• Home
  • news
    • 2005
      • White Nile South Sudan claim could hamper peace

White Nile South Sudan claim could hamper peace

 

 

 

White Nile Ltd. (WTN.LN), the startup firm that says it has an oil concession in an area of southern Sudan previously earmarked for Total SA (TOT), could hamper the delicate peace agreement signed in January that ended two decades of bloody north-south civil war in the impoverished African state.

 

 

The White Nile affair threatens to undermine the entire peace process.

 

 

Diplomats, analysts and lawyers say the oil-development agreement between the speculative London energy firm and the former rebel group, the Sudanese People's Liberation Movement, could at best force the Sudanese government of the north into further negotiations with the SPLM. At worst, the agreement could unravel.

 

"White Nile's deal goes against the letter and spirit of the peace agreement," said Abdulrahman Elkhalifa, a Khartoum University legal professor who helped the government draft the peace agreement.

 

The peace agreement signed in January could open the way for drilling in the troubled South Sudan where White Nile's claim for part of an oil-rich block of land is in dispute. Should the peace deal unravel, companies would be hard-pressed to do further exploration.

 

White Nile, a company founded by former England cricketer Phil Edmonds and mining entrepreneur Andrew Groves, which is listed on London's AIM, signed a preliminary agreement with the SPLM for more than half of Block B, an 110-square kilometer concession that Total operated in until it departed in the 1980s due to the violent civil war.

 

The company's shares rose dramatically last week after White Nile announced the agreement for that stake. White Nile requested London's junior stock market suspend its shares Wednesday after the price surged from 10p to 137p in a feverish run on news of the deal. The shares closed at 138.5 pence.

 

A spokesman for White Nile said it has legitimate permit to develop the oil-rich Block.

 

"White Nile is 100% behind the government of South Sudan , the SPLM," said spokesman Hugo de Salis. "It is the rights of the people of South Sudan to decide to grant a permit for their own natural resources in their own territory."

 

Total, along with partners Marathon (MRO) and Kuwait Petroleum Corp.'s (KPT.YY) foreign upstream arm, revived its long-dormant 1980 production-sharing contract with Khartoum in late December, before the comprehensive peace agreement was signed Jan. 9.

 

" Legally, our situation is very clear," a Total spokesman said. "We have valid permit."

 

The contractual spat threatens the implementation of the peace agreement, which in May ushers in a six-year interim ceasefire period, with the north and south sharing oil revenues while a regional government in the south wields considerable autonomy, in anticipation of a referendum on southern independence.

 

Sudan's civil war, which has erupted multiple times over the past 50 years, pitted the Muslim Arab north against the animist and Christian black African south, killing an estimated 2 million during continuous violence since 1983.

 

Sudan's oil reserves, most of which lie in the south, became a key flash-point during the conflict. January's peace agreement ended the war, but it has been marred by violence in the Sudanese province of Darfur, where Arab militias have committed atrocities against civilian populations in the midst of a battle against rebel groups.

 

The lack of trust between the north and south as they relate to White Nile raises the prospect of further disagreements over contracts, said Middle East analyst Josh Mandel of Control Risks Group, a security and political risk consultancy.

 

"That could threaten to undermine the entire peace process," said Mandel, who recently returned from Sudan , which he monitors regularly.

 

Diplomats say this oil contract will be one of many issues that the government of South Sudan , due to be formed around May, and Khartoum will have to hammer out over the coming months.

 

"The peace agreement is only a framework that isn't prescriptive enough to deal with this kind of detail," said a diplomat who helped negotiate the original agreement. "In the end, it will take more discussion between the SPLM and the government."

 

The case will probably end up in court, the diplomat said. A lawyer based in Khartoum said the case may be heard by one of the country's two constitutional courts: the existing one in Khartoum, or another court being set up in the south.

 

The dispute could also be settled in an international court.

