Petroleum revenues are the major source of income for the Sudanese state, constituting approximately 15 per cent of national government revenue in 2002 and expected to constitute as much as 60 per cent of revenue in 2005-07. Although this revenue is from oilfields in which oil production is likely to decline after 2006, a durable peace will create an opportunity for increased oil production in hitherto unexplored areas of southern Sudan. The projections for future oil reserves from new oilfields are highly uncertain, not least because of the doubling of the price of crude oil. The PFC Strategic Study presented to the parties in August 2002 predicted that the government would receive a share of about US$30 billion over the lifetime of these fields, but this was based on a wildly low price range for oil of US$18-US$25 per barrel.
The parties argued over revenue sharing at Naivasha: the GoS argued that it had already invested in the development of the oilfields and had attracted international partners, and that this should be taken into account when revenues were shared, while the SPLM/A claimed that the oil which was rightly southern had already been exploited and southerners should therefore be compensated accordingly.
In suggesting a revenue-sharing model, the resource persons at the talks had to strike a balance between the enormous needs for reconstruction and development in the south, on the one hand, and the limited ability of the central government – highly indebted and in considerable financial problems – to share revenues during the first years of the interim period, on the other. Both the GoS and the resource persons therefore argued that if the central government were to be able to carry out basic government tasks after a peace deal, it could not afford to share a high percentage of oil or other revenues, at least not in the beginning of the interim period.
Specific revenue-sharing arrangements were suggested in the IGAD mediator's 'Nakuru Document' of July 2003, which proposed that a major source of revenue for the GoSS should be transfers from the national government based on a percentage of Gross Domestic Product (GDP) that would increase throughout the interim period. Granting the GoSS revenues defined as a percentage of GDP rather than simply a percentage of all oil revenues was intended to establish a predictable and stable flow of revenues to the south, as well as to create an arrangement for equalisation within a federal system. In addition to such transfers, the Nakuru proposals would have entitled the GoSS to 48 per cent of revenues from petroleum contracts signed after the start of the interim period. The federal government would collect the revenues from existing or 'old' contracts, but parts of the revenues from these contracts would be indirectly shared with the GoSS through transfers defined as a certain share of GDP.
Interestingly, however, the parties agreed neither to share oil revenues nor to establish transfers from the federal government. The parties agreed not to differentiate between 'new' and 'old' oil contracts, but instead to share revenues from oil produced in southern Sudan by allocating 2 per cent of the net revenue from oil to the oil-producing states, then dividing the rest of the oil revenues equally between the GNU and the GoSS. Instead of establishing transfers from the centre to the GoSS, the parties agreed to a 50-50 split of national revenues (including different taxes and non-oil revenues) collected in the south. These arrangements mean that the revenues of the GoSS will primarily come from oil and that resources originating in the north will not be transferred to the south.
This agreement was acceptable to the SPLM/A because it was of greater importance to secure a significant percentage of oil revenues than to secure for the GoSS a high level of transfers from the federal government. Securing a high percentage of oil revenues took on an overall importance for the SPLM/A during the negotiations as they realised the symbolic aspect of the oil for southern constituencies. As most people in southern Sudan see the land and the oil as southern assets, the SPLM/A needed a deal that would secure at least 50 per cent of the oil revenues in order to be able to sell an eventual agreement to rank-and-file commanders and the southern constituency in general.
A second motive for the SPLM/A position of prioritising a high percentage of oil revenue was its lack of trust in federal transfers after the experience of the Southern Sudan Regional Government (established after the Addis Ababa Agreement) from 1972 to 1982, which convinced them that the south should not count on receiving revenues from the north. The oil percentage was regarded as less open to manipulation than a federal transfer. In addition, separatist motives mesh well with a position of prioritising direct oil revenues over federal transfers. In a political discourse on secession for Southern Sudan, secessionists can claim that the northern government showed little will to share federal revenues in the peace talks, and that there is therefore no economic reason to cooperate with the northern government after the interim period. Thus, those in the SPLM/A in favour of secession were able to accept the deal, as it gives them a strong argument when the referendum comes up at the end of the six-year interim period.
The Sudanese government sees the oil in the south as a national resource, hence its claim that a significant part of Sudan's national revenues has been shared with the south in the final agreement. However, in the CPA few sources of revenue are mentioned that originate in the north. This is likely to be perceived by southerners as a lack of willingness by the government to make unity attractive. It seems that the government's priority was to safeguard central government revenues, even if that incurred political costs in not committing to explicit revenue transfers from the federal government to the GoSS. Possibly, they concluded the south would vote for secession anyway, and that attempts to 'make unity attractive' would simply be a waste of resources. At the very least, the reasoning of the government can be understood as one where sharing state revenues with the new southern government was problematic, as the central government is heavily indebted, the war in Darfur is costly, and reduced revenues to the central government were perceived as threatening the survival of the National Congress Party.
Instead of asking why the government did not share more revenues originating in the north in order to reap political benefits, it can thus be asked why the Sudanese government could agree to share as much as a 50 per cent of the oil revenues of Southern Sudan, as that was regarded as a significant fiscal challenge for the government in the first years of the interim period (before the oil price rose to over US$40 per barrel in 2004). One reason might simply have been that government representatives expected that they would not necessarily have to pay the full 50 per cent during the first years of the interim period, or that the pot from which the share would be taken could be manipulated in the government's favour. Such reasons may have played some role given the pattern of broken agreements earlier in Sudan. However, the government felt under massive international pressure to finalise a deal around the beginning of 2004. In the last weeks of the negotiations, the government suggested that the Nakuru revenue-sharing arrangements should be applied, but then the SPLM/A held firmly to a position of a direct sharing of the oil revenues. In this situation, international pressure may have contributed to a reduced willingness on the part of the government to hold on to its position, forcing them to give in to the SPLM/A position of direct sharing of oil revenues. Finally, when the division of oil only from southern Sudan rather than from the whole country became an option, 50 per cent became an acceptable formula of revenue-sharing for the government.