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The Cooperation Agreement Between the Republic of the Sudan and the Republic of South Sudan – A Legal Analysis

08 November 2012

Synopsis

The parliamentary ratification in October 2012 of the set of bilateral agreements (collectively, the Cooperation Agreement) signed by the Presidents of the Republic of the Sudan (RoS) and Republic of South Sudan (RSS) in September 2012 completes the process for the Cooperation Agreement to enter into force and become binding on both parties, with the character of an international treaty. The Cooperation Agreement brings resolution to a host of open issues between the new neighbouring nations in the wake of the RSS’s independence last year, ranging from oil pipeline usage fees, to external debts and assets, to border security and even pensions. From a legal standpoint, the Cooperation Agreement brings greater clarity to some of the public international law and international economic law questions raised by the birth of the RSS (see our publication presenting a legal analysis of RSS’s independence here). This article considers certain issues addressed in the Cooperation Agreement, in particular, debts, concessions and challenges regarding peace, security and stability.

Introduction

On 9 July 2011, the RSS seceded from the former Sudan and became an independent state, pursuant to a referendum among the people of southern Sudan. The referendum was agreed in the 2005 Comprehensive Peace Agreement (CPA), an agreement that brought peace to a conflict that, on and off, engulfed Africa’s largest nation in all but 11 of the years since its independence from British and Egyptian control in 1956. Various external actors had attempted over the years to bring resolution to the conflict in the Sudan. The CPA itself was mediated by the Intergovernmental Authority on Development (IGAD), a regional economic community that engaged heavily to address the situation in the former Sudan in collaboration with the African Union (AU) and United Nations (UN). The AU Peace and Security Council (pursuant to its objectives and principles) and UN Security Council (under its authority to maintain international peace and security) also engaged significantly in peacekeeping efforts in the former Sudan.

As discussed in our previous publication, the independence of the RSS was a separation of part of a state—rather than a new state supplanting the former, the former remains in part (here, RoS) while a new state is created by secession from the former (here, RSS). State succession, or “succession of States,” as used in the 1983 Vienna Convention on Succession of States in respect of State Property, Archives and Debts (the 1983 Convention, a treaty that is not in force), “means the replacement of one State by another in the responsibility for the international relations of territory.” The separation of the former Sudan into the RoS (in the terms used in the 1983 Convention, viz., Articles 17, 30 and 40, the predecessor state) and RSS (in the terms of the 1983 Convention, the successor state) left many public international law issues on state succession to be resolved, not the least of which is the very border between the new neighouring nations.

Presently, roughly 30% of the north-south border (which represents the administrative division drawn by the British in 1956 when the former Sudan gained independence) remains in dispute, with five areas agreed to be in dispute, four additional areas claimed by both the RoS and RSS but where the parties refuse to agree that there is a dispute, and the Abyei region. A detailed discussion of Abyei is beyond the scope of this present analysis, but we note that Abyei is the subject of still-outstanding dispute between the parties despite the highest level of international pressure for resolution. The Abyei region, an oil-rich area that straddles the north-south border and is claimed by both RoS and RSS, has been the subject of an arbitration under the auspices of the Permanent Court of Arbitration (the result of which was a demarcation of what the Abyei region is), a UN Security Council peacekeeping force in place since June 2011, extensive conflict between the RoS and RSS and displacement of over 100,000 persons.

Any case of succession raises questions regarding the rights and obligations of the predecessor and successor states as to third states and their nationals as well as private rights as against the predecessor and successor states. Under international law generally, absent an agreement between the parties or a general declaration by the successor state to be bound, the successor state may not be held to be bound by the obligations of the former state with respect to third states. Since the successor state is a distinct international legal entity from the former state, persons with private rights in relation to the former state (for instance, investments) may not per se have those same rights in relation to the successor state.

The Cooperation Agreement, signed by the Presidents of the RSS and RoS on 27 September 2012 and ratified by the two nations’ Parliaments on 16 and 17 October 2012, respectively, provides answers to some but not all of these questions. Structured as a set of eight bilateral treaties under a common chapeau, the Cooperation Agreement in total covers oil pipeline fees and related issues, mobility rights for citizens of both states, border issues, central banking issues, trade, external assets and liabilities, post-service benefits (including pensions) for civil servants and security arrangements. The agreement, brokered by the African Union High Level Implementation Panel (AUHIP), affirms at the outset the parties’ commitment to the principles of the African Union Constitutive Act and the United Nations Charter as well as the sovereignty and territorial integrity of each state and the overriding principle of building two viable states. To be sure, the Cooperation Agreement expressly acknowledges the existence of outstanding issues, including disputed and claimed border areas, Abyei and modalities for implementing and monitoring agreements relating to post-secession matters. However, the Cooperation Agreement brings important resolution to issues concerning the economic relations among the RoS, RSS and other nations and their nationals.

