Skip to main content
December 16, 2017

Corruption plagues South Sudan and threatens the growth of its oil industry

SPLA-IO (SPLA-In Opposition) rebels drink water from a pond after an assault on government SPLA (Sudan People's Liberation Army) soldiers near the town of Kaya, on the border with Uganda, South Sudan, on August 26. REUTERS/Goran Tomasevic
SPLA-IO (SPLA-In Opposition) rebels drink water from a pond after an assault on government SPLA (Sudan People's Liberation Army) soldiers near the town of Kaya, on the border with Uganda, South Sudan, on August 26. REUTERS/Goran Tomasevic

In an educated opinion piece published by John Prendergast, one well-travelled and erudite journalist who has lived and breathed Africa for more than 30 years, the government of the Republic of South Sudan and the international community at large are taken to task for allowing the newest country on this planet to remain in social and economic chaos since its independence six short years ago. 

The story sounds familiar, just with different characters and the same victims: the vast majority of the national population who face famine, death and destruction on a daily basis. The UN has declared a full-blown famine in South Sudan, and the country, driven by armed conflict, stands on the brink of genocide. More than one and a half million South Sudanese —12 per cent of the country’s population — have fled the chaos to refuge camps in neighbouring countries, with the vast majority in Uganda.

The underlying sources of conflict and human suffering today have not changed much since Sudan’s independence in 1956, at which time South Sudan was still part of the larger nation of Sudan. South Sudan only became an independent state in 2011. When a peace deal was struck in 2005 ending the North-South war, the southerners were given authority over an interim administration in the southern part of the country, which contains the vast oil wealth and which would vote in an independence referendum six years later.

During that interim period, two competing factions, led by Salva Kiir and Riek Machar, who would later become, respectively, South Sudan’s President and Vice President, had their own ethnic militias and patronage networks. Neither side was genuinely interested in building democratic institutions, good governance, transparency, service delivery, women’s empowerment or economic development. Instead, the focus was on self-enrichment.

 

NEW DEALS IMPOSSIBLE

As the interim southern administration established its system of managing finances, leaders went from managing a budget of about $100,000 (Sh10 million) to managing a budget of more than $1.5 billion (Sh150 billion), when the oil-sharing provisions of the peace deal were enacted. International oil companies, such as Exxon, Total, China National Petroleum Corporation and others, which had once held oil concessions negotiated pre-independence with the government in Khartoum, were required to renegotiate their Exploration and Production Sharing Agreements (EPSA) with the new government of South Sudan.

However, many major international oil companies that had entered into EPSAs with the pre-independence government in Khartoum have found it difficult ,if not impossible, to negotiate with the government of South Sudan. Civil strife, falling oil prices, alternative investments in safer, developed economies (such as gas in the US) and corruption in the form of payments to senior government officials have also placed South Sudan in the too-hard category for many foreign oil companies.

Today, the only production from a foreign company in the country is from China National Petroleum Corporation. Negotiations of new EPSA with the likes of Total have dragged on, with each side breaking off discussions. Exxon has formally broken off negotiations, while other well-known oil companies, such as Petronas of Malaysia, ONGC of India, Kuwait Foreign Petroleum Exploration Company (Kufpec), Talisman of Canada (owned by Repsol of Spain) and Tullow, have either walked away from the country or have taken a watch-and-see strategy.

South Sudan is the most oil-dependent country in the world, with oil accounting for almost the totality of exports, and around 60 per cent of its gross domestic product, which was $9.02 billion (Sh902 billion) in 2015. Beyond funding for the army and a few other government functions, nearly all oil income generated pre- and post-independence has not produced local development of food supplies, schools, medical centres and infrastructure. When the independent state of South Sudan was established in 2011, the looting only increased. Transparency International’s 2016 Corruption Perceptions Index ranks South Sudan 175 out of 176 countries.

 

MIXED SIGNS OF FUTURE

Nevertheless, there have been some events since last year that have garnered some hope for a potentially more stable future in South Sudan. Riek Machar, the anointed First Vice President at the time of independence, who led his militia into the civil war that commenced in December 2013, has fled the country and has been replaced by Taban Deng Gai, an ex-general and more politically in line with Salva Kiir.

