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Viewing cable 06KHARTOUM2654, OIL IN SOUTHERN SUDAN - THE STORY OF "CROOKS AND NANNIES"

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Reference ID Created Released Classification Origin
06KHARTOUM2654 2006-11-13 11:17 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Khartoum
VZCZCXRO6129
PP RUEHROV
DE RUEHKH #2654/01 3171117
ZNR UUUUU ZZH
P 131117Z NOV 06
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 5191
RUEHBJ/AMEMBASSY BEIJING 0040
RUEHFT/AMCONSUL FRANKFURT 0060
RUEHTC/AMEMBASSY THE HAGUE 0032
RUEHCH/AMEMBASSY CHISINAU 0001
RUEHNE/AMEMBASSY NEW DELHI 0009
RUCNIAD/IGAD COLLECTIVE
UNCLAS SECTION 01 OF 03 KHARTOUM 002654 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: PGOV PINR ECON EINV EPET ENRG ET KE GE CH SU
SUBJECT: OIL IN SOUTHERN SUDAN - THE STORY OF "CROOKS AND NANNIES" 
 
1.  (SBU) Summary:  The history of oil exploitation in Sudan has 
been marked by northern domination, killings, displacement, 
community destruction, environmental degradation, arms purchases, 
and accusations of cheating on revenue sharing.  To break with this 
legacy, the Government of Southern Sudan (GOSS) is working to 
establish an indigenous oil industry independent of Khartoum. 
Southern initiatives include exploration and production contracts, 
and ambitious plans for refineries and pipelines serving central and 
eastern Africa.  Nile Petroleum Company (NilePet), the GOSS-owned 
oil company, has signed international production sharing agreements 
(IPSA) with British, German, Moldovan, Dutch, and Chinese companies. 
 The GOSS believes a strong southern oil industry will help them 
enforce the wealth-sharing protocols of the Comprehensive Peace 
Agreement (CPA) and yield more transparency in the oil sector.  The 
GoSS also hopes this will allow for either unity with the north on 
more equal terms or independance.  End Summary. 
 
2.  (U) The November 1-4, 2006 visit to Juba of a USG-hired oil 
expert, Phil Garrison, and a member of the Sudan Programs Group 
(SPG), Pamela Fierst, provided an opportunity to meet with a wide 
spectrum of GOSS officials, civil society, and private oil sector 
members, and obtain extensive documentation on oil contracts in the 
South.  (Note:  All documents were provided to SPG Officer Fierst 
for Washington.  End Note).  As one speaker said in a Freudian slip 
at an oil conference in Juba that coincided with the visit, we must 
look at all the "crooks and nannies" to understand the oil situation 
in Sudan. 
 
General Overview 
---------------- 
 
3.  (U) The GOSS has moved quickly to try to establish an 
independent oil industry that it asserts is consistent with the 
wealth-sharing provisions of the CPA.  The GOSS-owned NilePet has 
signed at least five production sharing agreements for oil 
exploration, development and sales.  These controversial contracts 
have created divisions within the GOSS over their legality, their 
lack of transparency, and their ramifications for CPA.  Oil experts 
believe that Southern Sudan may cover one of the largest 
under-explored oil basins in the world.  Southern Sudan and Abyei 
already account for more than 90 percent of Sudan's approximately 
330,000 b/pd of current oil production. 
 
4.  (U) Sudan's current oil production is controlled by Khartoum and 
is dominated by three foreign oil companies, all state-owned -- the 
Chinese National Petroleum Company (CNPC), Petroliam Nasional Berhad 
(Petronas, Malaysia) and ONGC Videsh (India).  According to a recent 
Wood Mackenzie report, Sudan is the largest overseas operation for 
all three of these companies. 
 
5.  (U) In addition to its production agreements, the GOSS has begun 
to explore prospects for a pipeline to "connect to the Kenya-Uganda 
pipeline somewhere in Uganda" and then transport refined oil to 
Mombasa, according to one official.  Others speak of building a 
pipeline to Matadi in the Democratic Republic of the Congo.  The 
GOSS sees NilePet eventually supplying an African market which 
includes southern Sudan, parts of Ethiopia, Somalia, Kenya, Uganda, 
Northern Tanzania, Rwanda, Burundi, Eastern DRC and Central African 
Republic. 
 
 
Southern Sudan Players 
---------------------- 
 
6.  (SBU) NilePet: NilePet was established in 2003 as a subsidiary 
of the "New Sudan Public Corporation," which was itself created by 
the "Civil Authority of the New Sudan" (CANS) under the Chairmanship 
of then-Vice Chairman of the SPLM, Dr. Riek Machar.  The legal 
status of CANS is uncertain.  NilePet was subsequently incorporated 
in Yei, southern Sudan in July 2004.  NilePet's purpose was to 
facilitate the development of the mining industry of "New Sudan," 
including the petroleum industry, and to find partners with 
appropriate technical and financial resources.  In 2004, the CANS 
awarded NilePet all unassigned blocks in southern Sudan. This 
includes the enormous superblock B, which Khartoum awarded to a 
Total-led consortium in 1980.  The GOSS claims block B was available 
because the Total contract had expired and was not renewed until 
December 2004, after they had given the block to NilePet.  NilePet's 
directors are Dr. Bullon Bol, a petroleum engineer; Kuol Manyang 
Juuk, Government of National Unity (GNU) Minister of Transportation; 
and Simon Kun Puoch, a current member of the National Petroleum 
Commission and Director of the South Sudan Relief and Rehabilitation 
Commission (SSRRC).  Since the signing of the CPA in January 2005, 
NilePet has become wholly-owned by the GOSS. 
 