External Debts of the Former Sudan

State succession raises the question of which of the post-succession sovereigns retains responsibility for the debts of the former state. International law generally draws a distinction among various types of state succession as concerns the devolution of debts: partial succession (secession, itself distinct from liberation of a formerly dependent territory resulting in a newly independent state) is distinguished from total or universal succession and national debts are distinguished from local or localised debts (see our earlier publication for more detailed discussion). The Cooperation Agreement expressly addresses the devolution of national debts of the former Sudan, estimated to be at least USD 40 billion at present with the potential to exceed USD 45 billion in 2013 (according to the International Monetary Fund (IMF)).

In the absence of a post-succession agreement, customary international law provides no rule regarding the devolution or repartition of national debts of a former state in the case of succession. In the case of partial succession (and in the absence of agreement between the predecessor and successor state), creditors generally retain rights only against the predecessor state, though the 1983 Convention provides that “the State debt of the predecessor State shall pass to the successor State in an equitable proportion” (and some commentators argue that this reflects state practice). However, the Sudan in the wake of the CPA, which led to the referendum that preceded the independence of the RSS, saw a significant sentiment that the RSS should inherit no debt of the former Sudan.

In the Cooperation Agreement, the “Agreed Zero Option” approach set forth in the Agreement between The Republic of the Sudan and The Republic of South Sudan on Certain Economic Matters (the Agreement on Certain Economic Matters) provides that “the RoS, as the continuing state, shall retain all external debt liabilities and external assets” of the former Sudan. At the same time, the RoS and RSS agree to a joint creditor outreach strategy in order to “secure from international creditors a firm commitment to provide comprehensive relief of the external debt of the RoS.” According to the Agreement on Certain Economic Matters, this “firm commitment” will be deemed to have occurred when the RoS reaches the “decision point” as set forth in the Enhanced Initiative for Heavily Indebted Poor Countries (HIPC). The HIPC, under the auspices of the World Bank and IMF, is a means by which eligible states may be entitled to external debt reduction (though not total debt forgiveness) if a state’s debt exceeds certain thresholds and satisfies defined conditions for a “decision point” for debt relief. A country reaches the “decision point,” at which point the World Bank and IMF decides if the country is eligible to begin receiving debt relief, if, among other things, the country meets the eligibility criteria to borrow from the World Bank’s International Development Association (IDA) (including the country’s capacity to use IDA resources effectively), has a track record of macroeconomic stability and develops a poverty reduction strategy. The Agreement on Certain Economic Matters calls for the RoS reaching the “decision point” within two years from the agreement’s entry into force or a later date agreed between the RoS and RSS.

If the “firm commitment” is not reached, the Agreement on Certain Economic Matters provides, as a fallback to the Agreed Zero Option, that the parties shall enter into good faith negotiations to agree on the apportionment of all external debts and assets of the former Sudan. However, both states are required to take “all necessary steps” (i.e., political and technical) to secure the “firm commitment” before this potential fallback is triggered. If the fallback is triggered, all external debts are subject to apportionment by party agreement, taking into account certain principles applicable to two particular categories of external debts. The first category is project loan obligations, which the RoS and RSS would apportion on the basis of the primary final beneficiary principle. This principle was a special formulation produced in the negotiations leading up to the Cooperation Agreement and generally would allocate responsibility for servicing project-based loans to the state that primarily benefited from the project to which the loan relates. According to the Agreement on Certain Economic Matters, the project loan obligations amount to between USD 110 million and USD 117 million (as of 31 December 2009) under consideration. The second category of external debts is balance of payments support loans, as to which the RoS and RSS only agreed to discuss apportionment and to do so by reference to, among other things, physical infrastructure development, human development and the respective populations of the two states as of the date of RSS independence.

