National parliament passes a second reading of the FY2016/2017 Budget

The gov’t of the Republic of South Sudan is contributing 73 billion SSP; the total budget, including pledged donors’ contribution amount to about 142 billion SSP. Of the national budget, Juba is taking 97% while states take 3%; that is, of the 73 billion ssp, only 2 billion ssp will be shared among the 28 states. And that is the least of the problem, for Khartoum is said to be pocketing about 80% of the oil revenue and the rest by the foreign oil companies. This time around though, Juba can’t afford to shut it down even if they are literally on the verge of getting negative%.

Comments and Observations of the Goch Makuach-led Sub-committee on Revenues

November 23, 2016 (SSB) — The Committee takes this opportunity to appreciate Hon. Stephen Dhieu Dau, Minister of Finance and Planning, TGoNU for his FY2016/2017 budget speech to the Transitional National Legislature on 18 October 2016. The Committee has examined four documents with respect to the resource envelope. These were: a) the FY2016/2017 budget speech; b) economic and fiscal stabilization measures action plan; c) taxation amendment bill, 2016; and d) financial bill, 2016/2017. Based on information obtained from these documents, the Committee held meetings with 37 potential sources of revenue, including donor agencies. It is on the basis of these meetings that the Committee would like to make general and specific comments on the proposed resource envelope for the FY2016/2017 budget.

A. General Comments and Observations

While appreciating the quality of the four documents and consistency of the Budget Speech with policy measures contained in these documents, the Committee would like to make the following general comments and observations:

1. The annual budget should clearly state qualitative and quantitative objectives of the budget within the framework of our political ideals of justice, liberty, and prosperity. These political ideals in turn provide the overall development goal of inclusive growth, which is anchored on sustained peace, economic growth, and poverty eradication.

2. The objective of reducing fiscal deficit is noble, but it should be clearly link to the above stated political ideals underpinned by our quest for sustained peace, economic growth, and poverty eradication. This would in turn help with the allocation of resources to priority areas that are consistent with our political ideals.

3. The annual budget must ensure the complementarity of donors’ resources (on and off-budget) with government’s own resources within a total resource envelope (see Table 1 below). As it stands, the Committee has observed from its meeting with a number of donors that off-budget resources are allocated by these agencies without active participation and consultation with the Ministry of Finance and Planning. In fact, donors contribute about 52% of total resource envelope that is available after payments to Sudan and oil producing states and communities. This is a major contribution that could not be ignored when analyzing the sources of revenue at this critical time of economic, security, and humanitarian challenges facing our country.

4. Transparency and accountability in the allocation of resources should be applicable to the government and development partners alike. This would in turn ensure that all resources are allocated, irrespective of their sources, toward sustained peace, economic growth, and poverty eradication. It must be clear here that the Committee is not asking donors to surrender their resources to the government, but rather to inform the government about the volume, sector, and geographical distribution of these resources so as to ensure synergies between our resources and theirs. This is the normal practice in off-budget resources provided by donors to aid recipient countries in the world. Moreover, members of the TNLA have the constitutional right to know development activities in their respective constituencies.

5. The Bank of South Sudan (BSS) must ensure that all the development partners, UN agencies, embassies, international NGOs operating in the Republic of South Sudan must have bank accounts with the commercial banks registered in South Sudan. This point is not necessarily related to current revenues, but such a practice would enable us to have an idea about the volume of foreign exchange entering the economy of South Sudan. In fact, South Sudan is highly dollarized in that foreign currency deposits in both total bank deposits and money supply is about 62%. The implication of a dollarized economy is that the government could denominate in foreign currency profit tax of the banking sector as well as custom duties on international trade without necessarily distorting economic activity in the economy.

6. The Directorate of Aid Coordination of the Ministry of Finance and Planning would seem not to have up-to-date registry, by geographical location and by sector, of all the projects and programs being funded by the UN agencies, international NGOs, development partners, and so forth. Such a registry would enable the government to have a full picture of the resource envelope geared toward sustained peace, economic growth, and poverty eradication.

7. Public enterprises, such as Nilepet with potential capacity to generate revenues for the treasury are being constrained by the government itself. For instance, Nilepet is entitled to 8% of profit oil, which is equivalent to about 500,000bbl./month at current production level. But, this entitlement would seem to the Committee that some powerful institutions within the government are taking it, while Nilepet is unable to meet the cash call as part of its operations! Moreover, the same institutions take fuel supply from Nilepet pump stations without paying. So, it would appear to the Committee as if the government is killing “the goose that lays golden eggs!”

8. The Committee has observed with dismay that Sudan is taking 33% of the government total oil revenue! That is the Government of the Republic of South Sudan (GRSS) is getting only 19.67% of its total oil revenue. This is because GRSS continues to provide the inappropriately designed Transitional Financial Assistance/Arrangement (TFA), which gives Sudan USD15/bbl. being transported through Sudan. But, South Sudan is currently facing a resource gap of 47% in the proposed FY2016/2017 and yet she is providing a financial assistance to Sudan. In this regard, it would seem to the Committee that South Sudan would be better off if she were to shut down oil production than continuing with the current arrangement with Sudan.

