12/17/2012 05:52 pm ET Updated Feb 16, 2013

South Sudan's New Oil Laws Offer a Reason for Optimism

The news coming out of South Sudan these days paints a bleak picture. Between reports of widespread corruption, the use of live ammunition against peaceful protesters, the killing of a prominent political commentator, and delays restarting oil production, there doesn't seem to be much reason to believe the 16-month-old country will be stable and prosperous any time soon.

However, South Sudan's new oil laws may yet help turn things around.

The new legislation, including a final Petroleum Act and a draft Petroleum Revenue Management Bill, contains strong public reporting, contract allocation, and revenue management requirements. If implemented effectively, these requirements could go a long way in ensuring the country's oil is managed transparently and benefits all citizens.

So why is this so important? With independence in July 2011, South Sudan became both the newest and the most oil-dependent country in the world. Thanks to decades of civil war with and neglect by the government in Khartoum, the new country also suffered some of the world's worst poverty and health statistics.

Roughly six months after independence, the government took a controversial decision to shut down all crude oil production following a dispute with Sudan over confiscated export shipments. Oil exports brought in more than 98 percent of all government revenues at the time. The freeze forced major cuts on desperately needed public services and institution building projects, and drained the country's short-lived savings.

Limited resources, young institutions, and the production shutdown aren't South Sudan's only challenges to responsible oil governance. A now infamous letter from President Salva Kiir to 75 unnamed officials was leaked to the public earlier this year. In this letter, the president estimated that more than US$4 billion in public funds had been lost to corruption since the end of the civil war in 2005. According to the most recent public budget, this figure is roughly equivalent to 30 percent of all oil revenues ever received by the government.

Many write off corruption as endemic and inevitable in a new country governed largely by former rebel leaders, particularly when huge revenues came very suddenly and are derived from a notoriously complex and opaque industry. This does not have to be the case, however, and the government is attempting to fight corrupt practices by committing to managing its oil sector transparently. Prior to the drafting of the new laws, transparency was mentioned in almost every high-level speech by government officials and aid donors, and President Kiir announced last year that the country would be seeking membership of the Extractive Industries Transparency Initiative.

Such rhetoric is certainly important, if nothing but as a way to reassure citizens and international donors that corruption is not being ignored. However, now that the oil legislation has passed (or nearly, in the case of the Petroleum Revenue Management Bill) with strong transparency and accountability mechanisms, the time has come for the government to act on its commitments and focus on implementing these legal requirements.

Moreover, what happens in South Sudan has repercussions beyond its borders. As demonstrated by the current freeze, production in the new country's oil fields can significantly impact international markets and oil prices.

Support from key donors like the U.S., EU, and Norway is certainly on offer. But whether South Sudan's oil sector joins countries like Ghana, leading the way on oil sector transparency and accountability in the region, or falls prey to the 'resource curse', will come down to the government's commitment to implementing these new laws properly.