The nexus between oil and conflict in South Sudan

The nexus between oil and conflict in South Sudan

MICHAEL GIBB

29 Mar 2018

A recent report from Global Witness focuses on the ‘’capture” of a state-owned oil company and its role in financing ongoing conflict in South Sudan. Michael Gibb from the international NGO unpacks it here.

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outh Sudan’s conflict may be the most oil-dependent in the world.

Amidst a myriad of motives and causes, the country’s oil wealth has shaped an economic landscape that cannot be ignored by those seeking stability and, eventually, peace.

Oil revenues are relatively centralised, and have long been eyed by competing factions as a potential reward for holding central power and control of the treasury. This has arguably fuelled a model of zero-sum thinking that has persistently impeded negotiations and compromise.

More immediately, oil sits at the heart of the government’s ability to finance ongoing military and security operations while also maintaining the patronage networks it relies on.

Monetising and diverting oil reserves is, however, a relatively complex challenge. It is one thing to smuggle a briefcase filled with gold or rough diamonds out of a conflict zone, another entirely to run an oil field.

Capture on the Nile, a new report by Global Witness, details how South Sudan’s state-owned oil company has been hijacked by a small group of government elites, including the National Security Services, then used to divert millions into a conflict now responsible for the world’s fastest growing refugee crisis.

Independent consultant Daniel Akech Thiong recently warned against the perils of seeking peace in South Sudan by buying off elites. “Rather than making peace more attractive than war by offering elites shiny incentives,” he argues, “mediators can instead make peace seem more attractive by actively removing the rewards of war.”

The means by which elites have secreted and stored ill-gotten wealth abroad — from banks to real estate — have recently received increased attention. But, as he makes clear, attention must also be paid to the other side of this equation, and how the revenues that sustain the conflict are raised in the first place.

Documenting the detail of institutions like Nilepet can help fill in the details of such a strategy.

The Nile Petroleum Corporation, known simply as ‘Nilepet,’ was set up to ensure the people of South Sudan are represented in their country’s oil sector. It holds shares in each of the joint venture companies set up to extract oil, while also holding primary responsibility for importing refined fuel. It is a private company, but owned entirely by the government of South Sudan.

Yet the structure of this powerful company seems primed for autocratic control.

President Salva Kiir effectively controls the appointment of both the Managing Director and Board of Directors. He has used this power to appoint Lt. Gen. Akol Koor Kuc, the head of the country’s feared Internal Security Bureau, to the company’s Board. Nilepet has also successfully resisted the implementation of the relatively meagre set of laws in place to regulate its activities, including the provision of audited accounts.

This capture has had a significant impact on the financing of South Sudan’s conflict.

As a private company, Nilepet is subject to considerably less oversight and scrutiny than a government ministry. Resources and payments routed through Nilepet largely disappear from public view, paving the way for secret and off-budget security spending.

In 2016, for example, the United Nations Panel of Experts on South Sudan reported that Nilepet had provided “financial authorisation for the purchase and transfer” of small arms and ammunition to the Padang Dinka, one of the local militias recruited to fight with the government in Upper Nile during some of the conflict’s most intense fighting.

In another illustrative letter, dated January 2016, Nilepet is billed for more than $1.5 million in security expenditure, incurred in many of the same oil-rich areas. A recent report by the Sentry alleges Nilepet may, in fact, have facilitated as much as $80 million in “security related” payments between March 2014 and June 2015.

A sovereign nation will inevitably guard its right to allocate national revenues, especially where security matters are concerned.

There are, however, limits to legitimate expenditure. Just as there is no right to perpetrate war crimes or crimes against humanity, even in defence of “national security,” so too there is no right to finance them. The UN Human Rights Commission recently reported that it had “identified more than forty senior military officials who may bear individual responsibility for war crimes and crimes against humanity in South Sudan”.

More generally, a government’s legitimacy flows from the people it serves. Such legitimacy cannot be seized, but is earned through ongoing explanation and justification to citizens.

Diverting military expenditure through a secretive company, like Nilepet, not only takes it well beyond their intended role, it denies the people of South Sudan their right to hold their leaders, their policies, and their spending to account.

Nearly half of South Sudan’s population is in need of humanitarian assistance. Yet behind the Nilepet smokescreen, millions have been funnelled into a conflict characterised by “appalling” “cruelty against civilians” that serves the interests of none but an elite few. Millions more have been borrowed, against future oil production, potentially trapping the country in a worsening cycle of debt as much of the oil coming out of the ground may already have been sold.

In a conflict where international leverage is scarce, these transactions also offer a route to influence that has not yet been fully explored. This is not to say the conflict is ultimately ‘about’ oil, but questions about the origin of a complex conflict can usefully be distinguished from more practical questions about where policy interventions can most effectively focus.

As powerful as Nilepet may be in South Sudan, it is critically dependent on the cooperation of a large international system. In order to raise revenues, Nilepet must find buyers for its oil, who must in turn find others willing to refine it. And, in order to take payment, and spend the proceeds, Nilepet requires the cooperation of banks, and the correspondent banks that allow these access to the international financial system.

These institutions have a responsibility and an opportunity to use this leverage to challenge the war economy that sustains the conflict in South Sudan. By exercising robust due diligence, and better understanding who they are in business with, they can make it harder for corrupt actors and serious human rights abusers to raise and spend revenues. And by respecting national laws and international best practice, they can support those working to secure transparency and scrutiny rather than those conspiring to avoid it.

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