 

Robert Volterra, a lawyer with Latham and Watkins, and a specialist in international disputes, said it would not be the first time a change of governing authority had led to an international dispute. He points to the independence of East Timor in 2002, which prompted the new government to contest previous oil contracts granted by Australia after it disputed its water boundaries with its neighbor.

 

If a dispute occurs between a company and a state, the "party responsible is Sudan as a state," not the South Sudan "subcomponent," Volterra said. The central government will have to "show (if the White Nile agreement was) a rogue act" he added. Volterra defends energy companies in dispute with the Argentine state, and has contested contracts awarded by provincial governments.

 

This sort of dispute, if it arises, would be handled by an ad hoc court at Paris' International Chamber of Commerce or by the International Center for Settlements of Investment Disputes, which is part of the World Bank.

 

In any respect, the lawyer said, the contract could be blocked or the money flows taken into an escrow account, depending on the provisory agreement reached between the parties.

 

The historic peace agreement says existing oil contracts - that is, deals signed before Jan. 9 - aren't subject to renegotiation. SPLM officials do get access to existing contracts and people whose rights are deemed to have been violated will receive compensation.

 

That would appear to favor Total, which so far has just done research in the Block, but has never taken oil out of it.

 

But SPLM Finance Minister Kuol Manyang Juuk doesn't believe the clause exonerates the French oil major. The SPLM asserts that their agreement with White Nile preceeded the French deal as it was updated only in December as the peace talks were taking place.

 

"This oil is in the south - the north has no right to sign a concession without consulting the south," he said. "Who has the right to go into your home and make changes without consulting you?"

 

Juuk, who handles oil policy for the south's regional government-in-waiting, argues that Total lost its rights when it abandoned the south in 1985. "Since 1985, they haven't done anything in Sudan ," said the former fighter.

 

He also says the SPLM signed with White Nile before Total revived its agreement with Khartoum. "We signed earlier than that deal (with Total)," he said.

 

The sovereignty issue is an open question, an analyst in Nairobi said.

 

The peace agreement implementation timetable identifies May 1 as the date for the formation of the government of South Sudan . But the SPLM had already acquired some administrative rights before the agreement, including signing a tripartite agreement with the UN and Khartoum for humanitarian relief efforts in the south.

 

A lawyer in Khartoum also said international law and the Khartoum agreement recognizes the SPLM, including contracts it has signed.

 

A different lawyer, Elkhalifa, says this is a specious argument, backing Sudan Energy Minister Awad al-Jaz's claims that all deals go through the ministry, rather than the government of South Sudan , which should be formed by May.

 

"Does the SPLM have jurisdiction to sign for Sudan ," asked Elkhalifa. "They don't."

 

An SPLM official in Nairobi, Kenya, said lawyers for the putative South Sudan government are in the south's interim capital of Rumbek and couldn't be reached.

 

Sudan 's existing oil contracts agreements are binding, said Elkhalifa.

 

"The agreement is clear that oil is a federal issue - for the south to give a contract for oil exploration is against the agreement."

 

Elkhalifa says international observers to the peace agreement, such as the U.S. and U.K., explicitly backed and encouraged the peace agreements clauses that protect existing contracts.

 

To deal with signing future oil contracts, the peace agreement calls for the formation of a national petroleum commission that is equally balanced between the governments of north and south Sudan , with additional representatives from the area affected by each contract.

 

But the commission won't hear cases involving existing contracts, says Elkhalifa. Even if it did, as the diplomat suggests, the commission has to achieve consensus on all decisions.

 

Practicalities, rather than legalities, form White Nile's most persuasive argument.

 

Block B, which straddles several southern states and extends to the Ethiopian border, falls almost exclusively within land under the control of the SPLM's armed forces.

 

Any oil company operating there would have to enjoy the protection of the southern government, which is forming institutions in Rumbek, located on the western tip of the concession.

 

"It's true that the SPLM controls access to these areas, but this doesn't in itself resolve the legal issue," said CRG's Mandel.

 

 

• Disclaimer