...it is the grass that suffers. On the 9 July 2012 the two youngest countries in the world celebrate their first birthdays. To mark the occasion, journalists from Sudan and South Sudan came together to report on the development of both nations in the second edition of The Niles. The proverb about the two elephants, which is popular in both countries, has become a fitting leitmotif. How much the grass actually suffers, how the elephants are affected and what that has to do with relationships between people, are all explored in the collection of stories, pictures and songs from Sudan and South Sudan.
12 The Niles | Economy What’s the Plan? South Sudan did not only gain independence last year, it inherited four billion barrels of oil reserves. Yet oil hasn’t flown since Juba shut down oil production. How the new nation might transform itself into an oil economy. Cows for Oil The new treasure wants to be shared, but at the local level, it isn’t easy to translate worth. by Jacob Ruai Learning the Tricks of the Trade Only a few South Sudanese are employed in oil operating companies. On-the-job training could be the answer. by Charlton Doki South Sudan is in a unique position in the global oil market with four billion barrels of proven reserves and a production capacity of 300,000 barrels a day. And almost no capacity as yet to run it. The acting Director General in the Energy and Mining Ministry, Simon Chol Martin, said before the signing of the Comprehensive Peace Agreement in 2005, there were no southerners working in the oil sector then run out of Khartoum. In a bid to conform to the provisions of the CPA, the Government of National Unity appointed southern Sudanese to ministry positions for up to 20% of the total staff. “These were mostly deployed in junior and non technical positions where they received on-the-job training,” said Martin, who himself was appointed Director of Marketing and Supplies at the National Petroleum Commission. “And that was government positions. The same thing did not happen in the companies, which is where the real learning opportunities are.” “You need not only the right degrees but practical experience” Early this year, the South Sudan government signed its own contracts with oil operating companies including Petroliam Nasional Berhad (PETRONAS), Oil and National Gas Corporation Limited (ONGC), China Petroleum and Chemical Corporation (SINOPEC), Triocean Energy and Nile Petroleum (Nilepet), the country’s newly created national oil company. A New Pipeline Officials in Juba plan to export oil via East Africa yet crucial questions remain. by Esther Muwombi Officials in Juba are planning a new pipeline, which would run from South Sudan’s oilfields down to the Kenyan port of Lamu, according to Elizabeth James, the deputy Minister of Petroleum and Mining. A final agreement is slated to be signed in Nairobi in July. The pipeline’s completion is expected within 18 months but questions surrounding the timeline, cost and financing remain. “It’s not inconceivable that the government thought because the pipeline in the north took about 18 months, one in the south would take about the same,” said one international oil executive in Juba. “But the terrain is different, there are mountains and wetlands and there is the added complication of international borders.” While the South Sudanese government announced in April this year that China agreed to provide South Sudan with a US $8 billion loan, western diplomats refute that claim. South Sudan Deputy Minister of Finance Marial Awou Yol also announced two loans from Qatar to support the nation’s economic situation. The oil executive also expressed doubt that international investors would support the expense and risk involvement in a pipeline to Lamu, unless it was co-ordinated with other regional plans for oil production. Uganda is slated to produce 200,000 barrels a day by 2015. While much of that will serve domestic demand, the British firm Tullow, which has led development in Uganda, recently farmed out major stakes to CNOOC and Total, two companies involved in South Sudan’s industry. This raises the question of whether the companies would try to extend a branch of the pipeline infrastructure into Uganda. How many cows make an oil dividend? This is what the villagers of Koch County want to know as they sit in the shadow of the oil field operated by White Nile Petroleum Operating Company, or Winpoc as it is locally known. Under the terms of the Comprehensive Peace Agreement of 2005, two per cent of oil revenues were supposed to go directly to the state, as a direct dividend. With the fields in Unity State producing some 200,000 barrels a day that would mean up to two million dollars a week, or in the currency that matters most to the pastoralist villagers of Tarjath, a thousand cows a day. “I know the local administration is supposed to be paid but I don’t know how many cows,” said Peter Gar Yang, in Tarjath. Like thousands of