9. The economy of South Sudan has potential to generate resources to support our quest for sustained peace, economic growth, and poverty eradication. However, weak institutions of economic governance are among major constraints in the realization of this potential. Our tax effort is, however, the lowest in the region. This is because GRSS is heavily relying on oil revenue, which constitutes 83.5% of total gross revenues in the proposed FY2016/2017 budget.

10. Peace is a necessary, though not a sufficient condition for sustained incremental level of resources for the public budget. But, sustained peace would in turn enhance: a) oil production; b) the tax capacity of our economy; and c) our tax effort and thereby leading to more resources for the budget.

B. Specific Comments and observations

The Committee would like to start specific comments and observations with a total resource envelope derived from the Budget Speech of Hon. Minister of Finance and Planning. Table 1 below provides the basis of our analysis of the resource envelope. This Table 1 is essentially a revenue-expenditure equation, which is a mirror of public choices in the FY2016/2017.

Table 1: Total Resource Envelope of FY2016/2017 Budget by source of Financing and by Category of Spending

Source: Constructed from the budget speech of the minister of finance & planning, TGoNU

1. The above Table 1 gives an estimated total resource envelope of 7 billion, which includes SSP39.6 b as payments to Sudan, Nilepet (i.e. fuel subsidy), and oil producing states and communities. Donors are envisaged to contribute 22.8% of the total resource envelope for FY2016/2017. But, SSP32.5 billion is off-budget and the Committee had difficulties ascertaining the authenticity of this figure from some of the major donors that were met. The Troika (Norway, UK, and US) and EU were, however, forthcoming. For instance, Norway planned funding for FY2016/2017 is about USD51.24 million (or SSP3.59 b). UK has informed the Committee that her planned off-budget funding is about USD200 million (or SSP14.0 billion) for the FY2016/2017 budget. While USAID’s planned funding is USD225.17 million for FY2017 (October 1, 2016 to September 30, 2017), which means USD168.88 million (or SSP11.8 b) for 9 months in our FY2016/2017. That is, Troika planned funding is USD420.12 million (or SSP29.41 billion).

2. The USAID planned funding is distributed to the following six (6) sectors: a) peace and security (29%); b) health (28%); c) democracy, human rights, and governance (24); d) education and social services (11%); e) economic development (6%); and f) environment (2). More information is, however, needed on specific projects by implementing agency and geographical location. This would in turn help with the allocation of the government’s own resources.

3. The Committee has also observed from Table 1 that donors planned funding is more than 50% in each of the seven (7) major spending categories. These are a) health (95%); b) humanitarian (94%); c) natural resource & rural development (89%); d) infrastructure (88%); e) education (77%); f) economic (75%); and g) accountability (55%).

4. On GRSS’ own revenues: The Committee has observed that gross oil revenue constitutes about 83.5% of total gross revenues of GRSS. In this regard, the Committee strongly believes that oil is still the most important source of revenue in the FY2016/2017 budget. It has, therefore, taken time to critically examine the share of GRSS in oil production during the first six (6) months of the FY2016/2017 budget. This approach would help Honorable members of the Transitional National Legislature (TNL) to appreciate the full picture of our oil revenue. GRSS’ share in July 2016 was 1,837,000 bbls of which 837,000 bbls (or 45.6% of GRSS’ share) was inland off-take by Sudan for her Kosti Power Plant (KPP) and Khartoum Refinery Company (KRC). The price for the Dar blend crude oil was 3/bbl., which implies that the total gross oil revenue in July 2016 was USD74,031,100.

5. GRSS’ share in August 2016 was 1,437,000 bbls of which 837,000 bbls (or 58.23% of GRSS’ share) was inland off-take by Sudan. The Committee has observed that government’s share in August was down by 400,000 bbls compared to that of July even though the level of monthly production remained the same at 3,637,000 bbls. The price for the Dar blend crude oil was 66/bbl., which implies that the total gross oil revenue of GRSS for August 2016 was USD58,428,420. The same downward trend continues for September 2016 with the total share of GRSS given as 1,410,000 bbls at a price of USD42.17. Still Sudan took 810,000 bbls through inland off-take. GRSS’ total oil revenue for September 2016 was USD59,459,700.

6. In October 2016, the share of GRSS was like that of July 2016. It was 1,837,000 bbls at a price of 16 (or total revenue of USD81,121,920) of which 837,000 bbls was inland off-take by Sudan. The GRSS’ share for November and December 2016 are still provisional. The share for November is projected to be equivalent to that of September (1,410,000 bbls) with Sudan taking 810,000 bbls. That is, total revenue for November is projected to be USD59,459,700. And that of December projected to be equal to that of October (1,837,000 bbls) at forecasted price of USD42.0/bbl., which translates to estimated revenue of USD77,154,000.

