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2nd Southern Sudan Investment and Development Conference

Safari Park Hotel 13-14 March 2007

The theme of the conference this year was ‘Building the Foundations for Growth’.

The conference started off with a political and economic overview of southern Sudan started off by the GOSS minister for Animal Resources and Fisheries HE Dr Festo Kumba. From the Kenya/Southern Sudan Liaison Office (KESSULO) was Ambassador Steven A Loyatum who apart from talking about the opportunities in southern Sudan talked of challenges facing the region such as political instability; conflict, disease particularly HIV/AIDS and malaria; drought and famine; and poor transport infrastructure. Sudan is a member of the Great Lakes Initiative and with southern Sudan will serve as a bridge between sub-Saharan Africa and the Arab world due to its strategic position.

HE Kent Degerfelt, Ambassador, Head of Delegation European Commission Delegation in Khartoum expressed everyone’s concern over the verbal exchange during the 2nd Anniversary of CPA that served as reminder of the difficulties yet to be overcome, as coordination with GONU remains a challenge. A peaceful solution to Darfur remained a challenge and as SPLM was part of GONU they can facilitate a solution. Despite the EU not being part of the CPA, it has allocated substantial amounts to southern Sudan. The EU has adopted a two track approach: implementation of CPA by supporting interventions of peace and; sector support and fostering policy reforms. He noted that risks still remained such as unresolved domestic problems but business opportunities were plentiful. However, there is need for policies and regulations need to be streamlined as the benefits for southern Sudan included that war was not an option.

Regarding the matter of foreign ownership in southern Sudan and possible need for local partnership, local partnership was in practice as southern Sudan Investment Act awaits approval but 2003 Act is currently in use and allows for both foreign and local partnership. On question about investing in Sudan as people getting frustrated despite several visits to which the minister stated it should not have been problematic. The issue of red tape arose, as many aspects have not yet been streamlined. Of concern is the distinction between states of southern Sudan and the government of southern Sudan.
On question about the ROLA project, ambassador Loyatum reminded all about scope of the project and stated the concessionary project that is at advanced stage after due diligence and that was in process of concessionary.

On issue of corruption, Degerfelt felt it was serious and needed to be tackled to boost investor confidence. He reminded that sustainability would be dependent on democratic transition but question for GOSS was the worrying delays on security issues such the Joint Integrated Units (JIUs), demining and disarmament as well as Other Armed Group (OAGs) but EU will provide assistance through capacity building and education. Discussion will be between EU and GOSS. Dr Festo Kumba stated that anti-corruption is in place and in function. Legal sectors are going to take strict measures to ensure investigation and highlighted that $60 million given but it was capitalized upon to state failings of SPLM.

Prospects, Challenges and Opportunities

Secretary general of Southern Sudan Investment Authority (SSIA), HE Bol Kwanyin focused on the creation of SSIA. Created to facilitate the investor like concessions and licensing. Mentioned the registrar of companies to taxation man to acquisition of land are key aspects and SSIA is under formation to get this chain under one roof. Hoped that all this services with be ready in 3-4 months from now to avoid moving from one ministry to another. Reminded participants that despite the flare-ups towards end of 2006, the situation is calm in terms of security. SSIA will quickly work on investment land as management in southern Sudan has been under government control from Khartoum. Problems still exist between GOSS and government of central Equatoria regarding demarcation of land for investment. Question remains about the economic sanctions placed by US government on Sudan. However, southern Sudan is exempt especially if items brought in through countries bordering southern Sudan and not through Port Sudan.

Southern Sudan still faces problems of financial stability and infrastructure and Director of Strategy and Change Kenya Commercial Bank (KCB) Fred Mutiso spoke on behalf of Martin Oduor Otieno the Group Deputy CEO. Presentation gave background of KCB that extended its operations to southern Sudan in 2006 following licensing of KCB Sudan to provide conventional banking services with subsidiary branches in Juba and Rumbek. Bank of Southern Sudan headquarters in Juba and is the central bank. There are 5 Islamic banks in the South and Nile Commercial Bank (NCB). Mentioned political risk product offered by insurance firms such as Renaissance Insurance Company of Southern Sudan.

Stated that customer base is growing and in next 3-5 years expansion will be to all commercial centers and invited participants to headquarters liaison office in Nairobi for further information. He highlighted problems in legislation due to unclear legal framework and counterfeiting of currency as incomplete land reforms, undeveloped infrastructure and shortage of trained human resource presenting challenges to KCB. The bureaucracy with lengthy decision-making and high entry costs for banks remains a challenge as does the poorly developed banking culture.

Day Two

The morning session was about the realizing of the potential of southern Sudan’s oil and gas sector. It was started off with a presentation from the state minister of Energy and Mining in the Government of National Unity HE Angelina Teny. She gave an overview of the background about oil exploration in Sudan and gave examples of major investors present such as Chinese CNPC, Malaysian Petronas and Indian ONGC. Participants were informed of the various oil blocks in Sudan such as block 6 in Abyei and Kordofan. Blocks 5b and B were allocated to companies by Government of Sudan and the then civil authority of New Sudan however, disagreements arose about previous agreements made by them but now discussions have been taken over by NCP and SPLM and concerned companies for an acceptable solution.