others, he was forced to move when Winpoc opened up the oil fields under the old Khartoum government. “They told me at the time there would be money compensation but when I asked how much they couldn’t answer,” said the unemployed father of four. “Nothing ever happened.” Villagers and local officials in Koch County, some 90 kilometres south of the state capital Bentiu, complained of neglect and environmental damage caused by the oil fields. Roads built to access the oilfields were built on elevations with no aqueducts, disrupting seasonal flooding coming from the Sudd wetlands to the east. The roads create a series of barrages against the flooding, which threaten the livelihood of thousands of pastoral farmers. Both children and livestock have drowned in the thousands of deep holes where earth was excavated to build the roads, as they fill with water during the wet season. “The companies should come here and talk to us” However, there are currently only a few South Sudanese employed by oil operating companies. For example, the oil operating company, Petrodar, employed five or six South Sudanese in its exploration department before independence. Since July last year, that number has grown to between 30 and 40 staff at the company headquarters in Juba. Paul Adong, Chief Executive of Nilepet, said he wanted to use his company to build South Sudanese expertise in the industry. Nilepet, which took over from Sudapet now holds 5% stakes in each of the blocks 1, 2 and 4 and 8% in blocks 5a, 3 and 7. “There is only one way of building an oil E(xploration) & P(roduction) company and that’s through hands on experience. It’s a knowledge intensive process. You need not only the right degrees but practical experience in engineering,” he told The Niles. Adong’s strategy for staff development is to get them seconded to other national oil companies where they can get hands-on experience. For example staff could train at Petronas in Malaysia, Sonatrach in Algeria and Sonangol in Angola. Or, they could be trained in big oil service companies such as Schlumberger, Halliburton and Baker Hughes. Adong wants to get 20 to 30 places sponsored a year. “We would say we are successful if Nilepet can operate a field entirely on its own,” he said. One international company executive said he believed it would take five years to bring local South Sudanese technicians up to the level where they can work on their own. This had been industry experience working with technical experts from the north when Sudan’s industry began in the 2000s. CNOOC also explored heavily in Kenya, where Tullow recently announced more oil discoveries in Turkanaland, right next to the South Sudanese border. Officials brim with confidence and Juba is the latest destination of many oil companies seeking to expand into new regions. The international companies producing in the country – the Chinese, Indians and Malaysians – have all opened full-fledged offices in the new capital, relocating from Khartoum early in the year. “In addition, officials are planning a regional transport corridor” In addition to the pipeline, officials are planning a regional transport corridor, which entails a two-lane highway, large scale expansion to Lamu port for docking large tankers and a refinery taking up to 120,000 barrels a day. The total projected cost of this combined project, which would also include Ethiopia, would reach $24 billion, of which the pipeline would be $4 billion. Presidents of the three countries met in Lamu to inaugurate the venture in March but financing for the project remains unclear. Paul Adong, head of South Sudan’s new state oil company Nilepet stressed that despite the shutdown of production, exploration had not stopped in the country. Such further discoveries would feed the pipeline. The way he sees it, the uncertainty of the current situation is itself an opportunity. “If an investor makes a strategic decision now, they have a chance to build a long-term opportunity,” he said. “The companies should come here and talk to us and go through all of the issues,” said Major John Chuol Wang, the commissioner for Koch County. “They are only in contact if there is a problem with the local people.” An empty clinic was built by Winpoc in an effort at corporate social responsibility but abandoned early in 2012 when production was shut down. Only security staff and maintenance engineers remain inside the complex since the production shutdown in February. It still lights up at night, though, in contrast to the surrounding villages, which still have no electricity and are shrouded in darkness. Makwei Williams, a local official, said Koch town had installed 150 poles to carry electricity around the town but the expected supply from the oil field never came. “The only power we have is from when the election commission left their generator after the referendum last year,” he said. “It can’t cover the town.” Meanwhile the government of South Sudan has signed new agreements with oil companies, and the international consortia have opened offices in Juba to operate their concessions, shifting from Khartoum. Local officials said they would ask the government to demand that companies now carry out full environmental and social impact assessments. In the meantime, no one in Koch County or Unity State is informed about the multi-billion dollar oil complex chugging away in their midst.