7. The Committee has made calculation of total oil revenue, based on information provided by the Ministry of Petroleum (MoP), for the first six (6) months (i.e. July – December 2016) of the FY2016/2017. It arrived at 7 million (or SSP28.68 b). But, this figure does not include the value of 1,254,000 million bbls, which the Committee is still waiting for additional information from MoP. The lack of clarification notwithstanding, the Committee has used the daily production of 120,000 bbls/day provided by MoP than 130,000 bbls/day given in the budget speech of Hon. Minister of Finance and Planning. The Committee has also observed that total production during the first half of FY2016/2017 is 21,568,000, which if divided by 184 days gives a daily production of 117,212 bbls.  Hence, the Committee has decided to go for the daily production figure given by MoP.

8. The next challenge is to know on the one hand the share (i.e. entitlement) of GRSS in oil production, and on the other the benchmark oil price for FY2016/2017. The budget speech gives government entitlement as 47% (see page 12 para 58). The Committee has, however, found that it is about 50.5% based on the final Dar Blend Crude Lifting Program during the period July – December 2016, which has been provided by MoP. Hence, the government entitlement for this budget year is assumed to remain as 1,837,000 bbls/month as it has been during the first half of FY2016/2017, which would translate to 22,044,000 bbls in the FY2016/2017 budget. There are, however, underlying problems with this figure. The MoP reports that the entitlement position of the government up to September 2016 shows an “over lifting of 3,026,221 bbls.” Moreover, there are about 5,600,000 bbls committed to a certain Orexy company (i.e. 600,000 bbls/month) and an oil crude trader called Trafagura (5,000,000 bbls) that will have to be taken into account when calculating total gross oil revenue of the government.

9. The Committee has settled on 22,044,000 bbls of Dar Blend to be the basis of the FY2016/2017 budget. Moreover, the Committee has taken 0/bbl. as the benchmark oil price and this gives a total gross oil revenue to be USD881,760,000 (i.e. SSP61,723,200,000) for FY2016/2017. It would be recalled that the budget speech gives SSP46.33 billion, which implies a difference of SSP15.39 billion. This difference is due to the benchmark price for the Dar Blend crude oil being used by the Ministry of Finance and Planning on the one hand, and MoP on the other. As stated above, the Committee has adopted the price and daily production given by MoP.

10. Final specific comments and observations of the Committee focus on the TAF for Sudan. For ease of understanding the Committee has constructed Table 2 below.

Table 2: Alternative Oil Sharing Arrangement with Sudan

C. Recommendations

The Committee would like to make the following recommendations with respect to the resource envelope for the FY2016/2017 budget:

1. Payments to Sudan should be treated as an item of expenditure and must therefore be an integral part of the total resource envelope. This also applies to oil advance sale (e.g. commitment of 5,600,000 bbls to Orexy and Trafagura).

2. Nilepet should be the importer of refined oil products (i.e. fuel, diesel, etc.) and not any private company, such as Orexy. In this regard, the current contract with Orexy should be cancelled immediately.

3. The benchmark price of USD40/bbl and daily production of 120,000 bbl should be revised quarterly between MoP, Ministry of Finance and Planning MoFP, and BSS. In this regard, the EDFC of TNLA must be informed.

4. Payment to Sudan must not exceed 30% of GRSS’ crude oil entitlement (see Table 2 for scenarios of payment).

5. TFA has to be renegotiated with Sudan before end-December 2016, which is the expiration date of the transitional financial assistance/arrangement. The TNLA will have to approve any agreement reached with Sudan on the TFA.

6. The National Revenue Authority (NRA) should be established by 31 December 2016.

The opinion expressed here is solely the view of the writer. The veracity of any claim made are the responsibility of the author, not PaanLuel Wël: South Sudanese Bloggers (SSB) website. If you want to submit an opinion article or news analysis, please email it to paanluel2011@gmail.com. SSB do reserve the right to edit material before publication. Please include your full name, email address and the country you are writing.

About Post Author

PaanLuel Wël

administrator

PaanLuel Wël is the founder and editor-in-chief of PaanLuel Wël Media Ltd, a news website that covers news, opinions, analysis, history, culture and literature of South Sudan and the world. Founded in July 2011 by PaanLuel Wël to create a platform for free expression and constructive dialogue, the website features articles from various contributors, including columnists, commentators, poets, authors, activists and academics. PaanLuel Wël believes that media can play a vital role in informing, educating and empowering the people to participate in nation-building and social transformation. He also believes that media can foster a culture of dialogue, tolerance and diversity among different communities and groups, and hopes to inspire and mentor the next generation of South Sudanese writers and journalists.

See author's posts