Pursuing Transparency in Sudan’s Oil Industry (3)

Alsir Sidahmed

Oil production and reserves have played an important role economically in Sudan and have been used as collateral for loans and credit. Though figures and facts were hard to come by due to a lack of transparency, weak economic institutions and poor supervision, scattered information
paints a relatively clear picture, at least as far as loans from China. Yousef Ramadan, who was representing GoSS in the calculation of crude production and export volumes to ascertain the correct share for the GoSS, noted in a meeting that the oil volumes ready for export for April 2010 were only one million barrels, while according to production figures, it should have been 4.8 million barrels. When he inquired about the missing 3.8 million barrels, was told that these had been allocated to meet the Chinese oil-for-loans arrangements.
In early April 2010, Dr. Nafie Ali Nafie, the then assistant to the President for NCP Affairs, chaired a meeting at Republican Palace, attended by the Finance Minister, the Governor of the Central Bank and a number of NCP economists. The meeting addressed, in part, the issue of the Chinese debts which had jumped from $66.8 million during 1980-1989 to reach $2.48 billion during 1990- 2008 – indicating the strong strategic ties between the two countries. The oil-for-loans arrangement with China reached a critical stage when Al Bashir, in one of his speeches,
announced that China had stopped providing funds under this arrangement. Osama Abdulla, the Minister of Electricity and Dams, told the parliament on November 13 2012, while answering a question from an MP, that the work in El-Fula electricity project had stopped because of the government’s inability to meet oil shipments to China to cover loans and that discussions were underway to find a solution to the problem. The estimated loan amount for this project was
$680.3 million, but only $366.5 million was disbursed by China. In January 2013, official media announced that China had extended a $1.5 billion in loan to Sudan.12 In a related discussion, the new Minister of Electricity and Water Resources, Motaz Moussa, said a delegation from Sudan
would visit China to follow up on a number of issues, including problems related to loans and funding for the electricity sector. He went on to add that the main goal was to convince Chinese contractors to resume working in El-Fula electricity plant which was suspended in 2011 as a result of funding issues and delayed payment.
Scattered sources of information indicate that the Sudanese Government had initially committed itself to supply China with 1.5 million barrels of oil a month for 15 years with a five-year grace period at the beginning. The loans received under this type of transaction were estimated to be more than $5 billion, according to banking and diplomatic sources. During the oil bonanza, Chinese loans increased from 17 percent in 1999 to 73 percent in 2007 of total loans received by Sudan. The bulk went to the electricity sector – with 43 percent, water and irrigation 26 percent and agriculture 3 percent.
The advent of oil production and export in Sudan coincided with a highly divided political environment between the government and its opponents including the SPLM/A and other opposition forces. In such an environment neither the government nor the opposition forces paid much attention to the importance of transparency in the oil sector or any other sector for that matter. Moreover, the presence of South Sudanese, with the SPLM and other political parties in
the government after the CPA, did not help to improve transparency. Attempts by Dr. Lual Deng, the State Minister of Oil during the Government of National Unity 2005 – 2001 (GoNU), to place Southern Sudanese officials throughout the production chain from the wellhead to lifting stage at Bashayer, did not materialized because of a lack of trained Southern Sudanese. Eventually, the State Ministers and other bodies depended to a large extent on figures and information provided by the central government, without having their own figures or a mechanism for an independent
verification.
Similarly, there were hardly any NGOs that followed closely the performance of the oil sector. Even the call initiated by State Minister Deng to join the Extractive Industries Transparency Initiative (EITI) and establish NGOs to monitor the oil sector was not realized.
The conclusion here is that, many international and national actors believe that oil revenues were used by the government for political ends, to buy supporters and fuel the civil war. Accordingly, a fierce western media and political campaign erupted targeting first operating companies such
as Talisman. The company’s annual meetings became a magnet for demonstrations to the extent that its shares traded 20-30 percent lower than their actual value because of bad publicity. The campaign went as far as calling for divestment from Sudan including its oil industry.

