top of page

Corruption taints Sudan/SAfrica $1bn oil deal

South Africa's $1bn oil deal with South Sudan tainted by corruption

South African President Cyril Ramaphosa and his South Sudanese counterpart Salva Kiir Mayardit. Source: South Sudan Ministry of Petroleum

While South Africa and South Sudan are trumpeting their signed oil deal on May 6 2019 reportedly worth $1 billion, there is a down side.

South Sudan is one of Africa's most corrupt countries, with the GAN Business Anti-Corruption advocacy group warning that businesses operating or planning to invest there 'should beware of these risks'. The irony is that South Africa is supposedly in the midst of a major anti-corruption drive.

"Bribery is widespread in all sectors of the economy and close relations between the government and businesses are mentioned as a crucial factor in succeeding in business" the respected portal warns.

South Sudan does not have a proper judiciary and its penal code Act 2008 against corruption is inadequately enforced. For example, gifts are prohibited under South Sudan’s laws, but "minimal enforcement results in gifts and facilitation payments being widespread" GAN reports.

“More than a third of companies expect to give gifts or other irregular payments to government officials to obtain an operating license... Likewise, almost four in every ten surveyed companies expect to offer gifts to officials in order to ‘get things done’ ”.

It also paints a grim picture about how a skewed loyalty works with regard to state jobs.

“Recruitment to government positions is based on loyalty to the ruling party rather than merit and the lack of monitoring has left room for corrupt officials to siphon public funds, which would typically come from the employment of ghost workers to inflate public payrolls,” GAN says on its website brief regarding South Sudan.

That has not stopped South African authorities from inking a deal on May 6 in the South Sudanese capital, Juba.

South African Energy Minister Jeff Radebe was upbeat as he spoke at the signing.

“We are bullish about this strategic and unique opportunity into Block B2 with great petroleum potential. It provides South Africa with a chance to further strengthen its energy security while entering one of the top three most lucrative onshore oil and gas markets in Africa,” he said.

Jeff Radebe had to intervene in the strategically important Central Energy Fund

South African Energy Minister Jeff Radebe. Source: GCIS.

“South Africa has supported peace and economic development in South Sudan since the country’s independence and this is the continuation of long-term cooperation between both our countries and people. Investment is key to guaranteeing the economic progress of South Sudan.”

“This is a brilliant deal and the future outlook for exploration in South Sudan and Block B is huge, with prospective resources into the billions of barrels of oil. The potential discoveries can be quickly and cheaply tied into existing infrastructure,” stated Centurion Law Group CEO NJ Ayuk who is also the African Energy Chamber’s Executive Chairman.

The two nations announced an exploration and production sharing agreement or EPSA where the Sudanese state-owned oil company Strategic Fuel Fund (SFF) will own and operate Block B2.

South Sudan has the third-largest oil reserves in sub-Saharan Africa estimated at 3.5 billion barrels and most of the country remains unexplored due to war and political instability. The deal will see Block B2 operated by the state-owned Strategic Fuel Fund, the Ministry of Petroleum and Nilepet which is the national oil company of the Republic of South Sudan.

Last year, South Africa’s Department of Energy pledged to invest $1 billion into South Sudan’s petroleum industry, with the aim of securing affordable energy supplies for the southern African country.

At the same time, Petroleum Oil and Gas Corporation of South Africa (PetroSA), Petroleum Agency South Africa (PASA), Strategic Fuel Fund (SFF), African Exploration Mining and Finance Corporation (AEMFC) and iGas, will be part of this expanded oil deal.

PetroSA corruption probe

But PetroSA is under investigation by the Hawks with senior staffers have been accused of fraud and corruption. The Hawks have confirmed that they’re investigating a case of "gross misconduct and corruption amounting to billions”.

The state-owned company make a R1.4bn net loss in the 2016/17 financial year and Radebe was forced to intervene in the company operations following the allegations of corruption.

The board has faced allegations that its leadership is dysfunctional with many posts unfilled or frozen and other positions featured acting executives. This is not the first time that PetroSA deals and management have come under the spotlight.

In 2013 the state owned entity faced allegations that top managers ordered irregular payments of R200-million in various deals including one worth $500m signed with a Ghanaian company. Executives were accused then of risking another R800-million in potential liabilities, which saw the total amount linked to possible corruption rising to more than R1 billion.

In that case, acting executive Yekani Tenza was named along with PetroSA head of new oil and gas ventures Everton September, Johannesburg lawyer George Sabelo who is tied to to family members of former President Jacob Zuma family members and Tshepo Mahloele, a fund manager.

PetroSA annual report

The rush to sign the latest deal before elections in South Africa on May 8 2019 comes as the ruling African National Congress faces a tough time at the polls. The opposition Democratic Alliance party alleges the ANC is trying to use the South Sudan oil inking as a morale boost for its supporters on the cusp of the election.

The DA says its submitting an application in terms of South Africa’s Promotion of Access to Information Act (PAIA) legislation for more details into the oil deal to be released.

