South Sudan’s oil sector needs to become more transparent

Oil then laid the groundwork for South Sudan’s secession. A landmark 2005 peace accord gave Juba half of the south’s oil revenues, pumping billions into the new semi-autonomous government.

But the sudden wealth seriously undermined the country’s stability. In 2013, just two years after independence, an elite scramble for South Sudan’s oil wealth helped spark a new war that killed perhaps 400,000 people while displacing millions.

Nowadays, despite a 2018 peace accord and a government of national unity, Juba’s monopoly on oil revenues stands in the way of a broader political settlement the country desperately needs.

from South Sudan leaders siphon off most of the petrodollars, leaving a large part of the population deprived of basic services and, in certain regions of the country, on the verge of starvation.

Widespread corruption has become a huge source of frustration for donors, including the United States, which allocates a billion dollars a year mainly to support humanitarian aid. South Sudan produces around 150,000 to 170,000 barrels per day. But because of the share owed to the oil companies and the royalties paid to Sudan, it only receives a maximum of 45,000 barrels of revenue, according to the best estimates available. A small portion of this revenue reaches the national budget through off-budget spending, undisclosed debt payments and allocations to its opaque state oil company Nile Petroleum.

Those who still support South Sudan cannot ignore its rotten finances. Since oil guarantees the entire South Sudanese state, it is impossible to solve the country’s deep problems without focusing on its disappearing petrodollars. A first step in this direction is to make the oil economy more transparent, not only in South Sudan, but also in Europe, which hosts many of the country’s commercial financiers.

Oil fuels tensions

Despite staggering poverty and underdevelopment, South Sudan qualified at birth as a middle-income country thanks to its oil wealth. But instead of serving as a basis for state building, oil has poisoned South Sudanese politics. Prior to independence, rebel commanders enriched themselves through a mix of taxation, aid diversion, artisanal gold mining, deforestation and outright looting. This culture of illicit personal transactions quickly turned into a free-for-all when the 2005 peace accord released billions of petrodollars.

After independence, oil money overshadowed ethno-political divisions in the South until President Salva Kiir decided to consolidate power, thus tightening his grip on oil funds. Just two years after secession, a leadership struggle between Kiir and internal challengers, led by his main opponent Riek Machar, erupted into a civil war that emptied state coffers as oil production dwindled due to of the conflict.

To stay afloat, South Sudan has turned to a handful of commodity traders to buy future oil deliveries, including Swiss-Singaporean Trafigura, which bought South Sudan’s oil through secret prepayment arrangements. These high-interest cash advances have functioned as the equivalent of a payday loan scheme, racking up debts while increasingly concealing South Sudan’s finances.

Back to books

South Sudan’s future would look less bleak if the countries footing the bill to mitigate the country’s humanitarian disaster focused on ensuring that Juba keeps track of its oil revenues.

Donors should make a concerted effort to push Juba to comply with existing laws and provisions of the 2018 peace accord to ensure that oil revenues are paid into a single government oil revenue account. One source of leverage is the IMF, which gave South Sudan $550 million last year, but with few strings attached. The IMF should condition future disbursements on the exclusive use of the public oil account.

External pressure on Juba should be complemented by pressure on South Sudanese financiers. European governments should urge trading companies with a strong commercial presence in Europe to disclose their payments to South Sudan and require the funds to be deposited in the official oil account.

They should also consider write regulations requiring commodity companies under their jurisdiction to certify their compliance with the law of South Sudan. It could work. Following the engagement of the United Nations Panel of Experts on South Sudan, Glencore has disclosed the purchase of $950 million worth of South Sudanese oil since 2018. Additional leverage could come from expanding the regulatory net to commodity insurers and bankers, many of whom are also in Europe. .

Falling production and global decarbonization mean that South Sudan won’t be in the oil business forever, and given the problems it has caused there, the transition may offer as many opportunities as risks. Yet getting oil money back on the books of the national budget could at least give South Sudanese a chance to reset their bloody politics now, not when the oil pumps stop.

Previous The latest real estate sales in Meriden from January 14 to 21.
Next Lions cancel annual rabbit hunt