Will Star Shine for South Sudan? Scrutinising South Sudan’s first post-independence oil deal

GLOBAL WITNESS, 27th October 2014
For immediate release: 27 Oct 2014;

South Sudan’s first post-independence oil deal is high-risk and in urgent need of further scrutiny, according to a new Global Witness report released today. The seven month investigation into the deal between the South Sudanese government and the Spanish-owned oil company Star Petroleum for two of the country’s last remaining oil blocks, uncovered that:

*the company is closely connected to a businessman convicted of a million euro fraud;

*no information about who owns Star Petroleum is available to the public. Instead the company’s shareholders are all other companies registered in tax havens or unknown jurisdictions;

*the company isn’t producing oil anywhere else in the world;

*the deal is being negotiated behind closed doors, and through a loophole in the law, which means that Star has faced no competition from other companies in its negotiations for the concession.

“The block E concession covers 45,000 square km in four states (Northern Bahr el Ghazel, Western Bahr el Ghazel, Lakes and Warrap—- and includes South Darfur in North Sudan)- that’s a lot of ordinary people’s farms and grazing land,” said Emma Vickers, Global Witness’ South Sudan campaigner.

“The government has to prove that this deal will help, not harm, those farmers and cattle herders by being open about who the company is, what kind of a contract they’re giving it, and what kind of rewards citizens can expect. From our research, it’s not clear that doing a deal with this company will benefit ordinary people. Without showing people that it will, the government risks fuelling mistrust among a vulnerable population who have often associated oil with conflict.”

The deal is being done at a time of crisis in South Sudan. The ongoing conflict has sparked a humanitarian calamity and left 1.7 million people displaced.

South Sudan’s oil dependent economy is in trouble: oil production has been halved by the instability and international oil prices have fallen in recent months, depleting government income.

The government has repeatedly stated that it will use oil money to bring development to its people and to broaden the economy away from oil but, this year, a third will be spent on army salaries.

Not only is the company an unknown, and the country is in turmoil, but the benefits of developing South Sudan’s oil industry both to the economy and to ordinary people, have yet to be proven.

“One of the fundamental problems with this deal is that the public know very little about it,” Vickers added. “Politicians have promised their citizens transparency and yet they’re negotiating behind closed doors. It’s time for them to lift the lid on who Star is and why they are negotiating with the company.”

South Sudanese law makers have already gone a long way to making sure this type of information is available to the public by putting strong transparency provisions in their oil laws.

Global Witness’ research has discovered that the Ministry of Petroleum has activated those provisions and asked Star for documentation. Star Petroleum reports that it has provided a list of who the company’s owners are, evidence of its technical expertise, and an assessment of the possible environment impact of oil exploration.

This is a positive step. The government must now take the next step and allow parliamentarians to review the deal and the documentation before it is signed. Star should also make this information publically available and easily accessible. When the contract is agreed, this must be made public too.

Global Witness put its concerns about the company and the deal to Star Petroleum. In its response, the company stated that it is “doing its business in compliance with local and European laws and all business ethical standards with full[y] transparency”.

/ Ends

Contact: Emma Vickers, South Sudan Campaigner +44 (0)7715 076 548 or +44 (0) 207 492 5838 or Sarah Morrison, Senior Communications Advisor +44 (0)207 492 5840.

Notes to editors:

1. Global Witness’ report ‘Will Star Shine for South Sudan?’ is available here.

2. Before publication, Global Witness sent questions to Star Petroleum on 18 September 2014. Star responded to Global Witness on 22 September 2014 in an email the text of which is available here. Global Witness sent Star Petroleum further clarification questions on 2 Oct 2014. Star Petroleum responded in a letter on 3 October 2014 available here.
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STAR PETROLEUM RESPONSE TO GLOBAL WITNESS

Dear Mrs. Vickers,

Reference to the publication by Global Witness of the report “Scrutinizing South Sudan’s First Post-Independence Oil Deal”, dated 27th October 2014, STAR PETROLEUM would like to make the following statements:

· Again, we reiterate that we highly appreciate the role of Global Witness and other non-governmental organizations that investigates and campaigns to prevent natural resources-related conflicts and corruption and associated environmental and human rights abuses. We fully share those values.

Since the Independence of the Republic of South Sudan, STAR PETROLEUM, always, has been confident about the future of the country. It has always trusted its Legal System and its Public Administration.

STAR PETROLEUM, since its incorporation in 2005, and since the beginning of its activities in the Republic of Sudan, and after independence, in the new Republic of South Sudan, proved to be a serious and responsible investor, and has fulfilled fully its financial, technical and legal obligations required by laws and regulations. All proofs required by the Government of South Sudan have been already provided. Additionally, it is fair and important to mention that Star Petroleum always believed in the future of the independent Republic of South Sudan. We have been present in the country (first in Khartoum, before the separation, and afterwards in Juba) since 2008, and we have invested during all these years, having local presence and professional team.