The Agreement on Certain Economic Matters additionally addresses two other important points concerning debts. The first concerns mutual forgiveness of debts between the RoS and RSS. The Agreement on Certain Economic Matters provides that the RoS and RSS mutually cancel and forgive any non-oil related arrears and claims outstanding to the other (though not outstanding to private claimants). Likewise, another agreement within the Cooperation Agreement, the Agreement between the Government of the Republic of South Sudan and The Government of the Republic of the Sudan on Oil and Related Economic Matters (the Oil Agreement), provides for mutual forgiveness and cancellation between the RoS and RSS of oil-related arrears and claims, but preserves oil-related arrears and claims outstanding to private claimants. The mutual forgiveness of oil-related claims, however, does not encompass oil proceeds related to two specific shipments (Ratna Shradha and ETC ISIS) and a matter subject to a case filed with the International Centre for the Settlement of Investment Disputes (ICSID), discussed further below. The second concerns international cooperation. The Agreement on Certain Economic Matters calls for a joint delegation (consisting of the AUHIP, RoS and RSS) to seek assistance from the international community on debt and other economic matters arising from the secession of the RSS. In particular, the agreement calls for direct debt relief from creditors of the RoS, funding to the RSS to support development projects and assistance in lifting sanctions imposed on the RoS. Additionally, the agreement calls for contributions of monies to provide the RoS with one-third of the aggregate amount of funding required to address the shortfall in revenues that the RoS would have received from exports of oil originating from what is now the RSS (dubbed the gap) but will accrue to the RSS in the wake of its independence. Under the “principle of thirds,” as was referenced during the negotiations between the RoS and RSS, the states would seek assistance from the international community to fill one-third of the gap while the remaining two thirds would fall on the RoS and RSS.

Oil and Concessions

Under international law, there is no set rule on the survival of obligations under concession contracts in the case of state succession. The continuation of a concession is often influenced by changes in the ownership of the assets to which the concession applies, and as to these assets, the general rule is that allocation should be settled by agreement. The territorial principle, based on which a successor state is entitled to immovable assets (including natural resources) on or connected to its territory, enjoys significant state practice (some argue that the territorial principle encompasses both immovable and movable property). With regard to assets to which a predecessor state retains title, or to which a successor state holds title, the states are bound by any relevant international norms as they may apply to concession contracts associated with the assets.

The Cooperation Agreement adopts the territorial principle with regard to domestic debts and assets (immovable and movable) and, in particular, the Oil Agreement provides that “the territorial principle applies in the petroleum sectors of both States.” This enshrines the understanding that the RSS has sovereignty over petroleum resources in its territory. A number of private companies, both those domiciled within and outside of the territory of the former Sudan, held concession contracts with the government of the former Sudan pertaining to natural resources in what is now the RSS. The 2011 Transitional Constitution of the Republic of South Sudan recognizes that every person shall have the right to own property and that “[n]o private property may be expropriated save by law in the public interest and in consideration for prompt and fair compensation.” At the same time, under a law passed by the RSS not long after its independence, the RSS declared itself not bound by concession agreements with the former Sudan where the subject natural resources are within the territory of the RSS.

The RSS exercised its authority under this law in relation to a number of concessions, one of which was that held by Sudapet, the state-owned oil company in the RoS. The state-owned oil company in the RSS, Nilepet, presently holds the concession. In August 2012, Sudapet filed a case against the RSS with ICSID (the RSS became party to the ICSID Convention in April 2012). In the Oil Agreement, the parties reserved their respective positions “with regard to the consequences of the secession of the RSS on Sudapet’s participating interests in the exploration and production sharing agreements with contract areas located in the RSS,” but agreed to discuss the matter within two months of signing the Oil Agreement with an aim to reaching resolution. The text of the Constitution on the right to property and the subsequent legislation renouncing the concessions may have to be reconciled and the issue may eventually have to be resolved having regard to the applicable international investment law.

Oil-related matters have more generally formed a significant source of contention between the RoS and RSS since independence. Most of the oil reserves exist within the borders of the RSS, which receives roughly 98% of its national revenue through oil. However, the oil cannot be exported without being transported through pipelines that run through the RoS and the RoS also depends heavily on oil revenues or, after independence, would gain significant revenue from charging fees for the RSS’s use of the oil pipelines. In August, the RoS and RSS had reached agreement on the fees that the RoS would charge the RSS that has since been memorialized in the Oil Agreement. Under the terms of the Oil Agreement, the RoS will charge the RSS a total USD 9.10 per barrel for use of the Petrodar processing and transportation facilities and USD 11.00 per barrel for use of the Greater Nile Petroleum Operating Company (GNPOC) processing and transportation facilities (each total charge encompasses processing, transportation and transit fees). However, the transit fee amount (agreed between the RoS and RSS to be USD 1.00 per barrel) does not apply to entitlements other than those of the RSS itself—for foreign transporters, the transit fee remains to be agreed between the foreign operator and the RoS. The RoS has recently formed a committee to negotiate a transportation agreement applicable to foreign oil companies operating in the RSS, who have already sought an exemption from the transit fee. If the transit fee that a foreign operator is charged causes its total cost of using pipelines in the RoS to exceed that which applies under the operator’s existing concession contract, the foreign operator may claim its concessions to have been altered.

