Posted by: cjenscook | 12/01/2011

A 21st Century Solution for Sudan – Nondominium

21st century problems cannot be solved with 20th century solutions.

The Problem
The emerging economies of the newly emerging North and South Sudan nations are inextricably linked to the oil resource which originates in South Sudan and transits to market via North Sudan.

This resource flow has rapidly led to what appears likely to be a fairly intractable dispute.

Both countries need:

– Equitable and sustainable agreement for the sharing of the oil resource;

– Equitable and sustainable agreement between them; financiers and funders; and service providers.

The Solution
This proposal outlines two innovations:

Nondominium – a framework agreement within which the two Sudans may engage with each other; with financiers and funders; with customers; and with service providers;

Units – undated credits which are accepted when presented by customers in payment for oil.

Nondominium – a Sudan Foundation
The proposal is that the two Sudans should form a Sudan Foundation legal entity, and commit to that entity, as custodian or steward, whatever rights in respect of of crude oil production, storage; transit and use they may agree.

Each Sudan would have agreed governance rights of veto under the Sudan Foundation agreement. This negative or passive veto right of stewardship is very different from conventional Western property rights of absolute ownership and temporary use, or the complex and problematic alternative of Trusts under Western Common Law.

The new term – Nondominium – reflects the fact that neither North nor South Sudan may impose its will on the other.

The Sudan Foundation would be a subscriber to a Sudan Partnership framework agreement between the nations; investors of money or money’s worth; and a consortium of service providers.

Sudan Partnership
The Sudan Partnership would not own anything; employ anyone or contract with anyone. It is not an organisation, but is rather an associative framework agreement within which the Sudans consensually agree in respect of the sustainable development of any resources which they may agree to incorporate.

The Sudan Partnership agreement is a framework agreement within which associative sub-agreements – ‘enterprise agreements’ – are concluded between stakeholders in respect of crude oil production; processing; transit; storage; logistics; administration and so on.

The Sudan Partnership creates and incorporates a ‘Pool’ of Sudanese oil, both in the ground and in transit, which is available for the financing and funding mechanism of Unitisation

Unitisation
A Unit is simply an undated credit or IOU issued – under the management of a service provider – by the Sudan Foundation on behalf of those stakeholders with a right to flows of production under the Sudan Partnership agreement.

Funding may be obtained by stakeholders through selling Units at a discount to investors and/or customers.

Example – Oil Loan
North Sudan sells to a Middle East fund – from its agreed %age entitlement – 10 million Units each redeemable in payment for one barrel of oil.

A price of $90 per barrel is agreed when the market price of this oil for ‘spot’ delivery is $100 per barrel.

North Sudan has fixed the price of 10 million barrels of existing stocks and future production and has an interest free loan of $900 million for as long as the Units remain in issue. If the price rises, North Sudan foregoes the gain; if the price falls, North Sudan has locked in a surplus.

The Middle East fund owns a valuable economic right, and may sell Units profitably if the price of crude oil rises or at a loss if the crude oil price falls.

If there are no financial buyers in the market if it wishes to sell, then a fund holding conventional oil investment instruments may be unable to sell other than at a massive loss. But Units may always be sold to customers if the Unit price is below the ‘spot’ market price of oil. So a trader with a need for a 600,000 barrel cargo may buy 600,000 Units from the Middle East fund if he perceives that the spot price of oil may rise by the time he takes physical delivery under a supply contract.

Outcomes
Firstly, through Nondominium and the Sudan Partnership, a resource sharing mechanism between the Sudans which is independent of the dollar price of oil.

Secondly, a simple but radical Sudan Partnership framework to engage with the private sector to develop and operate oil infrastructure so that the interests of the public and private sectors are truly aligned.

Finally, an optimal – and, serendipitously, entirely sharia’h compliant – financing and funding mechanism through Unitisation.

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Responses

  1. Hi Chris,

    I hope you don’t mind my contacting you this way, but I am writing a book on loan sharks at the moment and was hoping to interview you for that. My contact email address is carlpackman@hotmail.co.uk – I hope you’ll get in touch. Regards, Carl.


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