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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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China-South Sudan Oil Deal Raises Red Flags

China has long been criticized for imposing massive debt on developing countries as well as securing their natural resources to help them build up infrastructure with funding by Beijing, something about which the U.S. has been especially vocal, particularly in Africa and South Asia. Now, that criticism will likely be taken to a new level.

On Friday, South Sudan’s information minister Michael Makuei Lueth told reporters in Juba, the capital, that the country will provide 30,000 barrels of oil per day to state-owned lender Export-Import Bank of China to help fund South Sudan’s largest infrastructure project, which is being funded by Beijing. The amount has tripled from the 10,000 barrels of oil per day it provided to China in February. South Sudan, which produces around 170,000 barrels of oil per day, gained its independence from Sudan in 2011 after years of Civil War which saw China supply Sudan with arms and financing in-spite of allegations of human rights abuses.

Since South Sudan gained independence it has also been embroiled in civil war as troops and militias backing President Salva Kiir square off against former Vice President Riek Machar.  A peace deal was signed in 2018 to end the war, but the situation still simmers, with atrocities being committed by both sides, according to recent media reports.

The UN Human Rights Council released a report in February describing what it believes is actually funding the war - the country's rich oil industry. The UN report added that “even before the country’s independence, there were concerns about the appropriation of natural resources, particularly oil, and the significant role this has played in the conflict. The fighting continues in the oil-producing areas of the country, which has become increasingly militarized by Government forces.” Related: EV Superchargers Are Already Here… But There’s A Catch

Belt and Road Initiative

Lueth added in his statements on Friday “we have adopted the policy of oil for development. The [South Sudanese] cabinet approved an additional 20,000 drums to make it 30,000 drums per day to be deposited in an account in China for infrastructure, especially for the roads and other development.”  He added that the crude will fund projects, part of China’s Belt and Road Initiative, including a 244-mile (392-km) road from Juba to Rumbek in the central region, with work set to begin in mid-April. Other routes are planned from the south to the Bahr el-Ghazal region and from Juba to Nadapal on the Kenyan border. China’s Shandong Hi-speed is carrying out the construction, which will take 36 months to complete, he said.

South Sudan gained independence from Sudan in July 2011. Although most of the oil production capacity in those two countries is in South Sudan, the country is landlocked and remains dependent on Sudan’s export pipelines and port.

Civil unrest, disagreements over oil revenue sharing, and border disputes have curtailed oil production and investment in both countries, the U.S. Energy Information Administration said recently. Disruptions in oil production, disputes over oil revenue sharing, and lower oil prices have had a negative effect on both economies.

According to BP’s Statistical Review of World Energy, Sudan and South Sudan had 1.5 billion barrels and 3.5 billion barrels of proved oil reserves, as of January 1, 2017, respectively. Most of these reserves are located in the oil-rich Muglad and Melut basins, which extend into both countries. Oil and natural gas exploration in Sudan and South Sudan is limited outside of these basins because of the lack of evidence of prospective acreage and the persistent civil unrest affecting both countries.

By Tim Daiss For Oilprice.com

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  • Mamdouh Salameh on April 09 2019 said:
    I see no red flags whatsoever. China’s policy of financing infrastructure projects in developing countries is helping countries grow economically by enabling them to secure cheap finance which they wouldn’t otherwise have secured from most western sources. Moreover, China doesn’t impose its financial loans on countries of the world. They ask for Chinese loans to help diversify their economies or to finance certain projects and also because they can’t secure soft loans from western sources or from the World Bank or the International Monetary Funds without having tough and sometimes paralysing conditions imposed on them. South Sudan is no exception.

    South Sudan is using oil for development. By offering China 30,000 barrels a day (b/d), South Sudan will be able to get funds to finance its infrastructure. This is a fair and mutually beneficial deal

    This policy is part and parcel of China’s One Belt One Road initiative (BRI) seeking to bolster existing trade routes through Southeast, South and Central Asia, right through to Europe through infrastructure projects. The Chinese say that if you want to get rich, build roads first.

    Critics have described the plan as neo-colonialism, as a strategic ploy to enhance China’s military power outside its borders or as a plot to ensnare countries in debt traps that eventually force them to hand over territory and strategic assets.

    China retorts that the primary focus of the BRI is to build much-needed infrastructure in places where such investment has long been neglected. China contrasts the intentions of the BRI with those of the post-second war Marshall Plan, which had clear geopolitical and ideological objectives. In contrast, the BRI is an initiative for international economic co-operation.

    So far, more than 130 countries have signed agreements or memoranda of understanding with China on the BRI.

    Of course, there are mutual benefits to China and countries receiving its largess. China’s economy is being enhanced by expanding trade with these countries and they grow economically faster.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • John Michael Voss on April 09 2019 said:
    In part these concerns are valid, but in part it is the jealous bickering from those who were left out. It s not China s fault, is it, that neither the US nor Europe want to put comparable venture capital at risk and execute large infrastructure projects without any immediate payment. Basically there is enough work for everyone. It would be in South Sudan s best interest not to grant monopolies...

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