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Oil Sharing in Sudan: Not Exactly 50-50

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Oil Sharing in Sudan: Not Exactly 50-50

Posted by Amanda Hsiao on September 9, 2009

Oil Sharing in Sudan: Not Exactly 50-50

This week, Global Witness released a report that is sure to ruffle some feathers in Khartoum. The report suggests that the government of South Sudan may not be receiving its fair share—to be exact, half—of oil revenues from the northern government in Khartoum. 

The report, Fueling Mistrust:The need for transparency in Sudan’s oil industry, found discrepancies between oil figures published by the Sudanese government in Khartoum and those by the China National Petroleum Corporation, or CNPC, the operator of the oil blocks. The report contends that the Sudanese government underreported production in each of the oil blocks in the South, with Khartoum’s numbers ranging from 9 to 26 percent less than those tabulated by the CNPC. These miscalculations may translate into the loss of hundreds of millions of dollars in revenue for the South since the signing of the Comprehensive Peace Agreement.

The consequences of these findings are significant, as Sudan’s northern and southern governments hurl towards national elections in April 2010 and a self-determination referendum for the South in 2011. At the very least, the report adds to an already tense relationship between the North and South by suggesting that Khartoum is reneging on a key commitment in the CPA. (Section 5.6 of the Wealth Sharing Agreement establishes that oil revenues would be divided 50-50 between the North and the South.) “Unless the Government of Southern Sudan and Sudanese citizens can verify that the revenue sharing is fair, mistrust will grow and the peace agreement could be jeopardized,” said Global Witness campaigner Rosie Sharpe in a statement.

The “miscalculation” of oil production backs up what Enough views as an increasingly evident strategy of the Khartoum regime vis-à-vis the South: undermine the vote in the South on independence, which is guaranteed in the CPA, and block full implementation of the CPA. By depriving the South of a portion of its rightfully allocated and much-need oil revenues (it is estimated that 98 percent of South Sudan’s income comes from oil revenues), Khartoum would be squeezing the southern government out of the resources needed to maintain domestic stability and provide basic services for the southern population. Based on Global Witness calculations, underreporting oil figures by 10 percent translates into a loss of about $600 million since the signing of the peace deal in 2005—a figure that is more than three times the South’s annual budgets for health and education. A potential motive here is clear: Preventing the SPLM from accessing these revenues ultimately serves to discredit the party’s ability to govern, and thus, the rationale for secession.

Though the Global Witness report does not go so far as to accuse Khartoum of cheating the South, it does document other ways in which the northern government is exploiting oil revenues to its benefit. Global Witness found that the southern government does not receive its promised half of oil revenues because Khartoum charges “management” and “pipeline” fees that amount to 3 to 8 percent of the value of oil. Where this money goes is unclear. Added to all this is the fact that Khartoum regularly owes the southern government in oil revenue arrears—in March 2009, it owed $180 million.

This report highlights a major political obstacle that looms in the future, especially if the South chooses secession. Currently, the northern government possesses sole power over the marketing, exporting, and pricing of oil in Sudan. The GOSS has no way of verifying Khartoum’s figures for oil production and the value at which it is sold. The revelations in this new report certainly undercut any hope for smooth post-referendum arrangements between North and South.