Home | Comment & Analysis    Saturday 6 July 2013

Petroleum revenue distribution to Local Communities in South Sudan

The risks of last-minute changes in the new Bill

By John A. Akec and Kathelijne Schenkel

June 5, 2013 - South Sudan oil production has resumed in April 2013 after stoppage for nearly 15 months. Assuming problems with Sudan over the implementation of the 27th September 2012 Agreements will be resolved, it is expected that the revenue from the first sale of South Sudan’s oil will soon start to flow again into the South Sudan’s budget. Chief amongst new beneficiaries of oil revenue will be governments and local communities of oil producing states; namely, Upper Nile and Unity states.

The Petroleum Producing States shall receive two percent of the net petroleum revenue and the local communities within the Petroleum Producing States shall receive 3%. The Petroleum Revenue Management Bill which sets out the framework and management system fort these percentages is scheduled to be passed into law in Parliament coming Monday. Based on recent field work and examples from other countries, we think that some last-minute changes in the Bill on the three percent distribution are worrisome.

The Bill now proposes that: “the three percent of the Net Petroleum Revenue for Local Communities shall be allocated proportionally to all Communities in the Petroleum Producing State according to the following ratios: 45% to immediate communities, 30% to the neighbouring communities, and 20% to all other communities”, with 5% reserved for the management structure. We think these amendments can potentially create conflict amongst communities.

First of all, our field work in Upper Nile and Unity states between April and June 2013 showed that a majority of the people in the petroleum producing states want the three percent revenue shared equally amongst all the counties. We visited several counties, payams, and bomas; conducted focus group discussions and surveyed the opinions of more than 290 individuals including government officials, faith leaders, chiefs, business people, women and youth groups, and ordinary citizens. Our objective was to understand community perspectives and aspirations about the three percent. Especially ordinary citizens, also those living close to the oil-producing areas, feel that all counties are in need for development and all deserve an equal share. A female tea seller in Bentiu commented; "When war broke out in Panthou, people from all over the state participated. Many people from different places died here... this oil belongs to all people of Unity State and all should get an equal share." A resident of Paloic in Upper Nile commented; "all the society should abandon selfish individualism and share our resources equally because we are all in need and no one should feel left out."

But some local officials, especially from Upper Nile’s oil-producing counties, do not share that position. They feel they have suffered most impact and thus are entitled to most or all of the three percent. Although this is understandable, officially impact should not be mitigated by channelling revenues back to the areas. Impact should be compensated at the time the impact occurs. Unfortunately history has shown that this has either not happened at all, or in a very unsatisfactory way.

The difficulties with the ´ratio system´are;
• A definition of “immediate”, “neighboring” and “other” communities is needed, which will not be easy as these terms embody concepts that are contestable and could be a cause for rivalry and dispute over counties and communal borders; each of which will be vying to maximize their share of revenue. These terms supposedly describe the distance of communities to petroleum facilities; what kind of operations/ installations are then considered? Field Processing Facilities; pump stations; pipelines, roads or other infrastructure?
• Communities “immediate” to petroleum operations might be found across county boundaries; e.g. communities in Melut, Renk, Maban in Upper Nile. The 45% then has to be split among the respective Community Development Committees (CDC) as those are organised at County level. But what if one County has a higher amount of “immediate” communities to the same infrastructure than another County? Then yet another ‘ratio’ has to be included in the calculation.
• Also, a CDC (as a county level structure) likely will have to deal with allocating funds to “immediate“, neighboring” and “other” communities at the same time – which might prove not to be very practical; is one area really entitled to more schools for example than another area within the same County? This could lead to frictions.
• Another serious issue could be that “neighboring” or “other” communities start moving into an area which is considered “immediate” if more development is realised there.
• What is more, as new facilities are constructed, and others abandoned, the amount of share of revenue accruing to each beneficiary community will have to change with distances of communities from the new the facilities. How to deal with that?

From the above it follows that the stratification of communities in oil-producing states doesn’t make practical sense. The CDCs will have to deal with allocating funds to a bewildering array of “immediate’, ‘neighboring” and “other” communities at the same time –presenting tremendous implementation difficulties. This is likely to engender inter-communal conflicts and dissent in oil producing states. An extreme bad example is that of the oil-rich Niger Delta; states in the Delta receive 13% oil derivation money and stand to benefit from a further 10% of government royalties from joint venture companies. This has not resulted in development for communities in the Delta. This is partly due to poor management of funds, poor leadership and corruption, but also to conflict and rivalry between communities because of a "host community" criterion which all communities must pass in order to qualify for receiving a share of derivation revenue. The "host communities" qualification has led to competition over border demarcations and has resulted in acts of sabotage against oil companies and loss of billions to the country. Experts believe if all communities in Niger Delta were to enjoy equal shares, most of violence and conflict could subside.

A complicating factor for the management of the three percent is that currently the CDCs administrative and technical capacity and experience are limited. Even worse, we found that most are very weak or non-existent. Those that exist are ad hoc bodies appointed and dissolved by county commissioners, which in turn are usually appointed by the Governor, contrary to the Local Government Act 2009 which stipulates their election. The Bill provides for an Advisory Body to the CDCs, which has its own risks. The formation of it is unclear: is it an elected or appointed body? Secondly, it is stipulates that all members should come from ´producing areas´, excluding others. As an Advisory Body should have a completely independent oversight role only, this requisite is illogical.

Thus, in conformity with the wishes of many citizens and to avoid the challenges and tensions over community differentiation, we think equal distribution of the three percent among all communities living in the 13 Upper Nile and 9 Unity State counties will be most sustainable. The negative impacts of oil exploitation in the states have to be compensated separately on a case per case basis, by the responsible companies or government institutions.

In the words of a one-time Niger Delta state governor, South Sudan should not “want to create a fat man with thin legs.” And if we have understood him correctly, strong legs in the context of South Sudan are a legislation that is thoughtful, workable, and puts community perspectives and interest first.

Dr. John A. Akec is chair of Academics and Researchers Forum for Development (ARFD), South Sudan; Ms. Kathelijne Schenkel is programme officer (Natural Resource Governance) at IKV Pax Christi/ECOS, researcher and co-author of a forthcoming report: Research into Local Level Sstructures for Petroleum Revenue Distribution to inform Regulations, scheduled to be published in September. For enquiries contact the authors: ja_akec@yahoo.com and schenkel@ikvpaxchristi.nl