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After Being Offline Since 2011, South Sudan Oil to Flow Again

By John Daly | Mon, 19 November 2012 18:29 | 0

On 14 November, South Sudan President Salva Kiir declared during a meeting he held in Juba with visiting Kenyan deputy Prime Minister Uhuru Kenyatta that his country's oil production will be restarted next week after being suspended for nearly a year in the wake of deadlocked discussions with Khartoum on transit fees that South Sudan was to pay to use Sudan’s pipeline network. Kiir told journalists, "It is after the successful completion of negotiations with the Sudan (that we) will re-launch the transportation of oil next week."

The announcement represents a rare triumph of fiscal reality over politics, with both countries suffering massive revenue losses over the shutdown. Two months ago the two nations reached an agreement on the oil - driven primarily by the mounting economic difficulties both countries faced by an oil shutdown, which denied them billions of dollars in revenues. Under the tentative agreement, South Sudan will pay $9.10- $11 a barrel to export its crude through Sudan’s pipeline network. In addition, Juba will also pay a one-time fee of $3.08 billion to help Sudan overcome the loss of three quarters of its oil production due to South Sudan’s secession and subsequent vote for independence in an internationally supervised plebiscite in July 2011, which unfortunately lack bilateral agreements on oil and other issues and which in April 2012 subsequently led to a conflict over the disputed Abyei border area.

Juba was driven back to the negotiating table by the startling fact that, prior to the shutdown, oil accounted for 98% of South Sudan’s government income.

South Sudan Minister of Petroleum and Mining Stephen Dhieu after the Council of Ministers and National parliament ratified cooperation agreement signed in Addis-Ababa late last month instructed foreign oil companies and pipeline operators working in South Sudan to recommence the production of crude oil within production blocs 1, 2, 4, 7, and 5A.

Putting a spin on Juba’s fiscal hemorrhaging Dhieu said the nine-month shutdown "had served its purpose to protect the sovereignty and patrimony of the nation" and had ensured "once again that the South Sudanese People may exercise the right to enjoy the full benefits of their resources. We assume that in 90 days part of our oil will be getting its way to the international market. Not 100 percent but we will be able to produce and export the crude oil of South Sudan within three months."

Left unsaid was the fact that 90 percent of South Sudanese live below the poverty line on less than 50¢ a day.

The agreement represents a significant climb-down by both countries, as a year ago South Sudan offered to pay a mere 70¢ for each barrel sent through the Sudanese pipelines, but authorities in Khartoum were demanding $36 a barrel.

But there are still a few potential roadblocks, as after the accord was signed Sudanese oil minister Awad al-Jaz in Khartoum told South Sudan's oil Undersecretary Machar Aciek Ader Nyang that implementing the oil accord was contingent upon finalizing a deal on security arrangements. For his part Nyang told reporters upon arriving in Khartoum that South Sudan oil will reach global markets by year end and stressed the importance of cooperation between the two countries on areas related to oil.

Sudan’s Oil Ministry Secretary General Awad Abdel Fattah told reporters that South Sudan oil will arrive at Port Sudan terminals within two months if a deal on security arrangements agreement is reached.

And what is exactly meant by “security arrangements?” Sudan accuses South Sudan of supporting insurgents fighting its military forces in the border states of Blue Nile and South Kordofan, a charge that Juba strongly denies.

Still, in an area hardly know as anything but a byword for poverty, the agreement is a hopeful sign that both Khartoum and Juba can manage to work together in a transit agreement that can only benefit them both.

By. John C.K. Daly of Oilprice.com

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