She focused on upstream activities that have been to date towards the north with pipelines carrying crude oil. There are plans to build a refinery at Port Sudan with 100,000 barrels capacity that has been concessioned to Petronas. Participants were reminded that at present prices in Juba are 5 times those of Khartoum and that storage depots are planned for building in Adok and Malakal, with subsequent back up depots in each state. This is because there are no pipelines for internal distribution, which has lead to costly and unsafe transportation. There is opportunity for investment in pipeline construction with plans for cross border pipelines for both product and crude oil. Regarding ROOLA project, the southern Sudan government is at the stage of engaging a company for assessment to see the realization of the project by the end of 2007. Participants were informed that at present gas flaring is practiced because companies have stated that there is not enough gas for commercial purposes. However, block 6 looks promising and discussions are taking place on gas utilization. Madam reiterated that there were many opportunities ranging from waste management, construction as some facilities are run like a war operation despite the cessation of hostilities. There is need to develop towns around mining and oil sites so that local communities can be part of the economy and this will eventually help in capacity building.

J. Jay Park, partner Macleod Dixon - international energy group – looked at the legal and contractual regime of the oil industry. Investors base their decisions on 3 criteria: geology, fiscal terms and, contractual and legal factors. The petroleum regime comprises of constitutional provisions, petroleum law, petroleum regulation and host government contracts. At this point, participants were reminded that Sudan has chosen a production sharing contract model. Therefore, in contracts, investors looked at the right to monetize, stability and enforceable international arbitration. However, many government contracts contain provisions requiring government approval with companies cautious because of the risk of capital and thereby not wanting changing of rules (obsolescence bargain). Mentioned was the role of government take in profitability and geological risk. Profitability has changed recently such that government regimes have either become regressive, neutral or progressive that has sometimes led to the re-examining of the suitability of fiscal regimes. For example, with recent high oil prices, Libya has a progressive regime in comparison to Venezuela’s regressive regime.

In relation to Sudan, the formation of the National Petroleum Commission (NPC) gives it real power to negotiate due to its position as a single window agency but faces challenges especially in addressing the stakeholders. Problems foreseen as a result of CPA provisions include: policy making powers; “real power” in the approval of new contracts; application of NPC approval powers; and the need to develop a thorough petroleum policy for Sudan as well as developing a plan for existing contracts. To illustrate this point, participants were shown the 1997 production-sharing contract (PSC) between GNOP and government of Sudan in which Mr. Parker gave his personal scorecard after highlighting the difficulty of obtaining existing contracts as they are not public. In conclusion, there is need to formulate public policies and guidelines in relation to development and management of the petroleum sector.

From Wood Mackenzie Africa Energy Research was Stewart Williams, senior analyst who presented the upstream aspects of the oil industry in Sudan whereby he pointed out that Sudan is the largest licensed exploration acreage of more than 1.1 million km in Africa. Block sizes are about 54,000km but drilling densities remain low but with that said CNPC is ahead of Petronas and ONGC in net reserves. Mr. Williams then explained the oil revenues using charts and graphs forecast for 2007 stating that it was not expected to be as high as those of 2006.

Special oil and gas panel discussion were challenged with the ways of achieving the long-term sustainable development of southern Sudan’s oil and gas sector. On the question of stability in the next 5 years, Dr. Jung stated that it was difficult to predict while Jonathan Bearman noted the sensitivity and that change was likely especially consolidation of power around of the presidency. It was noted that it was a transition state and that government set up would take time with the trend towards centralization. There is continued support for CPA criteria despite differences between unity and separation. Jay Parker stated that benefits that comes from unity and needs everyone to pull from one direction. The CPA takes in to account possibility of secession and legally international law will hold for this likely scenario and investors should not ignore engaging southern Sudan.
On the question of sharing of revenue and the impact on local communities in relation to corporate responsibility, Jay Parker saw that with Sudan responsibility lay with government at its various levels. Modern petroleum investors are now dealing with issue of previous failings of governments in distribution of revenues through the inclusion of responsibilities in their contracts.

Angelina commented upon question of the future outcome of the 2011 referendum from SPLM view. United Sudan is the way to ensure stability for Sudan and that calls for separation remains a minority perspective. Stated that people yearn for development and the delivery of services, as delivery has taken very long. Existing laws will continue to be effected to prevent gaps until news laws are passed and enacted. Mentioned the peace process with LRA and Government of Uganda as part of efforts towards stability and security and highlighted election in 2009 that will determine a lot of things even within SPLM following direct elections of officials.

HE Festo Kumba asked the panel of their view as to why investors were reluctant to risk in southern Sudan and cited Chad as country in which investors have continued to participate in their oil industry. Stewart Williams noted that investors are presently wary of Niger Delta and are managing that risk but in southern Sudan issue is procedure and fiscal framework for investment. Lobbying of US to lift the sanctions would make difference to investment with Bearman stating US position is likely to change once beyond Darfur crisis. However concern remains in physical security. With smaller companies take advantage of legal loopholes such getting consent from local communities. Also in question was who to approach and who gives clearance and also matters of demobilization as country emerging from conflict.

First Annual Southern Sudan Investment and Development Conference