South Sudan under pressure to disclose oil production deals
Saturday June 15 2024
An armed member of the South Sudanese security forces is seen under a crude oil pump at the Unity oil fields in South Sudan. FILE PHOTO | REUTERS
South Sudan is facing growing pressure from the International Monetary Fund (IMF) to disclose its oil production agreements, to help build credibility with donors and unlock concessional financing even as Juba argued that the move is tantamount to a ‘breach of contractual agreements’ with oil extracting companies.
The Bretton Woods institution, in its country report for South Sudan dated June 2024 (IMF Country Report No. 24/160), says South Sudanese authorities should implement, going forward, key reforms including enhancing the transparency of oil revenue and related spending to help build credibility and unlock funding from foreign financiers.
“Continued implementation of reforms in these areas will help build credibility with donors and may unlock concessional financing,” the IMF says.
Other reforms needed include bolstering reserves and expanding the set of available monetary instruments, strengthening debt management and oversight, clearing salary arrears, improving domestic revenue mobilisation and strengthening the anti-corruption and Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT).
In February 2023, the IMF approved the country’s nine-month Programme Monitoring with Board Involvement (PMB) with several targets, including a requirement that South Sudanese authorities publish all signed oil production sharing agreements with oil-extracting companies as well as quarterly reports on the oil sector by June 2023.
However, according to the report, this requirement was not met on the grounds that the oil companies opposed it, viewing it as a breach of contractual obligations.
“The publication of oil production sharing agreements is opposed by oil companies as a breach of contractual obligations. However, the details of the oil sharing agreements are available in the oil reports published in the Ministry of Petroleum,” the report says.
Read: South Sudan economy sinks as revenue from oil shrinks
The PMB programme is designed to support the authorities’ reform agenda aimed at maintaining macroeconomic stability and debt sustainability and improving governance and transparency with the objective of building a track record towards an upper credit tranche financial arrangement.
The programme has been extended twice by three months each previously, and the South Sudanese authorities have requested another six-month extension to November 15, to implement the outstanding structural reforms targeted under the PMB and bring macroeconomic policies back on track.
“Considering the drastic decline in fiscal revenue from the damage to the oil pipeline, the authorities are urged to prioritise spending on salaries and social assistance while avoiding additional recourse to monetary financing or non-concessional borrowing,” the IMF says.
Juba’s reduced foreign exchange flows as a result of the collapse in oil exports since February 2024, has put pressure on the foreign exchange market, and reserves have declined since then.
As a result, import coverage remains insufficient at 0.9 months, leaving South Sudan highly vulnerable to further external shocks.
In May 2019, South Sudan signed an oil production agreement with the South African government allowing Pretoria’s State-owned Strategic Fuel Fund (SFF) to explore oil in an area known as Block B2. Block B2 is in the wide oilfields of the Muglad basin that straddles Sudan and South Sudan.
The exploration was to take about six years, paving the way for SFF to enter a joint venture with local petro company Nilepet for aerial exploration, seismic tests as well as drill wells when oil is found.
South Sudan has seen more than five consecutive years of severe food shortages, with an estimated 7.1 million people facing acute food insecurity.
The war in Sudan has exacerbated an already dire situation in Juba with around 9.4 million individuals needing humanitarian aid.
The need has surged by about 500,000 people or by five percent, compared with 2022, with the escalation propelled by the conflict in Sudan, climate adversities, and disease outbreaks.
Read: South Sudan's oil sector pulls in more deals
More than a million individuals had escaped the war and sought sanctuary in neighbouring nations, including a significant influx of more than 650,000 people into South Sudan as of late April 2024.
Delays in the repair of the oil pipeline have reduced oil exports since mid-February 2024 to about one-third of their previous level, exerting pressure on external and fiscal accounts given that oil exports that account for nearly 90 percent of fiscal revenues and 95 percent of exports.