Introduction: The Discovery of Oil in Sudan and What It Entails
According to the current set of regulations adopted in Sudan, approved in 2010, and used as the guidelines for the oil-and-gas financial strategies ever since the companies working in the identified industry are tax-exempt (Sudan, 2012). The identified peculiarity of the Sudan regulations implies that the company operating in the target environment is going to enjoy a plethora of opportunities for resource allocation.
We will write a custom Report on The Discovery of Oil Reserves in South Sudan specifically for you
301 certified writers online
Indeed, since entrepreneurship will not be subjected to taxation, the current financial assets can be distributed so that the latest and the most efficient equipment could be purchased (Mitchell, Marcel, and Mitchell, 2012). Furthermore, the money can and should be invested in the staff’s professional and personal development. The acquisition of technical skills needed to operate the machinery and leadership abilities required to supervise the crucial processes and increase quality rates will have to be considered as the primary course of entrepreneurship’s development.
Specifically, the existing options must be identified and assessed carefully. For this purpose, the use of a decision tree as the key tool in determining the most profitable solutions ought to be considered. By definition, the application of the decision tree model will help define which of the suggested solutions will lead to the greatest profit and the smallest number of losses (EY, 2014).
Apart from the use of the decision tree model, one should also undertake an extensive analysis of the target market. An exhaustive evaluation of the Sudan oil market and its current trends will provide a foil for the choice of the promotion campaign, the strategy for allocating resources, etc. Furthermore, the risks to which the organization will be exposed in the Sudan oil market environment will be defined and managed appropriately (Galli, Armstrong and Jehl, 1999).
Essential Players to Be Considered in Contract Negotiations
When considering the people that are going to play a crucial role in the success of the venture, one must mention the members of the Sudan government. As stressed above, the oil-producing industry is tax-exempt in Sudan; however, the rates of the governmental involvement in the process of corporate decision-making processes, as well as its influence on the choices that are made by the participants, are rather large. For instance, a recent report has shown that the state authorities have the right to call a moratorium on oil contracts (Global Witness, 2014). Therefore, it will be necessary to include the Sudan government into the list of the primary stakeholders.
The organization and its members are going to be another important stakeholder in the identified scenario. Indeed, the revenues of the firm and the financial wellbeing of its leaders, members, and employees hinge on the success of the venture. Thus, the entrepreneurship and the people contributing to its success should be considered as another set of stakeholders. The effects that the choices made in the course of negotiations will have on the parties involved are of especially great significance to the company (Roek and Delobbe, 2012).
Finally, the firm’s partners, including the current and the future ones, have to be incorporated in the range of players to be considered when carrying out negotiations. Since the needs of all parties involved must be taken into account, it is imperative to evaluate the effects that the firm’s choices will have on its business partners. For example, the strategy of allocating available financial resources needs to be reconsidered so that the company could operate successfully in the Sudan market (i.e., purchasing the necessary equipment, hiring and training the staff, creating an elaborate promotion campaign to attract prospective customers and investors, etc.).
Fiscal Regimes and Systems to Apply: Sudan’s Taxation System
As stressed above, the current Sudan taxation system does not imply that the companies operating in the oil and gas industry should be eligible for any form of taxes to the state. Because the organization will not pay taxes to the state authorities, the entrepreneurship is expected to grow rapidly in the target environment. As recent statistical data shows, the crude oil production industry has been delivering rather impressive results over the past few years (Cust and Harding, 2013).
Although the record of the previous decade does not show the tendency for the production rates to increase, the levels of crude oil processing have been comparatively stable except for the 2012 crisis (see Fig. 1 below). Therefore, the absence of taxes will serve as the premise for designing a flexible financial strategy that will help address the possible threats in the target market. Furthermore, the fact that the company will not have to deal with state taxes means that the financial resources can be used to improve the quality of the product.
