Pursuing Transparency in Sudan’s Oil Industry (2)

Sir Sidahmed

Background

Although Sudan has a long history of prospecting for oil that dates back to its early days of independence; it was Chevron, the US Corporation, who progressed Sudan’s oil industry through three developments:
*?It introduced the concept of the Exploration Production Sharing Agreement (EPSA) as a legal framework for the oil industry in Sudan;
*?It moved its activity to the western and southern parts of the country, while traditionally prospecting for oil had been concentrated on the Red Sea area;
*?By 1982 Chevron had discovered enough commercial oil quantities that enabled it to start discussing ways to meet domestic needs of petroleum products and export at the same time.
Accordingly, a pipeline project was considered and preparatory steps were taken to implement it. However, it came to a standstill following the outbreak of the second civil war in Southern Sudan, between the Government of Sudan and the Sudan People’s Liberation Movement/Army.
(SPLM/A). The attack on a Chevron camp in February 1984, by the SPLM/A, led to the suspension of its activities in the most promising areas, although Chevron continued to maintain its possession of a half million square kilometers concession area. Notwithstanding its suspension of operations, Chevron was able to accumulate a great deal of technical information that eventually enabled Sudan to join the club of oil producers. These early developments represent the first phase in the establishment of Sudan’s oil industry.
The second phase coincided with the period following the coming to power of the Ingaz regime. The new regime was faced with the question of how to make a breakthrough in the oil dossier by convincing Chevron to resume operations or to relinquish its concession.
Following the reluctance of Chevron to resume operations, the Ingaz regime opted for the second option of extricating the oil concession from Chevron and freeing the area for new investors. This was a delicate process since Chevron made it clear that it would only hand over the concession
to a private company and not to the Sudanese government, a move that would enable the company to claim tax rebate. The NIF, or Ingaz regime, now in full control of all branches of the state, selected a loyal Islamist businessman, Mohamed Abdallah Garelnabi, the owner of Concorp
Construction Company and other businesses in Uganda, to front on its behalf, based on an agreed commission. The regime’s ideologue and the strong man at the time, Hassan Alturabi, arranged the transaction, though Garelnabi did not have an official position. All arrangements were
initiated and completed in 1992, outside official channels, despite the legal implications for the state. It took more than a year to return the concession to government custody and enable it to make the returned area available for potential investors.
Following the successful return of the concession, through Concorp, the government moved first to award part of the concession, Blocks 1 and 2, to the Canadian firm State. This continued to operate for three consecutive years without interruption, proving that security safeguards in the
exploration areas were adequate. Moreover, the Canadian firm managed to raise proven reserves by 270 million barrels to reach 635 million barrels, but given its weak financial and technical resources, it was forced by the government to open up to a consortium of Chinese and Malaysian companies to continue with the project. That was how the Greater Nile Petroleum Operating Co. (GNPOC) was born.
During the second phase, the Ingaz regime managed to establish the “Eastward Move”, which aimed to lure new, big Asian players like the China National Petroleum Corp. (CNPC) of China, Petronas of Malaysia and the Oil and Natural Gas Corporation Ltd (ONGC) of India, at a later
stage. In fact, this “Eastward Move” was the only choice for the regime given the reluctance of Western companies because of security concerns, the civil war and the increasing suspicion about the regime’s Islamic tendencies and extremist practices.
During this period, the regime was successful in reaching an ‘ideal’ option of producing enough oil to meet both domestic consumption and export. These exports generated some of the much needed hard currency that would provide foreign operating companies with dividends from their investments in Sudan.
Moreover, during this phase, there were certain factors that influenced the development and shape of the oil sector in Sudan, especially in the area of transparency. First and foremost, the Ingaz regime was the only regime in the history of the Sudan that managed to achieve oil exportation, a dream that had haunted many previous governments. The previous three regimes of Nimeiry (1969-1985), General Abdel Rahman Sowar Edahab (1985-1986) and Sadig El-Mahdi (1986-1989), had all failed to make this break-through and pump crude oil out of wells for domestic use and export. Accordingly, the Ingaz regime, has a sense of ‘ownership’ of this achievement and hence the ‘right’ to do whatever it liked in Sudan’s political, social and economic spheres, including the oil sector.
Second, the regime ascended to power through a military coup, with a clear ideological agenda to re-engineer the Sudanese society along the premises of that ideology. In such an environment, what counted most was how to accomplish their agenda and achieve their political goals,
irrespective of accountability and transparency, and regardless of what are the best and most sensible economic policies.
One of the early indicators and moves of this government trend was the appointment of the leading Islamist, Ali Osman Mohamed Taha, as Minister of Social Planning in 1993. He was to put the society re-engineering plan into effect, through the supervision of youth, women, arts, sport, charities and other relevant activities at the grassroots level. To achieve this goal, the regime devoted substantial political and economic resources, including oil revenue.
Third, the question of security in the oil sector was one of the most important factors that influenced the behavior of the regime. First, there was the security threat that had forced Chevron to suspend its operations for a consecutive eight years. Accordingly, security concerns became high on the list of priorities of how to safeguard the oil operations. The concern continued throughout this phase to various degrees, depending on the political situation. Second,
in September 1993, only days after the first shipment of oil was exported, the pipeline that carried the oil from production field to Port Sudan for export, was attacked. A further three, but unsuccessful, attempts to disrupt the flow of oil were made by the armed opposition. These incidents required the regime to heighten the oil security measures and increase the secrecy about all oil information.
The foreign Asian partners, being state companies, had their own strategic and political calculations that sometimes came at the expense of transparency and accountability. They did not have shareholders or a public opinion to take into consideration.
Then there were efforts, led by the United States, to target and isolate the regime given its policy of intensifying the civil war and given growing anxiety regarding its regional alliances with a wide range of extremist groups in the Arab Muslim worlds. Six years before the start of oil exports in
1993, the US put Sudan on its list of states sponsoring terrorism, and in 1997, before the start of actual exports, it added tough economic sanctions. In 2007, eight years after the start of oil exports, the US issued a list of sanctioned individuals and entities including some companies
active in Sudan’s oil sector. As a result, over time foreign companies dealing with Sudan found it difficult to meet simple requirements, like transferring agreements, signing bonus money or paying for spare parts through the ordinary banking system. Faced with such restrictions, the regime started to look for ways around these, which in turn became an added factor for the regime to apply more secrecy and open a window for corruption.
These international and local situations, combined with the heightened rebel activity during this period with clear backing from neighboring states, meant the regime became convinced that it was being targeted by Western powers. The regime’s main concern became its survival and how
to access needed technology and expertise for the oil industry, regardless of transparency, accountability or following established good practices in biddings and offers.
The oil industry by its very nature is a capital- and technology- intensive industry, as well as elitist.
It was so secretive that some members of the legislative and executive branches of the government were kept completely in the dark.

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