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Rapport / 10 Novembre 2015

Turning the Tide

Building a clean oil sector through South Sudan’s Peace Agreement.

What needs to happen?

On August 27 2015 the leaders of the world’s youngest country signed an Agreement designed to bring to an end its devastating civil war. At independence in 2011, hopes were high that South Sudan’s oil wealth would help provide the development its citizens had been denied by 30 years of conflict. Instead, fewer than three years later, mismanagement and looting of this resource stoked the acute grievances which led the country back to war.

The Peace Agreement recognises that for there to be a sustainable peace in the country, the Transitional Government must fundamentally overhaul the way the state is run— including, critically, how oil dollars are collected, accounted for and spent. The Peace Agreement is a 30 month reform program which seeks to create a transparent and accountable South Sudanese state by 2018. The Agreement is ambitious and broad with 28 different provisions relating to oil management alone.

In order for the Agreement to be successful Global Witness is calling for certain of these provisions to be recognised as foundational, and for these to be prioritised during the implementation led by the Transitional Government and overseen by the Joint Monitoring and Evaluation Commission (JMEC). This new policy brief details our recommended approach.

The importance of a transparent approach

Transparency throughout the implementation of the Peace Agreement and oil sector reform is critical. Public confidence in the Government and its institutions is low following decades of conflict and corruption. 

If a transparent state is to emerge, the processes which create it must themselves be transparent. There must be an ongoing flow of information between citizens and state to demonstrate that the country’s leaders are not just paying lip service to reforms, but are making them a reality, and to ensure popular ownership of the deal and the state it creates. The institutions set up to oversee the reform process must also be privy to the same information as the Government if they are to serve as the watchdog the process needs. This will also assure the international community financing the Agreement’s implementation that agreed deadlines are being met.

Background

South Sudan boatSouth Sudan earned an estimated $7.3 billion in oil revenues between independence in 2011 and the end of 2014. Yet poverty levels actually worsened, rising from 44.7% in 2011 to 57.2% in 2015. In a country the same size as France, 98% of the road network remains unpaved leaving huge swathes of the countryside inaccessible during rainy season. With so little evidence of their country’s oil wealth available for citizens to see, many South Sudanese believe their public officials to be guilty of corruption.

State-building efforts have been undermined by the mismanagement of oil revenues and the mistrust it has caused. In in 2012, President Salva Kiir wrote to 75 South Sudanese officials, accusing them of stealing $4 billion from state coffers, and sharpening divides among an already fractured governing party and military. At the same time, the Presidency’s use of oil revenues to maintain the loyalty of elites has been corrosive to the development of democracy.

Which oil-related provisions in the Peace Agreement should be prioritised? 

Chapter IV, section 4.1.2. The closure of any petroleum revenue accounts other than those approved by the law

Click here for the full version of this recommendation 

The transparency requirements in both the Petroleum Revenue Management Act and the Peace Agreement are only meaningful if all oil revenues are directed into a single transparent account, namely the Petroleum Revenue Account held at the Bank of South Sudan.

Recommendations to the Transitional Government:

  • The Transitional Government should report publically on or before the February 25 2016 to confirm that all petroleum revenue accounts other than the legally mandated Petroleum Revenue Account have been closed.
  • The Transitional Government should publically disclose details of any other illicit accounts that have been identified and closed on or before the February 25 2016.
Recommendations to the operating and trading companies:
  • The operating and trading companies should report to JMEC, as an independent third party, on the amounts they pay to the Transitional Government, and provide evidence of which accounts these amounts have been paid into.   

Chapter IV, section 4.1.3. The identification, checking and recording of all loans and contracts collateralised or guaranteed against oil

Click here for the full version of this recommendation 

To make a true break from past mismanagement, the current leadership must disclose how much future oil (oil still in the ground) has been used to guarantee loans and other contracts such as weapons shipments. Without knowing the extent of the country’s debt, the Ministry of Finance will be unable to budget accurately, and any economic bail-out package issued by the international financial institutions may fail to meet the country’s needs. 

