North, South Sudan need new oil-sharing deal; report

January 6, 2010 (NAIROBI) – North and South Sudan need to strike a new oil-sharing deal to be independently verified and monitored in order to stave off a return to war as the south prepares to become an independent state in 2011, a new international report has recommended.

Global Witness, a UK-based NGO specialized in tackling corrupt exploitation of natural resources, on Thursday published a report claiming that the Sudanese government continues to circumvent calls for releasing bona fide information on its oil production figures, stoking suspicion that oil revenues are not being shared fairly with South Sudan.

The report, entitled Crude Calculations, recommends that north and south Sudan should “as a matter of urgency” reach a new oil wealth-sharing agreement. Furthermore, the report stressed that the new deal should include provisions for “transparency, independent monitoring and a dispute resolution mechanism.”

North and South Sudan have been splitting oil revenues under the wealth-sharing protocol of the Comprehensive Peace Agreement (CPA) which in 2005 ended nearly half a century of intermittent north-south war.

South Sudan is largely expected to become an independent state when its citizens begin to vote on Sunday to decide between unity with the north or secession.

Most of Sudan’s proven oil production of 470,000 barrels per day comes from oilfields in the south, but the refineries and pipeline infrastructure that carries the oil to export terminals are based in the north. Oil accounts for over 90% of south Sudan budget whereas the north derives 40% of its budget from oil revenues. Both sides will need each others’ cooperation to sustain their oil-dependent economies after the referendum.

Global Witness report says that the new deal needs to be regularly validated by an independent monitor and incorporate a dispute resolution mechanism.

In September 2009, Global Witness produced a report identifying significant discrepancies between the oil production figures published by the Sudanese government and the ones published by the leading oil company operating in the country, China National Petroleum Corporation (CNPC).

According to the report, titled “Fueling Mistrust the need for transparency in Sudan’s oil industry”, the figures released by Sudan were smaller by 9% to 26% than those produced by CNPC.

The report prompted authorities in both north and south Sudan to launch an investigation into the transparency concerns raised by Global Witness.

In August 2010, Sudan’s Ministry of Petroleum convened a seminar in Khartoum and invited Global Witness representatives to provide them with explanation for the discrepancies.

But Global Witness’s new report persuasively argues that Sudan’s claim that the discrepancies occurred because its figures represent the volume of oil and water while CNPC’s figures represented the oil only is “not a credible justification.”

The report also said that CNPC, which cited the same reason, could not have possibly quoted oil production figures that include water, simply because its customers and stakeholders are interested in the oil they produce, “not the oily water they pump.”

CNPC’s explanations “are highly unlikely for a major, internationally operating oil company,” the report concluded.

The report noted that both CNPC and Sudan have failed to provide CNPC with data to substantiate their justifications for the discrepancies.

One of the report’s key findings is that the Sudanese government has published scant information on its oil production figures since 2007, urging the government to make all oil-related data available to the public in order to dispel fears over transparency.

“The last time the Sudanese government has published detailed figures on the oil revenue sharing was June 2007. Since then, there has been a substantial decrease in the amount of information provided to the public” it said.

The report went on to say that “it is critical that the Sudanese government publishes all the data needed to demonstrate that the wealth-sharing agreement is being implemented fairly.”

“Under the current circumstances, Sudanese citizens still cannot be sure how much oil their country produces, and therefore still can’t be sure if the oil wealth-sharing agreement is being implemented fairly,” the report said.

But the report is not all full of gloom and doom. It positively notes that north and south Sudan agreed on Terms of Reference to conduct audits of oil production. However, it says that the audits must be carried out by a credible and independent company and their results should be made public.

The report also encouraged South Sudan to join the Extractive Industries Transparency Initiative (EITI), a coalition of governments and civil society groups aiming to improve transparency in oil and gas products, in order to demonstrate that the south will not become a failed state should it gain independence.

(ST)