The opposition party said Radebe and his team have already spent R20 million on this pursuit, expenditure which includes the hiring of a private jet to travel to South Sudan.

“It is utterly incomprehensible that the failing ANC government has not communicated on this matter and that money is being used to fund travels for ventures which have not been condoned by the Central Energy Fund (CEF). Furthermore, this Sudanese deal has not been tabled before Cabinet for approval, nor has it been approved by the National Treasury,” the DA said in a statement.

Previously the Central Energy Fund (CEF) which manages South Africa’s strategic oil reserves, has rejected the funding of South Sudan oil as unsustainable. But its CEFs state-owned subsidiary PetroSA that is in financial straits as well.

In February 2019 the Auditor General raised concerns over its ability to continue operating in future at a briefing before the portfolio committee on energy in Cape Town.

The Auditor General’s report into the state managed company included the line that PetroSA’s deficit for the year; "continued weak crude prices", which are expected to persist in the near future; as well as increasing debtor's collection periods "putting strain" on its cash inflows.

This hasn’t stopped the Energy Minister from rushing off to South Sudan to invest $1billion supporting what opponents are warning is a business that has no real future.

While South Sudan is expecting to produce close to 270,000 bopd by the end of this year and is seeking investment across its entire value chain, many countries have baulked at investing the sector. While China, India and Malaysia are pouring money into the region, PetroSA and the CEF face other serious allegations linked to corruption which could worsen the perception about this deal.

South African government is supposedly in the middle of a massive anti-corruption drive in an attempt to clean up state, yet the signing of this deal with South Sudan appears to flout those attempts.

For example, in 2017, the ANC treasurer teneral Zweli Mkhize was named as part of a corruption plot to swing a R4.6 billion PetroSA deal linked to exploration off South Africa’s South East Cape coast.

Former PetroSA board member, William Steenkamp, who was a whistleblower, said he was removed from the board along with Owen Tobias, after they opposed the deal.

The expansion of the country’s oil & gas industry offers tremendous investment opportunities in upstream, midstream and downstream via the laying of additional connectivity pipelines, refining infrastructure and the expansion of the country’s marketing network.

South Sudan Oil Fields

South Sudan is an established, world-class petroleum producing region, whose territory includes a large part of the Cretaceous rift basin system that has proved petroliferous in Chad and Niger as well as Sudan. It currently produces 160,000 bopd, and aims to increase production capacity to 270,000 bopd by the end of the year. The country has the third-largest oil reserves in sub-Saharan Africa, estimated at 3.5 billion barrels, with just 30 percent of the country explored to date.

According to South Sudan Minister of Petroleum Ezekiel Lol Gatkuoth, the latest signing is a major step for his country.

“The petroleum resources of Block B2 are vast. For South Sudan to reach its target of bringing back production levels of around 350,000 barrels of oil per day (bopd) and beyond, we need committed new entrants like the SFF,” he said.

“South Sudan has great potential, yet our country remains vastly under-explored, and we believe the entry of new players like the SFF will lead to new world-class discoveries very soon given the aggressive exploration program and great petroleum viability of Block B3. This will support South Sudan’s economic revival and improve trade with other African countries.”

SFF CEO Godfrey Moagi was also sanguine about the opportunity. “SFF is looking forward to working with our partners in South Sudan to make discoveries on this block. We believe there are highly significant quantities of oil in Block B2. Our work program and acquisition of new seismic will reveal better information on various structures. We look forward to a few wildcats and appraisal wells in the near future. We are thankful to the Government of South Sudan for this opportunity,” he said.

The B2 area includes productive parts of the Muglad Basin and is part of the 120,000km2 Block B which was split into three in 2012. There has been much interest in South Sudan’s Block B acreages since the entry of Oranto Petroleum to Block B3 in 2017. Much of South Sudan’s oil and gas blocks are yet to be fully explored and resources assessed.

Economic malaise

That is for a very good reason. The country is technically in the midst of a civil war, with the humanitarian and economic situation dire. More than 4.3 million people have been displaced internally and to neighbouring countries.

About seven million South Sudanese, more than half the population, are now officially food insecure. South Sudan is the most oil-dependent country in the world, which accounts for almost 100% of its exports and 60% of its GDP.

Its GDP per capita has dropped from $1,111 in 2014 to less than $200 in 2017. The country is technically in an economically collapsed situation, with inflation soaring and output dipping.

South Sudan's inflation rate topped 44% in 2018, and its fiscal deficit is projected. At 4.4% of its GDP for 2018 due to falling government revenues and rising spending on the military and police.

While there has been some stabilisation of the country and the Juba government believes production from its five oil fields will improve in mid-2019, the main challenge to the South Africans trying to work with their South Sudanese colleagues is going to be a combination of corruption, poor infrastructure, a lack of governance, and an ongoing civil war.

  • Facebook Social Icon
  • Twitter Social Icon
  • Google+ Social Icon
  • YouTube Social  Icon
  • Pinterest Social Icon
  • Instagram Social Icon