South Sudan government rejects calls to suspend oil contracts

Thursday, 31 July, 2014

Via AllAfrica we recently learnt that the South Sudanese government won’t concede to recent demands for suspension of all new oil contracts, on the basis that to do so is “not in the country's best interest." The minister's response comes more than month after Global Witness, a UK-based campaign group, called earlier this summer for an immediate moratorium on all new contracts in the country’s oil industry.

In a letter to the  Sudan Tribune from petroleum and mining minister Stephen Dhieu Dauo, Global Witness's requests were described as “unrealistic,” given the very heavy dependence of the new country’s budget and economy on oil production and sale. The letter said:

"The economy of South Sudan is current substantially dependent on our petroleum industry. Even while we seek to diversify economy and attract new investments in new industries, we foresee the oil industry as remaining a substantial, if not predominant sector of our economy for a number of years into the future… [The] petroleum industry business… requires substantial investments over long period of time before oil or gas can be produced and delivered to market… A contract entered into today may not result in commercial production of oil or natural gas for a number of years, perhaps as long as decade or even longer. Any artificial undue delay in entering into contracts will simply prolong the time before new sources of oil or natural gas are developed and used to generate new sources of revenue. The same lead time is required for other substantial investments in the petroleum industry, such as for oil pipelines and other essential infrastructure.”

In defence of this point, according to the piece South Sudan is the world's most oil-dependent country, with 98% of government revenue coming from oil sales at independence in July 2011. However, over at African Arguments the take on the latest budget is trenchant, to say the least: "by the evidence of South Sudan’s budget, presented to parliament in late June, the country’s finance ministry has lost its mind."

Why is that? Well, in the words of the African Arguments piece, by journalist Richiard Nield:

"This time last year, the Government of South Sudan put forward what it described as a “two-step budget” that would boost social services and economic growth “in a responsible manner.”

That budget, covering July 2013 to June 2014, consisted of six months of austerity while oil production recovered from a 15-month shut-down. Spending limits were set at SSP555m ($184m) a month for the first half of the year, rising to SSP1bn by early 2014 “if sufficient resources are available.”

It seems that this common-sense approach hasn’t lasted long.

Most press coverage of the new budget, covering July 2014 to June 2015, has focused on a reduction in the size of the budget from to SSP11.3bn from SSP17.3bn last year. But a closer look at the figures reveals that this is anything but an austerity budget. The government is actually planning a 2.5% increase in spending on government agencies – from SSP9,733m to SSP9,968m.

While the increase in spending is marginal, the government is banking on an extraordinary increase in revenues that completely ignores the realities of its economic challenges."

Not a scneario that inspires optimism, no matter what the Minister's protests. From the AllAfrica article, the point/counterpoint:

Since the outbreak of conflict in the country… oil revenues have reportedly been diverted to finance the war, and there is a real risk that multi-million-dollar payments made by companies to secure future projects will also fail to reach the development budget.

But the petroleum minister said it was essential that exploration and development activities continue to expand in the existing blocks and new ones, so that the levels of oil production are maintained and increased over time.


Global Witness also said South Sudan government had spent months developing laws to ensure that the country's oil sector is not a source of corruption or conflict, but allegedly fell short of implementing these regulations.

The petroleum minister, however, assured that issues relating to accountability and transparency raised by the UK-based campaign group would be given full attention in accordance with the 2012 Petroleum Act, which outlines functions and discretions.

From the letter again, the laudable if not necessarily reassuring statement  that the government is at the very elate “committed” to doing the right thing: 

"I want to reassure you that South Sudan remains committed to the transparency obligations of the petroleum Law as cited in the Global Witness report. It is a matter of extreme importance, to the benefits of the citizens of South Sudan, that the government be able to fund its budget. "Whatever proceeds are received in forms of bonuses or otherwise under any new contracts will be minimised in relations to the national budget and will not affect policy or overall capabilities of the government.” 

We're not optimistic, though of course we hope we're wrong.