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Cablegate: Sudan: Aec October 2009 Wealth Sharing Working Group Holds

DE RUEHKH #1195/01 2961203
R 231203Z OCT 09




E.O. 12958: N/A
SUBJECT: Sudan: AEC October 2009 Wealth Sharing Working Group Holds
Long-Awaited Meeting

1. (SBU) Summary: U.S. Charge' D'Affaires Robert Whitehead, as
coordinator of the Assessment and Evaluation Commission's Wealth
Sharing Working Group (WSWG), chaired a meeting with the ruling
National Congress Party (NCP), Sudan People's Liberation Movement
(SPLM) and representatives of donor nations on October 13 to review
the status of the Wealth-Sharing Protocol of the Comprehensive Peace
Agreement. Among the unresolved wealth-sharing issues facing the
two parties are the National Petroleum Commission's audit of the oil
sector and the International Monetary Fund (IMF) review of the
banking system. Both sides claimed the other had not honored its
commitment to make unity attractive. The SPLM claimed that the NCP
had not acted on land reform, employment for southerners in the
Civil Service and in providing appropriate oversight and funding to
the Bank of Southern Sudan (BoSS). The NCP countered with the claim
that the South does not have the technical expertise to manage its
share of the oil reserves, and that the SPLM's desire to allow the
BoSS to act independently of the Central Bank runs counter to
provisions in the 2005 Comprehensive Peace Agreement (CPA) and at
variance with international banking practice regarding central
control of foreign exchange assets. End Summary

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Management of Foreign Reserves Key Issue

2. (SBU) In his opening remarks, NCP representative Under Secretary
of the Ministry of Finance El Fatih Siddig agreed that the WS
Protocol is among the most successful working groups in the AEC
although, according to the mid-term review, much remains to be
accomplished. Among the most prominent challenges in the current
banking system is the management of foreign reserves, which Siddig
claimed to be the sole responsibility of the Central Bank (CBoS).
One of the duties of the CBoS, he said, is to ensure a stable
exchange rate, and to do that, the bank must control foreign
exchange reserves. The SPLM representative, State Minister for the
Ministry of Finance Dr. Lual Deng, argued that the Bank of Southern
Sudan (BoSS) should have the right to control oil revenue generated
in the South, with which Siddig disagreed, saying that all
disbursement of the funds must be the responsibility of the Central
Bank. The BoSS is a subsidiary branch of the Central Bank of Sudan,
Siddig maintained.

NCP: One Country, Two Banks Unworkable

3. (SBU) Siddig claimed that while the South wanted access to the
funds, it lacked the capacity to develop a conventional banking
system, and did not have the monetary instruments needed to collect
revenue, including personal income taxes. To have one country with
two banking systems was a problem, he told the working group, and
added that the parties must discuss unity of the instruments to
avoid neglecting overall monetary policy and creating a long-term
dilemma. Siddig noted that the alleged discrepancy in oil revenue
reporting claimed in a study by British non-governmental
organization (NGO) Global Witness resulted from reporting the gross
amount of oil produced, not net production after "cost oil" is
deducted. He suggested that definitions must be clarified regarding
price and intake.

SPLM PowerPoint Outlines NCP Failures

4. (SBU) SPLM representative Deng presented the working group with a
power-point briefing outlining the key components of the CPA wealth
sharing provisions and commenting on those commitments to which the
SPLM believed the NCP had failed to live up to its side of the
agreement. Such alleged NCP lapses included on land reform, oil
sector management, non-oil revenues, banking sector development and
the Multi-Donor Trust Fund (MDTF).