ü The following statements of your Report are not correct:

· “The Company is closely connected to a businessman convicted of a million Euro fraud”:

§ Mr. Merino is the beneficial owner of a small minority current participation interest (around 3%) in the Company and was a Director during a short period of time. He presented his voluntary dismissal and now he has no role in any Company activity. According to Court´s public information, presumably committed the illegal conduct in period of time in which he did not have any responsibility in Star Petroleum as Director.

§ The Court accusation against Mr. Merino doesn’t have any relation, directly or indirectly, with Star Petroleum or derived from his position as minority shareholder or former Director.

§ Mr. Merino is not a convicted as the Spanish Court has not still given a definitive resolution.

· “The ultimate ownership of STAR PETROLEUM itself is opaque”.

§ The ownership of STAR PETROLEUM as shown on page 3 of the Report is not correct in 2014.

§ International Public Authorities and STAR PETROLEUM’S Compliance Department are fully aware of the identity of all beneficial shareholders of the Company in compliance with all European Union Directives and especially to 2005/60/CE and 2006/70/CE as well as the GAFI recommendations. STAR PETROLEUM is implementing international global standards against money laundering, corruption and terrorist financing, therefore, increasing transparency and enable STAR PETROLEUM to successfully take action against illicit use of financial or corporative instruments. As per the request of the Government of the Republic of South Sudan, a list of ultimate beneficial shareholders was provided recently to them.

§ Disclosure of beneficial shareholders identity to citizens in a private Company is a matter of confidentiality as such information is irrelevant to them.

· “The deal is being negotiated behind closed doors, and through a loophole in the law, which means that Star Petroleum has faced no competition from other companies in its negotiations for the concession”.

§ STAR PETROLEUM currently has valid legal title of a working interest in Blocks E and B, of the Republic of South Sudan. Block E: STAR PETROLELUM signed a perfectly valid EPSA on the 6th August of 2010 in Khartoum for Block E. This EPSA was agreed fulfilling entirely with the legislation of Sudan and approved at the time by the National Petroleum Commission. Currently STAR PETROLEUM is in negotiations with the Ministry of Petroleum and Mining of the Republic of South Sudan, to adapt the above mentioned EPSA, into the new Republic of South Sudan’s Legislation (Petroleum Act 2012), implying the signature of a new EPSA for Blocks E. Block B: Following that, parties involved are expected to sign a new EPSA for Block B.

§ STAR PETROLEUM participated in a competitive process and we were able to become successful.

§ International prestigious Law Firms have been involved advising during the negotiation process both the Government of South Sudan and STAR PETROLEUM.

· “The company isn´t producing oil anywhere else in the world”.

§ STAR PETROLEUM’s Oil & Gas Management Team is highly qualified and has large experience and track-record in the sector. They lead and participated in all technical, legal and commercial negotiations and meetings with highly qualified teams of Government of Sudan, and the Independent Government of the Republic of South Sudan. The Technical Team of Star Petroleum is particularly strong on the upstream business, in which the great experience accumulated by former senior Repsol’s International and African Oil & Gas executives (including Star Petroleum’s COO, a top executive with 35 years in Repsol, of which 18 years as No. 2 Executive of the Company- Repsol’s Vice Chairman- and Head of E&P).

§ This Team is strengthened with engineers and professionals of other areas of expertise (professionals with expertise in Natural Resources, Consulting, Finance, Equity and Debt Capital Markets). All the CVs and personal data of the Management Team has been fully provided to the Government of the Republic of South Sudan. Star Petroleum´s Technical Team, throughout their professional carriers, has the following aggregated experience in the international up-stream sector:

• Experience in a variety of up-steam environments (including complex on-shore and off-shore blocks and marginal blocks)

• Responsible for more than 1,200 exploration blocks

• Managed Annual Up-Stream exploration budgets of more than $9,000m

• Discovered more than 6bn Boe

• Generating production of more than 1,04m boepd

• Operated in more than 30 different countries (in all continents), among others: Congo Brazzaville; Kazakhstan; Australia; Kurdistan; Colombia; Brazil; Uganda; Tanzania; Argentina; Algeria; Libya; Bolivia; Peru; Venezuela; Trinidad & Tobago; United States; Russia; Canada; and Nicaragua;

§ In addition, we would like to mention:

• STAR PETROLEUM commissioned, to an international consultant, a full study on the environmental impact regarding exploration activities in Block E, and will be executing its activity according to best international practices and the South Sudanese 2012 Petroleum Act in force. STAR PETROLEUM will take full care not to cause any risk to the environment and local communities in the concessions’ areas. The Government of the Republic of South Sudan has a copy of said report.

