 
the South into a joint account, and then dividing them according to 
the CPA.  However, he complained that the GoSS had not received any 
of the arrears for non-oil revenues collected in the South between 
2005 and 2007, before the new system was put into place. 
 
GOSS FISCAL ALLOCATIONS TO SOUTHERN STATES 
------------------------------------------ 
 
¶7.  (U) The Finance Minister reported that in 2008, the GoSS has 
budgeted 154 million USD in block grants to be transferred to the 
various southern states.  That amount was simply divided equally 
among the states, as suggested by the state governors.  Once the 
GoSS obtains data from the upcoming census, however, the GOSS will 
use that data to develop a more equitable formula for the transfer 
of these block grants.  The formula will take into account such 
factors as population, geographical area, and "natural endowments." 
 
¶8.  (U) In conclusion, Mawain reiterated that the main improvements 
 
KHARTOUM 00000620  002 OF 003 
 
 
the GoSS seeks are: 1) elimination of delays in transfers of oil 
revenues; 2) payments of arrears for both oil and non-oil revenues; 
and 3) access to daily oil production data so that the GoSS can 
verify that it is receiving the correct amount of revenues. 
 
HYDROCARBONS DG: LACK OF TRANSPARENCY IN "EXCESS OIL" 
--------------------------------------------- -------- 
 
¶9.  (U) Archangelo Okwang, Director General of Hydrocarbons in the 
GOSS Ministry of Industry and Mines, next addressed the WSWG. 
Speaking confidently and without prepared remarks, he described in 
detail the mechanism for allocating oil revenues, the oil industry 
in the South and noted how light and viscous oil from different 
blocks (often, from North and South) is blended to produce a mixture 
that is more easily transported. 
 
¶10.  (U) Okwang said the Joint Technical Committee on oil production 
has not been able to gain access to production contracts negotiated 
before the CPA was signed in 2005.  He explained the concept of 
"excess oil" under those oil contracts, noting that revenue from 
such "excess oil" is supposed to be allocated to the Central 
Government (and then divided according to the CPA).  However, the 
JTC has been provided no figures on excess oil, which "is a big 
problem with the lack of transparency of the oil contracts," he 
said. 
 
OIL PRODUCTION FLUCTUATIONS: BLAMING THE BIRDS 
--------------------------------------------- - 
 
¶11.  (U) Referring to the monthly fluctuations in oil revenue 
transfers noted by the Finance Minister, Okwang too complained of a 
lack of transparency.  For instance, he said that when GoSS 
officials had inquired about unusually low production for March 
2007, the GNU had provided what he said was an unsatisfactory 
explanation, blaming a "big flock of birds" for somehow disrupting 
oil production. 
 
TRAINING AND CAPACITY PROBLEMS 
------------------------------ 
 
¶12.  (U) Without assigning blame, the Director General lamented a 
lack of capacity in his own government's oil expertise.  NOTE: 
While he did not say those problems contributed to the lack of 
transparency, that was the clear implication.  End Note.)  The GoSS 
needs economists able to monitor sales, and it needs trained 
chemists in the laboratories to make sense of and draw conclusions 
from oil production information. 
 
COMPLAINTS OF U.S. SANCTIONS 
---------------------------- 
 
¶13.  (U) Okwang also complained of U.S. economic sanctions against 
Sudan, and appealed for an exemption for oil production in the 
South.  Because of the U.S. sanctions, Western oil companies are 
prevented from entering the Sudanese market, which left the field 
open to unscrupulous Asian companies.  This resulted, for example, 
in greater problems with human rights (treatment of oil workers, 
etc) and environment than would have been the case with western 
companies.  CDA Fernandez replied, acknowledging that U.S. sanctions 
do indeed act against all Sudanese oil, no matter where it is 
produced.  One of the tragedies of Sudan, he added, is that the U.S. 
is a world leader in refining the type of heavy oil produced in the 
South.  Also, he noted the "image problem" facing Sudan:  Western 
companies shy away from investing in Sudan because of the country's 
poor human rights record.  In turn, the NCP rep said merely that the 
GNU had been forced to turn to Asian companies on drilling and 
production contracts because of the American sanctions. 
 
¶14.  (U) Among other issues raised by the Hydrocarbons Director 
General: 
 
-- Community development funds are being paid by oil companies, but 
the funds are not being used for development.  The fund should not 
be managed just by one side (i.e., the North). 
 
-- Abyei oil:  Asked by one of the foreign delegates of his 
government's position on de-coupling the issues of territory from 
that of oil production in Abyei, Okwang said the South "does not 
understand" why none of the oil from Abyei is being shared with the 
South despite provisions of the CPA.  For the South, Abyei is an 
issue of borders, he said.  He urged that the CPA's international 
"witnesses" stand up and demand that the South's 42% share of 
Abyei's oil revenues be implemented. 
 
NCP REPLIES: DEMAND FOR EQUAL TIME 
---------------------------------- 
 
¶15.  (U) The NCP representative spoke up, saying he was "surprised" 
to hear of the complaints made against the national Ministry of 
Energy and Mining (MEM).  Many of the questions should better have 
been directed to the Joint Technical Committee, as that body 
includes representatives of both sides, he said.  He alleged a lack 
 
KHARTOUM 00000620  003 OF 003 
 
 
of a "clear-cut agenda" for the Juba meeting, and said GNU officials 
should have been given the opportunity to speak.  In particular, he 
"officially suggested" that the new GNU Energy Minister be invited 
to address the WSWG.  CDA Fernandez noted that it had taken over a 
year of effort by the WSWG to arrange an appearance by the former 
Energy Minister in late 2007.  He said he would welcome an 
appearance, but hoped the new minister would be more readily 
available.  The NCP rep promised to facilitate the Finance 
Minister's appearance before the WSWG. 
 
¶16.  (SBU) COMMENT:  The Juba meeting was a useful exercise that 
produced much information for the AEC MTE.  We continue to be 
frustrated, and puzzled, by the inability of the SPLM to provide 
representatives for WSWG meetings - this is the second in a row that 
they have not attended.  We were, however, able to ensure that the 
GOSS representatives from the two ministries attended.  We will 
continue to push the SPLM to take a more active part in the AEC 
process.  To some extent, the lack of transparency complained of by 
the GoSS and the SPLM is more indicative of their own limited 
capacity: they are simply not equipped to take advantage of some of 
the sources of information available to them.  Moreover, one of the 
points of agreement that enabled the SPLM to return its ministers to 
the GNU in December was an arrangement regarding transparency to 
allow access by GOSS technical experts to oil installations. 
Nonetheless, the larger point on wealth sharing remains clear: while 
some relatively minor problems persist, the process of wealth 
sharing continues largely to be a success, responsible for the 
transfer of very significant sums of money to the South. 
 
FERNANDEZ