Revenue Sharing Arrangements in Sudan and South Sudan

=Arrangements under the Comprehensive Peace Agreement=

Sharing oil revenue was seen as key to the Comprehensive Peace Agreement, which brought Sudan's long-running civil war to an end in 2005.

The wording in the Comprehensive Peace Agreement (CPA) itself stated that it was was "not intended to address ownership of [natural] resources". Under the terms of the CPA, in article 5.4 it was stated that "An Oil Revenue Stabilization Account shall be established from government oil net revenue derived from actual export sales above an agreed benchmark price. Also, both parties agreed that at least 2% of oil revenue should be allocated to the oil producing states/regions in proportion to output produced in such states/regions. The next article, article 5.6, states that "After the payment to the Oil Revenue Stabilization Account and to the oil producing states/regions, 50% of net oil revenue derived from oil producing wells in Southern Sudan shall be allocated to the Government of Southern Sudan... and the remaining 50% to the National Government and States in Northern Sudan.

According to international NGO Global Witness, the agreement changed the role of oil from a driver of conflict to an incentive for peaceful cooperation, and saw Khartoum transfer more than $10 billion to Juba over a five year period. This has been crucial in sustaining the fragile peace. However, a persistent lack of transparency and independent verification of the revenue split has also fuelled mistrust between north and south.

Effectiveness of the CPA
However, investigations by Global Witness into the management of the revenue sharing deal revealed discrepancies of 9-26% between the oil production figures published by the Khartoum government and those reported by Chinese state-owned CNPC, the main oil company operating in Sudan. These production figures provide the basis for dividing the oil revenues, so being able to verify them was crucial.

UK based newspaper The Guardian states that between the time that the CPA was signed until the independence of South Sudan, and hence the end of this agreement, the North transferred $10bn in revenue to the South.

The wealth-sharing system stipulated by the CPA did not become fully effective until 2008—and, according to a commentary produced by the Carnegie Endowment for International Peace, even then its implementation continued to be hampered by political tensions and weak administrative capacity. The commentary highlights the lack of transparency in Sudan’s oil sector as having undermined the implementation progress, as seen in the absence of publicly available information on the contracts between the government of Sudan and its investors. In addition, the lack of information on the country’s total production of oil and the amount of revenue received made it nearly impossible to independently verify the amount of oil exploitation, production, and revenues.

=Following independence of South Sudan=

Following independence South Sudan acquired about 75% of the former Sudan's oil output—although it continued to rely on pipelines running north through Sudan to a Red Sea port (Port Sudan) to export oil. According to a publication by the UK Parliament's International Development Committee, a final settlement on oil revenues has been one of the key sticking points in negotiations between the two countries. There was agreement that South Sudan would pay Sudan a fee for use of the pipelines (rather than a share of revenues) but the author of the publication heard in both Khartoum and Juba, that the two parties have very different views of what the fee rate should be. In December 2011, Sudan announced that it would take payment of transit fees in kind, in other words siphoning off part of Juba's share, as compensation for unpaid fees it claimed South Sudan owed.

In January 2012, South Sudan decided to shut down oil production, which provides 98% of the government's revenue, after Khartoum impounded South Sudanese oil shipments amid a dispute over transit fees. The north was asking the South to pay $36 (£23) per barrel to transit oil through the Greater Nile pipeline, which is considerably more than 10 times the international average. At this fee, the south would have paid the north $2.6 billion, which is almost exactly what the north would have earned had South Sudan not gained independence.

April 2012
The crisis came to a head in April 2012, after months of border skirmishes, when South Sudan seized an oil field at Heglig, which is internationally accepted to be in Sudan, saying the area was being used as a base for Sudanese attacks on its territory.

In April, fighting broke out along the border between Sudan and South Sudan, when South Sudan seized Heglig, one of the last oil fields Sudan still has. In May 2012, the two sides were discussing a seven-point security “road map” that required pulling back from contested border areas, setting up a joint monitoring mechanism and ending covert support for proxy militias. The Security Council had given negotiators two more months to tackle the really delicate issues, like oil, but there was still a huge gap between the two, with the north wanting more than $30 a barrel in transit fees and the south offering about a dollar.

According to the New York Times, most analysts predict an oil compromise may be reached, but the more complicated territorial disputes may have to go to international arbitration, which could take years. While all this grinds on, analysts anticipate more breakdowns and attempts to patch things up, more violence followed by more hastily arranged cease-fires.

= References =