Moreover, the President has expressed intention to end corruption in his government and to create legal norms and a regulatory framework that attracts foreign investment. And Ezekiel Gatkuoth, a dual South Sudan and US citizen who was the country’s first ambassador to the United States, has been appointed as the new Minister of Petroleum, and de facto Minister of Finance. Since then, the level and intensity of violence in the country has receded, and there are signs of political reconciliation for the first time since independence. This slow bettering of environment has led many major oil companies to look again at South Sudan.

In the Africa Oil and Power Conference in Cape Town, South Africa, in May, Gatkuoth said the South Sudanese government is seeking “committed operators who are ready to invest and work with our government to comply with the laws of our country. South Sudan is creating an enabling environment for companies to operate”. He added: “We want companies to invest, explore and produce, and we are ready to offer incentives to investors.”

Gatkuoth announced that his government was reentering into negotiations with Total and had been in contact with other international oil companies. Troubling, however, was the fact that the new Minister of Petroleum and his government have been willing to enter into discussions and agreements on oil concessions with several little-known oil companies. One such agreement was entered into in March with the African Independent Oranto Petroleum, which is controlled by a conglomerate of African billionaires and political elites, led by Prince Arthur Eze of Nigeria. Oranto appears to have little to no exploration or operating experience in Africa.

Further evidence that these new government appointments may be going down the well-trodden path of little transparency was a further announcement by Gatkuoth that his ministry was negotiating with Holdcorp, a company incorporated by Spanish entrepreneur Javier Merino, who has earned a controversial reputation in his business ventures after he was charged with insider trading in 2010, and got a fine of over €1.5 million (Sh200 million) and a one-year jail sentence. The jail sentence is currently suspended while his appeal for legal protection is resolved, and the fine was upheld.

Merino also had an accusation of bribery confirmed by Judge Isabel Conejo. Merino’s partner in Holdcorp is a shadowy businessman, Idris, a Kenyan national residing in Dubai, who used to work with the commodities’ trading company Trafigura and has been accused of bribing government officials to win projects in Africa. Apparently, the Ministry of Petroleum is now finalising negotiations giving Holdcorp the rights to explore and eventually produce oil. Holdcorp Investments SL was registered in 2015 in Spain with a capital of €3,000 (Sh400,000), the minimum capital allowed by the Spanish regulatory authorities.

 

NEED FOR UNIFIED APPROACH

These examples show that despite Cabinet reshuffles, the continued irregular behaviour in the national oil industry continues to drive the failed state of South Sudan. As John Prendergast points out, the international community, led by the US and the Europeans has never addressed the competitive corruption that has been at the heart of the conflict and economic implosion. The lack of a coherent international peace strategy is becoming more and more painfully evident. The deadly zero-sum power struggle for control of the state oil riches has ensured that the imagination and political will for peace will not be forthcoming from the warring parties on their own.

What is required is a unified approach involving neighbouring states, the AU, the UN and interested governments like the US and the UK to end corruption in South Sudan’s oil sector. However, international actors are committing the same historic errors in their approach that basically guarantee the continuation of conflict, famine and mass atrocities. The legacy of this hapless record will stain South Sudan for generations.

 
STAR COMMUNITY POLICY AND PARTICIPATION GUIDLINES
  • Thank you for participating in discussions on The Star, Kenya website. You are welcome to comment and debate issues, however take note that:
  • Comments that are abusive; defamatory; obscene; promote or incite violence, terrorism, illegal acts, hate speech, or hatred on the grounds of race, ethnicity, cultural identity, religious belief, disability, gender, identity or sexual orientation, or are otherwise objectionable in the Star’s  reasonable discretion shall not be tolerated and will be deleted.
  • Comments that contain unwarranted personal abuse will be deleted.
  • Strong personal criticism is acceptable if justified by facts and arguments.
  • Deviation from points of discussion may lead to deletion of comments.
  • Failure to adhere to this policy and guidelines may lead to blocking of offending users. Our moderator’s decision to block offending users is final.
Poll of the day