Report: Sudan’s declining oil sector remains corrupt

The Sudanese oil sector is corrupt, over-centralised and causing serious grievances among local communities, concludes a report on Sudan's oil future. It predicts a further decline in oil production and suggests that the inland refinery near Khartoum is so inefficient that import of refined products will be more beneficial for the country.

The report 'Fields of Control: Oil and (In)security in Sudan and South Sudan' by Laura M. James is funded by the United States, Denmark, and Norway. It warns that 'the economic and political adjustments to declining revenue could further boost insecurity in both countries'.

Currently the joint oil interest has helped Sudan and South Sudan maintain good relationships after a near war in 2012. But as the oil revenues for South Sudan are little and the production in Sudan is declining too, the common interest will be absent in the future.

Sudan struggles to fill the oil barrels

Sudan’s oil output averaged 120,000 barrels per day in 2014, not far above domestic consumption requirements. Of this volume, less than a third, or 40,000 barrels per day (bpd), was being exported – all by the oil companies, as the government’s share goes to domestic refineries.

This situation is already presenting a major problem for the country, as the government struggles to fill the 100,000 bpd of the El Geili refinery near Khartoum – which operates inefficiently when significantly below capacity. This while oil companies seek to export their full share of the oil. Sudan became a net oil importer in 2014, with significant long-term fiscal and logistical implications.

The following quotes are excerpts from the report by Laura James, published by the Small Arms Survey.

'Ongoing concerns about corruption'

'Sudan’s poor management of the oil sector has led to corruption, over-centralization, and environmental degradation, causing serious grievances among the local communities. This dynamic has to some extent been mirrored in the new state of South Sudan. While Sudan’s efforts at improvement remain largely nominal, South Sudan has managed to put in place strong legislation in line with international best practices. There has been no effective implementation, however, and the prospect of progress receded when the civil conflict began.'

'There are also ongoing concerns about corruption, which is particularly pronounced in Sudan’s oil sector and has a significant security dimension. There were promises of and plans for a full oil sector audit but, as bilateral tensions rose in advance of secession, an audit never materialized.'

'These issues feed into the disputes over oil revenue sharing at a sub-national level, with almost no oversight of whether state governments and local communities are receiving their due allocation – or of what they might do with it when it is actually transferred. Experts suggest that the allocation has been used as a means of patronage for pro-NCP [ruling National Congress Party] officials rather than to promote development. As the refinery is far inland, and designed for local crude, it may be more efficient to import refined products if an agreement cannot be reached with South Sudan to secure supply for a few extra years.'

'Strong national opposition is absent'

'Sudan is running out of oil and is now a net importer. [The government has failed] to provide an attractive investment environment. However, in the absence of any strong or cohesive national opposition, and following the foundering of the planned inclusive national dialogue process, it is not clear what might replace the existing power arrangements.'

'Observers report that community leaders are still completely excluded from the decision-making process, with no access to the ministry. Although there are certainly efforts by the companies to provide water, roads, and clinics to local areas, their impact is limited by government’s desire to maintain control of all such initiatives, and to keep the money at the centre.'

'The government has made some efforts to address this problem. In 2013 a prominent Misseriya [tribesman], Obeidallah Mohammed Obeidallah, was selected as a deputy minister at the oil ministry. More recently, additional oil police were trained for deployment to protect oil installations across the country. But the situation is likely to remain volatile.'

Read the full report on Small Arms Survey here

Related articles:

Contract for Khartoum oil pipeline signed  (11 May 2015)

Sudan to boost oil & gas production in 2015 (18 December 2014)

Oil in Darfur waiting to be explored: expert (26 September 2014)