FOCUS: Dignitaries, White Nile welcome South Sudan govt

By Simeon Kerr

NEW SITE, SUDAN, Mar 31, 2005 (Dow Jones) — A rebel army military band, fitted in scarlet uniforms, cuts through the dusty equatorial forest of Southern Sudan, welcoming a delegation of 11 African foreign ministers at the dirt runway serving this once-secret camp, twenty miles from the Kenyan border.

Sudanese People’s Liberation Army (SPLA) soldiers look at a copy of the comprehensive peace agreement, before their meeting in Rumbek, on Sunday, January 23, 2005. (AFP).

The dignitaries’ trip recognizes the region’s government-in-waiting, set up by fighters who battled an Islamic regime in Sudan before ending 21 years of Civil War with a peace agreement last January. As the diplomats shake hands under the feathery spines of acacia trees, an investor key to the country’s development strategy looks on.

Here, old comrades-in-arms have a new agenda: rebuilding an area desolated by the bitter civil war that pitted the largely Arab Muslim North against the non-Muslim, black South. A controversial oil company, White Nile Ltd. (WNL.LN) lies at the heart of these development plans, and the ministers’ arrival is a key step toward their completion – a fact not lost on the company’s cofounder, Andrew Groves. “It doesn’t matter what people say – the government of South Sudan is a recognized government, otherwise you wouldn’t see ministers like this coming down to the bush,” said Groves, a 36-year old investor whose father worked for Rhodesian, Zimbabwean and South African intelligence.

Currently sustained by U.N. and international handouts, the ex-rebels are seeking foreign investors like Groves and White Nile to help bankroll development plans for a region abandoned since colonial times: Schools, clinics and roads are the priority, says SPLM Vice Chairman James Wani Igga.

The Sudanese People’s Liberation Movement, led by John Garang, will within months share power with the government based in Khartoum and form a regional government in the South. The former commanders flit between parched Rumbek, the provisional capital of the South, and New Site, Garang’s wartime camp of camouflaged straw huts hidden deep within the Equatorial bush. New Site is still run like a commune, harking back to the camp’s military days: Ministers and mechanics line up together for meals of curried goat and maize bread. But the government-in-waiting is adopting a pro-market approach to its development strategy, using Western capital markets to fund its grand development plans, made more urgent because more than two million South Sudanese refugees have started drifting back to the country

Illiteracy rates in the South run to 92%, even worse than Niger, currently the least illiterate African state, says Igga. The literacy rate for the entire country is about 61%, reflecting the institutionalized underdevelopment affecting the South since British Colonial rule.

Two years ago, White Nile’s chief investors, Groves and former England cricketer Phil Edmonds, approached the SPLM, in Paris, eventually persuading the combatants to leverage the South’s premier resource, oil, through the tiny company. Then last August, the SPLM transferred Southern assets to its state-owned firm, Nile Petroleum Corp., headed by U.K.-trained oil engineer Bullen Bol.

In February, the South awarded White Nile Block Ba, half a huge Southern Sudanese tract, known as Block B, promised by Khartoum to a consortium led by Total SA (TOT), which still claims legal rights to the block. White Nile jumped 13-fold in value when it listed on London’s small cap exchange in February, on the promise of an oil deal in the South.

Kuol Manyang Juuk, who as a commander planned attacks on government soldiers guarding oil installations, is now coordinating with Groves on the plan to float future oil production on Western markets. “Oil is ready money – we need it to finance other projects,” said Juuk, the chairman of the SPLM’s economic commission. Groves, a mining entrepreneur with interests across the continent, says the Southern government, which will eventually hold a 70% stake in the oil field, could access at least $300 million when the firm’s stock reopens for trading next week, with the release of a document detailing the SPLM deal. Depending on the firm’s market capitalization, the Southern government will then be able to borrow more money using the equity as collateral.

“This deal will show other countries a new way of financing projects – rather than relying on the crumbs offered by the oil majors,” Groves said.

White Nile, which plans to hire a chief executive from an oil major in the coming months, could be producing oil from this block within three years, says SPLM Foreign Commissioner Costello Garang, (no relation to John Garang) pumping oil through a new pipeline through Kenya to the Indian Ocean.

Nile Petroleum’s Bol recently photographed the entire block from a tiny propeller plane, mapping the vast area of savannah and swamplands, spotting elephants and swamp-dwelling tribes. The company will have to use special aquatic drilling equipment in the swamp, which covers 7% to 8% of the block. But Bol hopes to preserve the elephant habitat for the sake of future generations.

White Nile has hired U.K.’s Exploration Consultants Ltd. to contract seismic work across the block. Officials say the SPLM has secured the block, though some other areas of the South, particularly the border with Ethiopia, have witnessed outbursts of warlord violence.

ECL, which has worked on neighboring blocks in Sudan, estimates the field could hold around 5 billion barrels of oil, but Wood Mackenzie, an Edinburgh-based oil consultancy, says it’s impossible to verify reserves without test wells. “It’s an oil-prone area, but there are no proven hydrocarbons,” said Africa analyst Stuart Williams.

Another problem is that Total (TOT), Marathon (MRO)and Kuwait Petroleum Corp. (KPT.YY)also claim the acreage. Total revived its deal in December, after it abandoned the area in 1984 because of the civil war. Juuk said the contract has elapsed and Total should have signed with the SPLM, not with Khartoum.

“The South has the right to explore for oil and award concessions in the South,” said Juuk, one of the SPLM’S most feared commanders. “In the South we need development. If someone isn’t there to develop oil resources, then we have the right to give a concession to White Nile.”

Total and Khartoum assert that the SPLM isn’t a sovereign entity yet and has no right to award contracts. But receiving 11 African ministers in the bush was only the start of the SPLM’s assumption of government status: SPLM officials are also observing this week’s elections in Zimbabwe. Total spokesman Jean-Francois Lassalle says the firm has kept its rights alive through the civil war by regular contact with Khartoum and by making payments to the government. The French firm, which held talks with Southern officials in Nairobi last week, says it wants to discuss the deal with both Khartoum and the SPLM. But Total has yet to secure a meeting with Garang, despite a January trip to Rumbek.

“If the South want to be taken seriously in its new role with Western partners, they need to show respect for past contracts and for the peace agreement itself,” said Lassalle from Paris.

The European Coalition on Oil in Sudan, a Netherlands-based advocacy group, is also concerned about the lack of transparency.

“This is worrying, if it’s the way the government of South Sudan starts its economic policy,” said ECOS’ Egbert Wesselink, coalition coordinator. Southern officials are unrepentant, asserting they have the right to do deals for the benefit of the South’s 12 million population, most of who live on less than a dollar a day. Foreign Commissioner Garang says White Nile is the only firm to clinch a concession, but once the dust settles on the deal, more blocks will go to foreign firms. Despite the oil spat with Khartoum, Southern leaders say the peace agreement will stand. The six-year interim period, which will see much autonomy passed to Rumbek, will end with a referendum on secession.

This week, the former combatants will leave their forest camp behind them, exchange camouflage uniforms for neutral city suits and head for Khartoum, via Nairobi, to meet their former enemy, the Islamic government. There, they plan to create a system for collecting their 50% share of oil produced by Chinese, Indian and Malaysian firms in Southern areas under central control. “The war divided us, but now we realize we need unity,” Juuk said.