Economy | The Niles 13 What’s Plan B? Sudan lost 75% of its oil reserves after separation from South Sudan. The new nation is now faced with the challenge of building up other industries to fill-in the economic gap. Back To the Land Before oil exploration, Sudan was an agricultural economy. The past might again be a solution for the future. by Zeinab Muhammad Saleh Keep on Drilling Go for Gold Sudan was an agricultural economy before oil arrived, particularly the Gezira Scheme, which was the largest project in Africa, covering over two million feddans. Faced with financial troubles, the Sudanese government struggles to find new sources of oil. by Adam Mohammed Ahmad Sudan lost about 75% of its oil earnings last year when South Sudan gained independence. Now the government, which has not hidden its financial troubles, is striving to find new oil. “The production has been cut from 600,000 barrels per day down to 115,000 barrels” The country’s production has been cut from a high of 600,000 barrels per day (bpd) in 2007 to just under 400,000 bpd in 2011, down to 115,000 barrels today. Since Sudan uses production sharing agreements with international companies to get the investment needed to drive production, the government’s own share of that is 55,000 barrels a day, which only covers half of local consumption. Oil Minister Awad al-Jaz has said that when new fields, which were delayed because of insecurity, come online, production will rise to 185,000 barrels a day by the end of 2012 and 320,000 barrels a day by the end of 2016. Ali Ahmad Osman, a former minister of state in the oil ministry, said that blocks two and four, around Heglig, accounted for 55,000 barrels a day of what is known as Nile Blend. The other producing field is in Lafula, with 40,000 barrels a day of heavy crude and 20,000 barrels a day of light. Elsewhere a concession in Sennar state operated by Winpoc has revealed small quantities of gas, while SudaPak, a Pakistani company, has sunk four exploration wells in blocks 9 and 11 and found the presence of oil. Of other allocated blocks, 12a and 12b lie in Darfur, where ongoing security issues rule out production in the forseeable future. Experts think there may be more fields in blocks 3 and 7 which are shared with South Sudan, but the terms have yet to be defined since Juba’s independence. Estimates of independent economists suggest production will not top 145,000 barrels a day and the government’s entitlement from this will be about 60,000 barrels a day, which is still less than local consumption. Even the fields open to investment are not in easy terrain. In the north, for example, there is the harsh desert environment and offshore development is expensive. “”One well at Suakin on the Red Sea Coast could cost US$60 million just for one rig,” said Salah Dahab, director of Sudapet, the state-owned oil company. “It is in a depth of 70 metres of water. In another area the water is over 160 metres deep, which means we need a different kind of rig. One well there costs $120 million,” he explained. With the state unable to bear these costs, he added, it meant Sudan had to cede most of its share of oil produced in these Red Sea fields to foreign investors with the necessary capital. The economist Mohammed al-Nayer said government plans to increase production could have an impact by the end of 2012. In the meantime, after the independence of the south the government had taken to buying the companies’ share of the oil from the producing fields to keep the local refineries running. Khartoum hopes to replace oil revenue with gold. But challengers say gold can only offer limited solutions. by Hassan Barakya Gold has become the hope for Sudan’s economy ever since South Sudan seceded last year, taking three quarters of the country’s oil resources with it. The government claimed that gold would fill-in the gap in public finances but statistics cause reason for doubt. Economist Mohammed Ibrahim Kabbaj said there was a suspicious gap between statistics of production and revenues going as far back as the 1990s. “These huge leaps in production are attempts to assure the people after the loss of oil in the south,” Kabbaj said. The mining ministry announced in June that the country had produced 13 tonnes of the stuff in the year up until April, worth $603 million. The minister announced the same day to parliament that a smelting factory would be built capable of producing 100 tonnes of gold a year. Get rich quick dreams tantalised young men who left their villages to head for