Group urges dissolution of disputed South Sudan license

July 26, 2005
An international rights watchdog group has called for the dissolution of an oil exploration contract between White Nile Ltd. of the UK and the Sudan People's Liberation Movement.

Eric Watkins
Senior Correspondent

LOS ANGELES, July 26 -- An international rights watchdog group has called for the dissolution of an oil exploration contract between White Nile Ltd. of the UK and the Sudan People's Liberation Movement (SPLM).

The recommendation came as Total SA contested the White Nile claim to the exploration rights to Block Ba in South Sudan (OGJ Online, July 22, 2005).

In its July 25 report, the London-based International Crisis Group (ICG) said the agreement between White Nile and the SPLM has no legal standing and threatens the Comprehensive Peace Agreement (CPA) signed in January by the Sudanese government and the SPLM, now also known as the government of South Sudan.

ICG is an independent, nonprofit, nongovernmental organization that works to prevent deadly conflict in more than 50 countries and territories.

David Mozersky, an ICG senior analyst based in Nairobi, told OGJ that the White Nile deal was the "most blatant problem" facing implementation of the CPA and that it is symptomatic of larger problems in the country's oil business.

"It marks a dangerous precedent for the SPLM/A," Mozersky said, explaining that the group seemed to be treating the industry as a "personal fiefdom" in the manner of the Khartoum regime it opposes.

The ICG recommendation on White Nile is one of several about the oil industry in the African country, which has been torn by more than 30 years of civil war between the southern-based SPLM and the northern-based Khartoum regime.

"Early disagreements in the oil sector are symptomatic of CPA implementation obstacles and pose an immediate challenge to the viability of the peace process," ICG said in its report.

"Full implementation of the wealth-sharing agreement is crucial, in particular management of the oil sector and transfer of southern oil revenues by the central government to the government of South Sudan," it said.

"Extended delays by Khartoum in disbursing revenue could lead to calls within the SPLM for a return to war."

Such a result would reverse hopes that the agreement could end 2 decades of civil war in Sudan, allow millions of people to return to their homes, and open the country's oil potential to international investment (OGJ, Feb. 28, 2005, p. 34).

Border confusion
The agreement on oil revenues states that 50% of net oil revenue from "oil producing wells in southern Sudan" is to be allocated to the government of South Sudan as of the signing of the CPA.

But ICG said delineation of the border in the oil-producing areas was not addressed during the CPA negotiations.

"Although the north-south borders are defined under the peace accords as those at the time of [Sudanese] independence [from Britain] on 1 January 1956, these are contested, and Khartoum governments have several times attempted to alter them to place oil within the north," ICG said.

Most recently, the Khartoum government tried to claim that the Heglig region did not belong to the south's Unity State, ICG said. It noted that Heglig oil field is "one of the country's largest, at the center of the oil industry in the region."

ICG said disagreements between Khartoum and the SPLM/A over the location of boundaries and oil fields have the potential to delay disbursement of oil revenues indefinitely.

The group predicted that such delays would undermine the SPLM's ability to implement the peace accords as well as heighten mutual mistrust.

It recommended that the two sides, in conjunction with international experts, set up a boundary commission as soon as possible to resolve the border issue, as well as more technical issues such as creation of a formula "for defining the geographic placement of an oil well."

New deals
ICG was especially critical of the SPLM/A for its contract with White Nile, which was announced earlier this year.

ICG said the deal violated the agreement between the SPLM/A and Khartoum that all new oil contracts after the CPA would be decided consensually by the National Petroleum Commission (NPC), which is to be a joint government-SPLM body.

Citing the framework agreement on wealth-sharing signed by the two sides, ICG said the NPC will be responsible for "the [oil] sector, including the negotiation and approval of all new oil exploration and development contracts."

ICG said Khartoum reacted with "understandable anger" when it learned of the White Nile deal as it "infringed on a concession area leased by the government to a consortium which has held the rights since 1980."

ICG said the concession partners include Total (32.5%), Marathon Petroleum Sudan (32.5%), Kufpec Sudan (25%), and Sudan's state-owned Sudapet (10%).

ICG said Total froze operations in 1985 due to the civil war but maintained ownership and concession rights since it "paid annual fees to the government to keep its license valid."

Moreover, ICG noted that Total, on behalf of the concession partners, signed in late December 2004 "a renewed production-sharing agreement with the government, making clear that its return was conditional on peace and an improved security situation."

According to ICG, "The consortium's concession had been maintained consistently and would appear to be the 'existing' agreement for Block B and protected under the terms of the peace accords.

According to ICG, the agreement between White Nile and the SPLM/A can be challenged on two further grounds, apart from Total's preeminence to the concession area.

First is the questionable legality of a rebel government signing an oil agreement as the government of South Sudan prior to conclusion of the CPA and establishment of that entity.

Second is that an entity called Nile Petroleum Corp., formed by members of the SPLM/A to become a 50% partner with White Nile Ltd, has uncertain legal status even according to the SPLM/A itself.

"The apparent result is that Nile Petroleum Corp., which holds a 50% stake in White Nile Ltd. and could be worth hundreds of millions of dollars, is neither technically a legal entity of the SPLM nor included within the still emerging structures of the government of Southern Sudan," ICG said.

ICG cited a senior SPLM/A member who acknowledged, "The White Nile agreement is a violation of the peace deal" but had been undertaken in retaliation for similar deals struck by the Khartoum regime since the signing of the CPA. The official did not detail any similar agreements.

ICG recommendations
To address problems in Sudan's oil industry, ICG recommend that:

--The SPLM deregister the deal granting White Nile the license to Block Ba, sign no new deals until the NPC is established, and clarify the legal status of Nile Petroleum with respect to the government of South Sudan.

--The government of Sudan cease new oil industry activities, including contracts and operations, until the NPC is established.

--The government and Sudan and SPLM establish the NPC quickly and use it to review contracts signed since conclusion of the wealth-sharing agreement and otherwise provide transparency and civilian oversight of the oil industry.

--The government of Sudan, SPLM, and international bodies establish a border commission to determine north-south borders in oil producing areas.

--Other countries and international bodies urge the SPLM to cancel the deal granting the Block Ba license to White Nile.