In addition, the RSS will transfer to the RoS a fixed sum of USD 3.028 billion as a transitional financial arrangement (TFA) pursuant to the “principle of thirds” (discussed above). The TFA will be paid to the RoS by way of a USD 15.00 per barrel charge for use of either the Petrodar or GNPOC processing and transportation facilities (and is to be invoiced separately). The USD 15 per barrel payments are anticipated to persist for three and a half years. Additionally, if the processing, transportation and export of oil from the RSS piped through the RoS is interrupted due to the RoS’s material breach of the Oil Agreement, the TFA that would have been due on such oil will be suspended until the breach is rectified.

In the wake of the entry into force of the Cooperation Agreement, the RSS has ordered oil companies within its borders to resume oil production. The RSS had halted oil production in January 2012. Oil exports from the RSS may resume by early 2013, albeit at reduced volumes compared with 2011.

Peace, Security and Stability

The commercial dimensions of the Cooperation Agreement, of which there are many even in addition to the ones discussed in this note, cannot be divorced from the humanitarian situation in the RoS and RSS. The concept that the maintenance of peace, security and stability is a prerequisite for the implementation of economic development is among the fundamental principles of Africa’s regional organizations (such as the AU and Economic Community of West African States, both of which fall under Chapter VIII of the UN Charter). Oil exploration, production and piping can be delayed or halted because of security concerns. Both the UN Security Council and the AU Peace and Security Council have recognized the situation in RoS and RSS as posing a threat to international peace and security.

Stemming from a number of sources including inter-ethnic violence, rebel activity and the prevailing border dispute, in particular the still-uncertain status of the Abyei region, there remains concern of instability within and between the new neighbouring nations. The AU Peace and Security Council has urged, and the UN Security Council has required, the RoS and RSS to negotiate, under the auspices of the AUHIP and with the support of the Chairman of the IGAD, to reach agreement on the final status of Abyei. Through Resolution 2046, the UN Security Council has expressed its intention to impose economic sanctions exercising its authority under Article 41 of the UN Charter if the parties cannot reach agreement on Abyei. In the wake of the ratification of the Cooperation Agreement by both the RoS and RSS, the AU Peace and Security Council, recalling Resolution 2046, requested the parties to reach consensus on the final status of Abyei within six weeks, i.e., by early December 2012 and, if the parties cannot, decided that it would endorse a proposal put forward by the AUHIP and seek endorsement of the same by the UN Security Council. The AU Peace and Security Council also called on the parties to agree on the process for the resolution of the five disputed areas and additional claimed areas within two weeks, i.e., by early November 2012, before the AU Peace and Security Council will itself determine the process and seek endorsement thereof from the UN Security Council.

Certain agreements within the Cooperation Agreement begin to address some of the outstanding border and security issues. The Agreement on Security Arrangements between The Republic of the Sudan and The Republic of South Sudan provides for demilitarization of the Safe Demilitarized Border Zone between the two states, including a heavily disputed “14 mile area” west of Abyei, and the opening of ten agreed border crossing corridors. The parties further commit, through the Agreement between The Republic of the Sudan and The Republic of South Sudan on Border Issues, to demarcate the border between them, mindful of the transboundary movement of peoples for customary practices. Still, security issues remain, including challenges in humanitarian assistance reaching needy recipients, particularly to two conflict-torn regions (South Kordofan and Blue Nile), and continued violence in both nations.

Special Acknowledgment

We are grateful to Professor Francis Ssekandi who reviewed this article.

Professor Francis M. Ssekandi is a Professor of Law at Columbia University School of Law and a Judge of the World Bank Administrative Tribunal, since 1 July 2007. In January 2010 he was appointed to ICSID's Panel of Arbitrators. He started his career in the Uganda Ministry of Justice in 1965 and joined the judiciary as Judge of the High Court in 1974, and later Justice of Appeal of the now-Supreme Court of Uganda. Professor Ssekandi has wide experience of the UN legal and institutional system, having provided legal support to United Nations agencies at headquarters and in the field, negotiating agreements with host countries, resolving commercial disputes and working on arbitration cases. He also has experience with international financial institutions, including the African Development Bank for which he served as General Counsel. He graduated in 1965 with LL.B (Hons) from the University of London and obtained his LL.M from Columbia Law School.

 

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