Sector Performance and Issues

(a)Under reporting of Sudan’s oil production

Because of a lack of transparency and the highly divisive political environment, the issue of under reporting of Sudan’s oil production has been around since the early days of production. The first source to declare that Sudan was pumping more than it actually announced was Taban Deng,
one of the leaders of the SPLM/A group that was battling the Sudanese Government. In an interview in 2001, he said that Sudan was producing up to 600,000 barrels per day, or three times what had been announced then.14 However, the most serious allegation came eight years later in 2009, when a London-based research group, Global Witness (GW), published a public analysis of Sudan’s oil figures showing discrepancy between the figures of Sudanese Government and those released by CNPC. The report said there were discrepancies of:
* 9 percent for the Greater Nile Petroleum Operating Company’s blocks in 2007
* 14 percent for the Petrodar Operating Company’s blocks in 2007
* 26 percent for the Greater Nile Petroleum Operating Company and Petro Energy’s blocks in 2005
These findings covered six of the seven productive oil blocks in Sudan.
The GW report went on to say “Our findings do not necessarily mean that Khartoum has cheated the South out of money, but they do highlight the need for transparency. 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”.
When Dr. Lual Deng assumed office at the federal petroleum Ministry, he invited GW to present its report before the Ministry and CNPC. The meeting took place at the Friendship Hall in Khartoum during August 2010 and was chaired by Sir Derek Plumbly of the CPA’s Assessment and Evaluation Commission (AEC). During the meeting, both the government and CNPC attributed the discrepancy to two factors; on one hand the CNPC figures represent gross production which
included water, gas and solid objects like stones, in addition to some amount of oil that was used in the fields. On the other hand, the figures published by government represented the net oil ready for export in addition to oil consumed in the field or lost in transportation. GW did not
challenge those explanations during the meeting, however, it raised skepticism about these explanations in a later report saying that “Global Witness view these explanations as highly unusual for a major, internationally operating oil company.”
In the report, GW said also that, despite promises from Sudanese Government and CNPC to provide them with more information, nothing happened. Moreover, it quoted a message from Dr. Deng in which he instructed his officials not to provide any information to GW.
It is important to bear in mind while discussing under reporting of oil production, that oil volume produced was to be divided into two parts. One called “cost oil”, roughly 40 percent of the volume produced and used to cover costs and investments incurred by foreign companies to get the oil out of the ground. The second is the “profit oil” that constituted about 60 percent. The profit percentage was in turn divided roughly 80-20 percent, 80 percent to go to the government
and 20 percent to go to the foreign partners. The question then is why the Chinese or any other company would tolerate the under reporting of production figures by the government and ultimately reduce their income from cost and profit oils?
Another question that remained unanswered, was the fate of the unreported oil. It is a known fact in the industry that any barrel produced has to be accounted for either by selling it in the world markets or using it for domestic consumption. In both cases it has to be tracked to enable a better picture about supply and demand.
For example, when production of Dar crude from Blocks 3 & 7 was delayed, the price of oil increased because of the tight market supply situation at that time. The delay of production and its impact on the international prices, was covered by major publications that monitor the global development of the oil market such as the Organization of the Petroleum Exporting Countries (OPEC), the International Energy Agency (IEA), the Energy Information Administration
(EIA) and the Center for Global Energy Studies.
The lack of transparency was the main reason behind raising questions about oil production, volume reported, revenue and spending. When the GoSS started to question oil production and sales figures, a committee was formed, comprising officials from the North and South, to review
and publish figures of oil production. To the dismay of many, the committee only published figures related to the share of Southern Sudan, without similar figures on the share of the North.
During the tenure of the Government of National Unity (GoNU), the Ministry started to publish daily oil production figures, but not revenue ones. It is important to recognize that, regardless of the government’s willingness to publish oil figures, which only came about because of pressure
from the GoSS, there must be demand from grassroots movements for such information.
One of the most important instruments that promotes transparency is the freedom of the media. In Sudan, the media’s role in publishing and analyzing information about oil production and export is minimal. This has been due to the difficulty of accessing credible and reliable information and also because of how media outlets are run. On some occasions, the Ministry of Oil would provide some figures and analysis of oil production, however these were rarely carried or discussed by newspapers or other media outlets.

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