5. (SBU) Elaborating, Deng said that the National Land Commission
had not yet been established, and the Government of National Unity
(GNU) has done nothing to incorporate in existing law customary laws
and practices, local heritage and international trends related to
land. He also stated that the NCP had not kept its obligation to
manage the development of the petroleum sector in the national
interest or in the interest of those in affected states or regions.
He further claimed that the GOS had failed to honor agreed-upon
environmental policies. The National Petroleum Commission (NPC), he
said, should promote productive policies that encourage foreign
direct-investment, support a stable economic environment, ensure
that local populations benefit from oil resources and development,
and assure that local populations are consulted on oil exploration

KHARTOUM 00001195 002 OF 002

and development projects. Dr. Deng concluded that the NPC had not
been functioning as envisioned in the CPA, and must establish a unit
within the NPC Secretariat to publish daily oil production by well
and block, quantities going to local refineries, exported quantities
by well and block, importing country, and actual export price. With
regard to the Global Witness report, Deng recommended that the IMF
be allowed to verify the validity of the report and that the GOS
allow the IMF access to all information pertaining to the oil
sector, so as to ensure transparency and minimize mistrust on oil
sector management. He proposed that there be a one-two day seminar
in Khartoum, following the outside audit, at which Global Witness
representatives would present their findings on oil revenue
distribution and two parties, plus technical experts, would discuss

--------------------------------------------- -----
Customs Appointments for Southerners Still Pending
--------------------------------------------- -----

6. (SBU) Dr. Deng said that GoSS's performance has been poor due to
lack of qualified staff. Nonetheless, some 400 Southern Sudanese
had been identified through a comprehensive interview process for
federal civil service jobs. However, the national Presidency had
not yet approved their appointments into the National Customs
Administration, he said.

BoSS Still Operating Without Legislation

7. (SBU) Deng maintained the CBoS had not been restructured to
assure a dual banking system. Although the need for conventional
banking facilities in the South was clear, that system had not been
developed. In addition, although the BoSS had been established, no
legislation had been passed to govern it. Deng questioned why the
GOS would not allow the BoSS to manage its own reserves and
resources generated in the south; as a part of the Central Bank,
BoSS should have that right, he said. He admitted that the GoSS
shared some responsibility for the problems but needed a BoSS in
Juba to manage internal problems. Dr. Deng told the group that the
Multi-Donor Trust Fund (MDTF) to support urgent recurrent and
investment budget costs for both partners had not yet been
established. Despite 90 percent implementation of the CPA's
wealth-sharing provisions, key problems remained, he concluded.

Wealth Sharing Main Sticking Points

8. (SBU) CDA Whitehead noted that, during the U.S.-led trilateral
process, the United States had brought together high-level
delegations from the parties and requested that they identify
sticking points in implementation of the CPA. They focused on five
points of which two have been resolved. These included the GNU's
transfer of the full share of oil revenues to the South, and the
GNU's payback of GoSS deductions for the national elections.
Remaining issues were collection of national non-oil revenues in
South Sudan, banking system-related issues, and a required National
Petroleum Commission audit. CDA Whitehead added that on September
14, the BoSS had sent a letter to the International Monetary Fund
(IMF) requesting a visit from an IMF technical assistance mission.
He also asked for recommendations for an outside entity to conduct
the oil audit on which both sides have reached agreement.

9. (SBU) The meeting concluded with a listing of next steps on which
consensus/agreement between the two parties had been reached. These
included: the need for an independent audit in consultation with
the NPC on oil production; finding mechanisms to insure better
reporting of and access to oil data to reduce mistrust that has
developed. The United States offered to work with the parties
through provision of de technical assistance on the issue of the two
banking systems and how they might be structured. It was agreed
that more discussions was needed on civil service employment in the
Customs Service and on the collection of tax revenue in the south,
and focusing on ways to make unity attractive in the next 14 months.
The proposal of a donors meeting would be reviewed and include the
U.S. Agency for International Development's transition from
humanitarian assistance to development assistance. The parties
would consider Norway's offer of technical assistance to make the
NPC more efficient. Finally, the parties agreed that there should
be a donors meeting after the independent audit was completed to
review prioritization of ongoing international assistance.


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