artisanal mining sites in the north and west of the country. There has been an explosion in sales of metal detectors in Khartoum and high public demand. But despite the jobs the artisanal industry has provided, many experts say it also has drawbacks; such as damage to geological formations and the obstruction of commercial mining. Artisanal miners are unaware of the properties of rocks and what the structures will bear. There have been many fatal accidents, particularly in the triangle near the Libyan and Egyptian borders. Economist Mohammed al-Nayer says production figures are accurate, but mask the limited contribution to government finances. “Since most gold mining is artisanal, the state, which buys the gold produced at market prices, does not benefit directly from it,” he said. But former finance minister Tijani al-Tayyib doubts the figures, saying gold, like oil, is a global commodity with volatile pricing. He doubts the quantity produced can fill the budget gap left by oil. “Even government figures state $2 billion a year to the treasury compared to a hole of $7-8 billion left by oil,” he said. Al-Tayyib also points out most mining, being artisanal, does not represent income to the state. “Most gold mining is artisanal” Official figures say there are 88 “big” and over 500 “small” companies who hold licenses to work in Sudan. But in practice the operations of large companies are very limited. Their activity is hampered by a lack of financing, deteriorating security in some provinces, and the rising costs of deploying and maintaining equipment. Views differ about the economic payback of mining at a popular level. Some miners endure harsh conditions in the desert with nothing to show for it while others gather a few grams, which are enough to improve their lives. But everyone agrees that the life is fraught with dangers. There have been many disasters in the mining areas of northern Sudan, ranging from fatal accidents and injuries to conflict between miners and local inhabitants in some places. Beginning as far back as the 1920s, the project gradually fell into decay, which was exacerbated by the arrival of oil. There are now only 4,000 support workers. The number of farmers is hard to ascertain as many have left, returning to other areas of Sudan or, some say, heading north to seek their fortunes in gold. Cotton cultivation is now down to 37,000 feddans and production is hard to predict because two problems face farmers: a controversy over cottonseeds and irregular patterns of irrigation. One solution proposed by Abdel-Halim al-Mutaafi, the minister of Agriculture is new genetically modified (GM) strains of cotton seed. Proponents say the GM varieties are disease resistant and have greater productivity, but its opponents say it has damaging effects in the long-term both to livestock and to humans. “Irrigation is one of the biggest problems we face” “This strain has been tried in many countries with great success, including India and the United States,” said Abdel Rahman Hassan Abdel Latif, head of agricultural research in the Gezira Scheme. Each side accuses the other of material interest. Supporters say those who oppose the strain are worried their pesticide interests will lose business while opponents say government officials who would like to introduce GM strains have personal interests in the companies that distribute them. The enormous irrigation scheme has endless channels fed from both the White and the Blue Nile, creating an enormous crisscrossing web of canals and fields. But instead of a riot of green, much of the land lies bare and uncultivated. Many roads in the scheme are still unpaved, some 80 years after the commercial farming project was first introduced. Another major problem affecting the scheme is irrigation. One of the features of the scheme originally was that soil slopes away from the Blue Nile, meaning that no power is required to drive the water to the lands across the scheme. But villagers at al-Keriba, 10 km south of Medani, said that the water had not come through their channels at the allotted time. This delayed their seasonal cycles and could lead it to fail altogether. Mohammed Osman Abed Rabbo the head of irrigation at the scheme, rejected these complaints, saying that the villagers’ region had been supplied with water two days before. But there was no obvious sign of it on the ground. “Irrigation is one of the biggest problems we face,” said farmer Yasser al-Baqir, “Also, although the government fixes prices beforehand to buy our produce, it does not do the same with the inputs we need to grow the crops. This leaves the farmer in a constant state of uncertainty.” A law in 2005 liberalised policy so that farmers could grow whatever crops they wanted instead of having to conform to a central plan. But there are still restrictions on foreign ownership, which make it hard to bring investment to the degree required to set the project back on a sound footing.