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Cablegate: Uk and Norway See Oil-Revenue Sharing As Key to Moving Cpa

VZCZCXRO7763
PP RUEHROV
DE RUEHKH #0227/01 0450701
ZNR UUUUU ZZH
P 140701Z FEB 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 9965
INFO RUEHLO/AMEMBASSY LONDON 0068
RUEHNY/AMEMBASSY OSLO 0022
RUCNIAD/IGAD COLLECTIVE

UNCLAS SECTION 01 OF 02 KHARTOUM 000227

SIPDIS

DEPT FOR AF/SPG, AF/SE WILLIAMSON AND EEB/IFD/OMA
DEPT PLS PASS USAID FOR AFR

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: PREL PGOV ECON EFIN ENRG SU
SUBJECT: UK AND NORWAY SEE OIL-REVENUE SHARING AS KEY TO MOVING CPA
PROCESS FORWARD

REF: KHARTOUM 145

1. (SBU) Summary. On February 11, U.S., UK and Norwegian emboffs
met to discuss a UK proposal to encourage a long-term North-South
agreement on oil-revenue sharing. The UK plans two meetings to
develop this idea, in Khartoum and in London. Emboffs explained
that the U.S. is not able to participate in a debt-relief package
for Sudan. Norwegian oil advisor believes that the two parties'
growing comprehension of their mutual dependence when it comes to
developing the country's oil resources provides hope that they may
negotiate such a deal. End summary.

Oil-Sharing Arrangement Key to the CPA
--------------------------------------

2. (SBU) On February 11, emboffs met at the Norwegian Embassy with
UK Embassy Khartoum DFID Chief Catriona Lang, Khartoum DFID
economist Andrew Hall, and Norwegian Petroleum Advisor Anders
Hannevik to discuss a UK proposal to encourage the NCP-dominated
Government of National Unity (GNU) and the Government of South Sudan
(GoSS) to negotiate a long-term (i.e., post-2011) oil-wealth sharing
agreement. (UK paper was emailed previously to AF/SPG and to EEB.)
That both Khartoum and Juba depend on shared revenues from oil
produced in the South represents both a risk and an opportunity
leading up to and following the 2011 referendum on Southern
independence.

3. (SBU) The UK believes that reenergizing Sudan's Comprehensive
Peace Agreement (CPA) process requires a long-term oil-wealth
sharing agreement between North and South. Such a deal would
include a Modus Vivendi on Abyei; separating the boundary issue from
access to Abyei oil revenues. The UK thinks that the SPLM is
prepared to reach such an agreement and that the NCP can be induced
to do so if offered badly needed relief on its US$27 billion
external debt. The UK argues that such a debt-relief package could
be part of a broader process to normalize Sudan's relationship with
the international community in response to implementation of the CPA
and resolution of the Darfur conflict.

4. (SBU) Lang said that the UK plans two meetings to develop the
proposal further before presenting it to the parties. The first
would be held in Khartoum at the Ambassadorial level the week of
February 18, followed by a London meeting in March with
representation from capitals. Both meetings would involve the U.S.,
UK, Norway and the World Bank's Sudan petroleum expert. (Note: Lang
also proposed including the Netherlands and the UN, but emboffs
recommended that initial discussions be kept as small as possible -
possibly to include others later in the process. If AF/SPG has a
different view on the issue of participation, please inform post so
we may be in contact with UK planners. End note.) The UK's draft
agenda and invitation list for the London meeting are being faxed to
AF/SPG.

5. (SBU) Emboffs noted that the United States is prohibited both by
sanctions regulations and congressional legislation from providing
debt relief to Sudan. Lang asked under what circumstances the U.S.
might be able to participate in the future. Emboffs replied that
Washington will provide guidance on the parameters of our
sanctions.

Mutual North-South Dependence
-----------------------------

6. (SBU) Hannevik commented that North and South Sudan are in a
situation of mutual dependence. Both governments rely on oil
revenues to finance their budgets (approximately 50% for the
Government of National Unity in the North, almost 100% for the
Government of South Sudan) and that this dependence is certain to
continue for the foreseeable future. While oil production is
declining in the North, it is increasing south of the 1956 border
that divides the country. However, all of Sudan's oil is exported
via the pipeline that runs through the North to Port Sudan.
Although there is widespread discussion in the South of constructing
a separate pipeline to export Southern oil through Ethiopia or
Kenya, Hannevik considers such plans financially unfeasible and an
independent South would continue to require Northern cooperation to
export its oil.

7. (SBU) Hannevik said he has briefed the NCP and there is growing
awareness of the challenges they face. Hannevik advocates
revisiting many of the arrangements made at the time of and before
the CPA, to better reflect changed circumstances. For example,
Hannevik believes that Sudan should renegotiate oil contracts signed
prior to the CPA, arguing that they do not reflect the much higher
world oil prices of today. The NCP is reluctant to do so, arguing
that the CPA guaranteed all existing arrangements.

KHARTOUM 00000227 002 OF 002

8. (SBU) Hannevik observed that Abyei oil revenues are far more
important relatively to the North (of whose total oil revenue Abyei
constitutes 50%) than to the South (for whom it constitutes only
10%). Abyei contributes 7% of Sudan's total oil revenues. He added
that, given this disparity, GoSS President Salva Kiir should "jump
at the opportunity" to trade future Abyei oil for guarantees to be
able to export oil through the north. However, he noted that Abyei
is an emotional as well as a practical issue for SPLM leaders.

9. (SBU) Hannevik said that the growing awareness on both sides of
their mutually dependent situation gives him hope that a deal might
be struck. He estimates that the GNU could not hope to receive any
more than the 50% share of southern oil revenues that it currently
receives under the CPA. The other extreme would be the GoSS keeping
100% of the revenues. Any long-term arrangement will have to lie
somewhere in between these two extremes.

Comment
--------
10. (SBU) The UK initiative is worth exploring, especially in
regard to oil sharing schemes following possible secession - the
parties need to be prepared for such discussions and donor
presentations on options could be helpful. Although policy and
legislation prohibit the U.S. from participating in the debt-relief
package that the UK proposes, it is worth participating in
discussions of other incentives that may be harmonized with the UK
and Norwegian positions (reftel). It also noteworthy that the
Norwegian oil envoy agreed to give a presentation at the proposed
London meeting. Although the Norwegians have occasionally appeared
skittish in working together on oil, they now appear ready to share
their expertise, though there may be a divergence in views between
Oslo and the Norwegian Embassy in Khartoum. Post will be on close
contact with AF/SPG regarding preparations for the proposed meeting.


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