Recommendations to the Transitional Government:

  • The Transitional Government should, in co-operation with the Bank of South Sudan, publish a full list of all loan deals, creditors and terms.

Recommendations to JMEC:

  • JMEC should verify this list through consultation with creditors. 

Chapter IV, section 4.1.1. Implementation of the Petroleum Revenue Management Act

Click here for the full version of this recommendation 

South Sudan’s Petroleum Revenue Management Act sets out how the government should account for the money it earns from the oil sector. It is a strong law designed to ensure that oil revenues are used in a way which benefits citizens, provides citizens with information about how the government is managing natural resource income on their behalf, and ensures that there is accountability within the Government should funds go missing.  

Recommendations to the Transitional Government:

The Ministry of Petroleum and Mining and the Ministry of Finance should:

  • declare a moratorium on new oil sector contracting until this legal framework is operational;
  • set up the required pages on the Ministry of Finance website;
  • identify the newspapers and radio networks which will carry oil revenue reporting.

The National Audit Chamber should appoint an international company to conduct external audits

Recommendations to JMEC:

  • JMEC should engage the operating and trading companies to ensure that they are ready to conduct business responsibly and follow South Sudanese law and the provisions in the Peace Agreement;
  • JMEC should serve as the “independent entity” to which companies disclose payments during the transitional period.

Recommendations to the oil operating and trading companies:

  • The companies should disclose to JMEC, on a quarterly basis, records of all payments, both monetary and in kind, made to the Transitional Government;
  • The companies should disclose, on a quarterly basis, the accounts into which these payments are made.

Recommendations to the international donors:

The donors should provide technical support to the National Legislative Assembly to ensure they are able to fulfil their oversight mandate under the law. This could include:

  • providing technical experts to the Committees of Finance and Energy;
  • funding parliamentary researchers to assist the heads of all parliamentary committees;
  • supporting the provision of a well organised parliamentary library with reliable internet access. 

How does oil in the ground become cash in the bank?

How does oil in the ground become cash in the bank?

Chapter IV, section 4.1.13.14. The review and transformation of the National Oil Company

Click here for the full version of this recommendation 

Nilepet is an oil company which is owned wholly by the government of South Sudan, and so ultimately by the citizens of South Sudan. It has an influence over the sale of all state owned oil supplies, and is also responsible for ensuring the consistent supply of fuel into the country. As such, it should be completely open about all of its operations so that its ultimate owners can be sure it is being managed properly and is serving their best interests. 

Recommendations to JMEC:

  • The Agreement does not specify what the transformation of the company should entail. JMEC should clarify this as a priority.

Recommendations to the Transitional Government:

  • The Transitional Government should, by the agreed deadline, present a clear plan of action and timeline for the transformation of the company in line with JMEC’s clarification.
  • At the very least, the Transitional Government should review and reconstitute the board of the company on the basis of merit, and should provide public justification for the appointment of each member.

Recommendations to Nilepet:

  • The company should publish annual audited accounts, assessed by an independent international firm, for the period since its establishment.

Chapter IV, section 4.1.7. The oil marketing system, including future sales, shall be open, transparent and competitive

Click here for the full version of this recommendation 

South Sudan receives the vast majority of its oil revenues from crude oil sales to international traders. Currently, the system through which this precious resource is sold is too opaque to allow for meaningful oversight and accountability.

Recommendations to JMEC:

  • As a first step, JMEC should set out a plan of action to reform of South Sudan’s oil marketing system, and seek advice from qualified and neutral parties about how an open, transparent and competitive marketing system should work;
  • JMEC should approve the final structure of the marketing system within the 30 month transitional period.

Recommendations to the donors:

  • Donors should focus financial and technical capacity on this reform process, and provide technical assistance to the marketing team.

Pour en savoir plus

Emma Vickers, Campaigner, South Sudan

[email protected]

+44 (0)7715 076 548