· Financially STAR PETROLEUM is a solid Company since its incorporation in 2005, having a paid-up share capital of 229,736,784 Euros and is not having any debts with banks or any financial liabilities to third parties. All company’s costs and expenses are self-financed through the bid up capital and shareholders’ loans. Star Petroleum is ready to finance its further investments in the Republic of South Sudan (Capex and Opex) as it has been proved to the Ministry of Petroleum and Mining of the Republic of South Sudan.

Accordingly, STAR PETROLEUM will not accept any accusations based on rumors, jealousy and unfounded facts that may affect the reputation and activities of the company.

The Ministry of Petroleum and Mining of the Republic of South Sudan is copied to prevent any damages that could affect also to the reputation and image of the Ministry of Petroleum and Mining and the Government of the country.

I would appreciate if you could make public this information in order to clarify and make your report more rigorous and professional.

Sincerely yours,

Ignacio Lacasa
Head of Legal & Compliance

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application/pdf iconWill star shine for south sudan e.pdf
application/pdf iconGW letter to Star Petroleum 180914.pdf
application/pdf iconResponse from Star Petroleum to Global Witness 220914.pdf
application/pdf iconClarification questions to Star Petroleum 021014.pdf
application/pdf iconStar Petroleum response to GW 231014.pdf
South Sudan and Sudan Oil Gas and Mining Report

4 Comments

  1. Kiir,is the foolish world president.

  2. False Millionaire says:

    It’s easy to predict 500 years of suffering to come.The ravages of the slavery,the any any war,the SPLM/SPLA war for the independence,the on going blood bath n the grave consequences from misrule by the corrupt elite all combined may be superpassed by horrors of what we have not yet witnessed.That as usual,the majority of our evils are our own making.God has given us fresh waters in abundance,vast fertile lands,large numbers of domestic animals n fisheries to exploit.Developing these alone in total respect of environment would guarantee a long lasting bright future than oil.But since we are cursed,we don’t see.What future could one expect from oil,when in the niger delta in Nigeria n in such oil producing countries as Congo Brazzaville n Angola,the eco-system is destroyed irreparably throwing the ordinary citizens who depended on farming,fishing n domestic animal rearing into extreme conditions of poverty?

    For much of the oil exploitation in those countries,the benefits for the most part go to the bank accounts of the exploiting oil companies.The smallest proportion returning to the national bank accounts of those oil producing countries is immediately hijacked by corrupt political elite who channel it into bank accounts outside their countries.This is the context that makes certain individuals from such countries as Nigeria appearing super rich n owning such assets as private jet planes among others.One must not shorten to say that the operating oil companies in those countries which are responsible for the pollution are such great names in the business like shell n total.It’s most surprising how the unknown name as star petroleum surfaced in RSS.This alone than anything else is an indication of ill intentions behind.

    The oil exploitation in such countries as Nigeria,Congo n Angola has succeeded to make corrupt minority political elite n their families become supper wealthy.But the environmental destruction by thesme oil expliotation is the basic cause that has made the majority of the ordinary citizens in these countries the poorest of the poor.Yes there are cosmetic projects there like urban tamarked roads n shiny sky scrapers that hide the realities of lack of development.In fact ordinary nigerian citizens for example are not really too well off economically than south sudanese.Even worst,some of them have lost their minds n are going on a rampage sending their women to europe for prostitution as a means of bringing money back home.Go to Rome,Paris,Brussels n Berlin n u will never miss to see the terrifying evidence of what I am writing.

    If Star petroleum managed to contract oil exploitation right in RSS under terms that would not prevent it from destroying the environment,RSS n the society would be transformed so quickly to the context of Nigeria,Congo n Angola.That is the reality of the political elite n their families becoming wealthy with the oil money n the ordinary citizens becoming poorest of the poor as the environment would be destroyed.Unfortunately this is what would happen in RSS.

  3. AGUMUT says:

    The Problem is that most SPLM never work for two decades,they have to steal to save money very quick in order to fill those 22 years of struggle.They have no pension money in the retirements pots.

  4. Satimon Kenyi says:

    South Sudan is one of the leading petroleum country if Africa . it is good for the government to allow the people of South Sudan to enjoyed the resource gifted from God. the problems in South Sudan is lock of tolerant and broad minded, the people in the government thought that they suffered a lot during the struggle undermining others, but that is not true . no leader is going to stay in the government for ever ,it is better to leave good records and good names for the history of south Sudan which will be a good example for the foundation of the Nation. So the the people of South Sudan Must understand that they are one people , no south Sudanese is better than another South Sudanese and no tribe is better than another tribe let us stand together .

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