GW’s Sudan report: seizing the margin of transparency

About a year ago, Global Witness issued what was essentially a shadow report on Sudanese oil. It said there was no transparency and called on the great and the good to review their involvement with Sudan’s oil sector: the Chinese because they’re the major foreign partner; the Japanese because they import a lot of Sudanese oil, and the Norwegians because their Oil for Development initiative inside the aid agency seems to have dropped a stitch.

A couple of weeks ago, Sudan held a conference in Khartoum. Although the lead operator, China’s CNPC, were derisive, giving a technical explanation for the differential and putting up a slide with the country manager’s phone number with the message “next time call us”, there’s plenty of reason to think the GW report actually sparked a new round of statements and commitments to the issue of transparency. It did about as well as a report on an arcane subject like this can do.

The stunning thing about the report is that it was based on information from the Sudanese government and CNPC themselves, and the mild storm it provoked was inside policy-making circles in Khartoum  – an object lesson in how to seize the margin of transparency wherever it comes from.

In a nutshell, GW compared official Sudanese government figures with oil industry press reports and company information, and found that there were discrepancies between the figures at every step in the value chain: volume of oil produced, the amount sold at market, for what prices, and how much Khartoum then deducted before paying the regional government in the south its 50% portion for all fields within the borders of the southern region (most current Sudanese production), as it is obliged to do under the 2005 peace agreement. The report focused essentially on the implications of all these shenanigans for relations between north and south, especially with the referendum on the south’s independence due in early 2011, and the chances that a new war could break out – largely over these oil resources.

There are many individual points about the GW report Fuelling Mistrust, its methodology and conclusions. But even more interesting than the detailed substance is the fact that, on either end of its process, input and output, it identified constituencies for transparency that exist, even if you couldn’t quite see them at first, and catalysed them.

The report started from the premise that there were discrepancies between the figures published by the Chian National Petroleum Company (CNPC) and the Sudanese government – and what data and conclusions could we draw from them? In the general discourse of the global progressive, either of these is more likely to be considered an adversary than an ally. And yet it was CNPC that provided the figures which allowed an investigation to happen in the first place, and the Sudanese parliament which, when it heard about possible discrepancies, called the officials to account.

CNPC publishes quite extensive information on its website because it needs to build a profile in international public opinion. Probably not liberal Western opinion, it’s true, but as China searches for more and more oil it seeks to appeal to all the developing countries it might operate in. They are definitely in a different space than the oil majors who have sought to portray themselves as energy providers (British Petroleum -> BP). CNPC’s play is more about technological innovation (they have 28,456 research staff), but they cover all of the bases in their 2009 annual report in terms of explaning why they are clean, safe, socially responsible, etc. They have broad constituencies around the world that they want to project an image of global-level multinational to, and that requires some degree of disclosure. While CNPC itself remains entirely state-owned, one of its sister companies, CNOOC, has a listing on the Hong Kiong stock exchange and also in the USA, meaning it may be exposed in some degree to the new transparency requirements of the Wall Street Reform Act in its dealings around the world.

And while its not realistic to think that many opinion formers in Khartoum would be bothered by the idea of allegations – or even the reality – that the government was not delivering all of the revenues agreed on to the regional government in the south, the weaknesses GW revealed all had implications in terms of revenue flows within the North as well: discrepancies between the volumes of oil reported by the Sudan government and CNPC, apparent differences in pricing for sale on open market, pipeline fees, support service contracts, cost recovery. The GW report – translated into Arabic and presumably circulated in Khartoum – made clear that there were any number of points where monies could go disappear. That triggered questions in the press in Khartoum, and among politicians. At the same time as the most horrific conflicts go on across the country, Sudan has managed to retain a certain degree of limited openness and pluralism within its broad ruling elite of Arab tribes.

The August 2010 meeting resulted in a pledge by the oil minister, a southerner, Lual Deng, to sign the country up to the EITI. The discrepancies were explained as the difference between oil produced at the wellhead which included water and gas, and crude which was exported, though it has to be said that from a technical point of view that’s an answer which raises more questions (if the water was produced at the wellhead after injection, the discrepancies of 9%-26% between the two sets of figures are surprisingly low, since water injection normally works within ratios of 1:1 to 5:1 compared to volume of crude produced). The minister said the questions raised by the GW report were because “we are PR stupid”.

As to what realistic possibilities there are to minimise the likelihood of a new war in central and southern Sudan, that’s a far trickier question. Sudan’s industry is almost entirely insulated from global (read Western) public opinion. CNPC is lead operator in most of the producing fields and the major customer for Sudanese oil, followed by Japan and then India. In 2008 a divestment campaign (from Sudan) was launched in India but to no effect. The need for more energy supplies to power the growth juggernaut is just too overwhelming.

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