7.  (SBU) White Nile Limited (WNL):  WNL is registered in the 
 
KHARTOUM 00002654  002 OF 003 
 
 
Guernsey Islands and traded on the Alternative Investment Market 
(AIM) of the London Stock Exchange since February 2005. It owned 
equally by NilePet and the Central African Mining and Exploration 
Company (CAMAC).  A "shell company," it acquired oil exploration 
rights from NilePet for Block Ba, a GOSS-created section of block B 
that Total believes has the greatest potential.  WNL has no oil 
expertise or proven development capacity, but it may be able to 
deliver significant returns for the GOSS.  NilePet's initial capital 
ownership share value of WNL was USD 27.9 mil the day before its WNL 
agreement went public; it reportedly jumped to USD 279 the day 
after. 
 
8.  (U) WNL and Total are currently in litigation in the UK over 
Block B, which Total continues to claim as part of a consortium 
which includes Marathon Inc. and Kuwait Petroleum.  WNL asserts that 
its claim is based on the August 2004 CANS award to NilePet.  Total 
was originally awarded Block B by Khartoum in 1980 but abandoned 
this huge area of savannah and marshland when war erupted in 1983. 
Total pulled out in 1984 following the killing of one of its workers 
but kept paying the north an annual fee to maintain its claim. 
Total then renewed its contract with Khartoum in December 2004, just 
before the signing of the CPA.  While the CPA states existing oil 
contracts cannot be renegotiated, because the NilePet deal preceded 
the Total renewal, GoSS officials claim their deal is the valid 
existing contract. 
 
 
9.  (SBU) SET Energy Gmbh (SET)/Industrial and Financial Group ASCOM 
S.A. (ASCOM): SET is a German company headquartered in Hamburg, 
while ASCOM is a Moldovan company.  This consortium signed an IPSA 
with NilePet on June 28, 2005, covering Block 5b, a block that 
Khartoum had previously assigned to a Petronas-led consortium. 
ASCOM has already brought in drilling rigs and other heavy equipment 
and has reportedly begun construction of an airstrip to access its 
block. 
 
10.  (SBU) Shaanxi Yan Chang Petroleum Group (SYC): SYC is a 
partnership between the Provincial Government of Shaanxi and Yan 
Chang International, Ltd (YCI), a Hong Kong-based company.  NilePet 
signed an IPSA with SYC for block Bc, a GOSS-created sub-block on 
the southern edge of superblock B, in November 2005.  SYS is also 
preparing a feasibility study for the design, construction and 
operation of a 150,000 b/pd refinery in the south and is interested 
in the production of liquefied natural gas (LNG). 
 
11.  (SBU) Apex Petroleum N.V. (APEX) and Supex Petroleum N.V. 
(SUPEX):  APEX and SUPEX, based in Curacao, each signed separate 
contracts with NilePet in 2005 for Blocks Dc and 7S respectively. 
These blocks were previously unassigned by the north. 
 
12.  (SBU) Taken together, Nilepet has already netted signing 
bonuses from these contracts totaling at least USD 25 million, the 
majority of which is purportedly being held in international banks. 
The contracts provide fairly generous terms for the GOSS over time, 
high quotas for training and employing southern Sudanese, large 
amounts of funding for community development projects, and strong 
environmental protections.  The contracts also give the government 
of the producing states 7 percent of net revenues, more than the 2 
percent provided for under the CPA. 
 
13.  Nevertheless, there are rumors and recriminations among senior 
SPLM members who want an accounting of the bonuses paid and more 
transparency in the deals.  Many suspect Vice President Riek Machar, 
among others, of profiteering, although a key minister, albeit with 
reported ties to Machar, assured CG Juba officials that the bulk of 
the funds are banked.  Several GOSS contacts have asserted that 
President Salva Kiir has ordered these contracts nullified, but 
there is no evidence that such an order has been carried out.  The 
SPLM leadership says they have set up an investigative committee to 
get more answers on oil deals.  Many in the party admit the deals 
lack transparency, but assert that the SPLM had the right to sign 
these contracts and say they want to handle the corruption issues 
internally. 
 
 
 
CPA Compliance:  Blame to go Around 
----------------------------------- 
 
14.  (SBU) The GOSS asserts that its contracts are legal under the 
CPA, as they cover areas controlled by the SPLM/A before January 
2005 and not otherwise assigned (they did not recognize Total's 
continuing claim before the new contract in 2004).  Other contracts, 
GOSS claims, are justified post-CPA as falling under the Interim 
Southern Sudan Constitution Article 183 (2) which allows for the 
"development and management of . . . petroleum development in 
 
KHARTOUM 00002654  003 OF 003 
 
 
Southern Sudan in consultation with the relevant communities, within 
the overall framework of petroleum development during the interim 
period." 
 
15.  (SBU) The GOSS also argues that because NilePet was awarded all 
unassigned blocks in 2004, its agreement is an existing oil contract 
under the CPA and not subject to renegotiation or ratification by 
the National Petroleum Commission (NPC).  The GOSS position is that 
it will, however, submit its contracts for review by the NPC to 
determine how much "profit oil" is available for division between 
the Government of National Unity, GOSS, and the Oil Producing States 
of Southern Sudan. 
 
 
USG Help Sought 
---------------- 
 
16.  (SBU) The GOSS is seeking USG technical assistance to help them 
develop policies and capacity to monitor existing northern oil 
contracts and participate fully in the NPC when it becomes 
operational.  Southern officials question the usefulness and 
objectivity of a Norwegian oil advisor who consults with both 
Khartoum and the south. The Garrison/Fierst visit provided insight 
into potential areas of assistance that would be supportive of the 
CPA.  There are growing concerns that oil could become the source of 
separation or renewed violence.  A full trip report is being 
prepared by the USG oil expert for Washington's review. 
 
HUME