Ensuring the Fair Share: the Government and Its Control over the Production
As stressed above, the state authorities are going to play an active part in the process of supervising the company’s essential transactions, as well as making decisions related to the design of the financial strategy, the legal issues, etc. However, the fair share that the government is going to have in the project may be minor.
In fact, a recent analysis of the issues that the oil industry is exposed to in the identified area shows that the process of ensuring the fair share is going to be rather tricky: “The CPA period witnessed repeated claims – by the Southern Sudanese regional government and by international NGOs – that South Sudan was being cheated of its fair share of the oil revenue” (James, 2015, p. 32).
On the one hand, the negative experience that the state authorities have had so far may become the driving force behind enhancing the current system of state control and, therefore, making sure that no instances of financial fraud should occur in the future. On the other hand, the change in the use of control systems and the state fiscal policies does not come easily. Thus, the organization may be exposed to a range of risks and burdened with an array of obligations, the need to ensure the fair share for the state being the primary one.
Possible Taxation Issues: The Peculiarities of the Sudan Policies
Even though the oil-producing organizations are legally exempt from taxation, they may be put under the consistent supervision of the related organizations. As stressed above, the state authorities are concerned with the threat of being deprived of their fair share of the firm’s revenues and the overall profit delivered by the SMEs operating in the oil industry environment. Therefore, the company will be exposed to a rather rigid control. Specifically, the supervision of the essential transactions by the Central Bank of the state, as well as regular public auditing, needs to be brought up among the crucial elements of the state policies on oil and gas producing organizations (Harding, 2012).
Herein lies the significance of clarity as the foundation for the corporate policies. Seeing that the threat of corporate fraud is rather high in the organization operating in an extremely profitable industry such as oil and gas (Sidahmed, 2016), it will be crucial to make sure that all corporate processes should be completely transparent. Thus, the possibility of corporate fraud will be reduced significantly (Larsen, Dimaano and Pido, 2014).
Get your first paper with 15% OFF
The transparency-based policy will prove especially successful when the organization will be subjected to a range of audits. The financial control executed over the corporate processes may trigger dire consequences for the firm unless every single stage of the transactions is fully clear. Therefore, despite being seemingly harsh, the regulations provided by the Sudan authorities guard the organizations operating in the oil and gas industry from being exposed to the threat of internal fraud.
Working in the context of the oil and gas industry, especially in the highly competitive market of Sudan, is an evidently challenging task. To create prerequisites for successful development, the members of the firm must carry out a scrupulous analysis of the specifics of the state fiscal system. Even though Sudan seems to offer a perfect environment for the organization to grow in, the focus on audits and consistent supervision may hamper the progress of the entrepreneurship. Nevertheless, the absence of taxation can be viewed as the platform for building a rigid and flexible cost allocation strategy that will help incorporate the principles of sustainability into the company’s design.
Cust, J. and Harding, T. (2013) Oil in South Sudan Implications from international experience.
EY (2014) Global oil and gas tax guide 2014.
Galli, A. G., Armstrong, M. and Jehl, B. (1999) ‘Comparison of three methods for evaluating oil projects’, Journal of Petroleum Technology, 51(10), pp. 44–49.
Global Witness. (2014) South Sudan: The call for a moratorium on new oil contracts.
Harding, T. (2012) The fiscal challenge of South Sudan.
James, L. M. (2015) Fields of control: oil and (in)security in Sudan and South Sudan.
Larsen, R. K., Dimaano, F. and Pido, M. P. (2014) The emerging oil palm agro-industry in Palawan, the Philippines: Livelihoods, environment and corporate accountability.
Mitchell, J., Marcel, V. and Mitchell, B. (2012) What next for the oil and gas industry?
Roek, R. E. and Delobbe, N. (2012) ‘Do environmental CSR initiatives serve organizations’ legitimacy in the oil industry? Exploring employees’ reactions through organizational identification theory’, Journal of Business Ethics, 110(4), pp. 397-412.
Sidahmed, A. (2016) Pursuing transparency in Sudan’s oil industry.
Trading Economics. (2016) Sudan crude oil production.