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South Sudan's Loan For Oil Advances Reaching Dangerous Heights

South Sudan Pound

South Sudan, ravaged by years of conflict, should immediately stop contracting expensive and nontransparent oil advances, the International Monetary Fund (IMF) said in its latest report on the African nation, which has taken loans from Chinese companies with the promise to repay them with proceeds from future oil revenues—from oil it has yet to get out of the ground.

South Sudan is still struggling to return to the level of oil production it had at the start of this decade, after the civil war and the oil price crash nearly halved its oil output.

South Sudan broke from Sudan in 2011 and took with it around 350,000 bpd in oil production. But then civil war in South Sudan broke out in 2013 that further complicated oil production. The oil price crash the following year additionally affected oil income and oil production in South Sudan.

Hoping to out an end to this war, South Sudan’s government and rebels signed a power-sharing agreement in September 2018. Oil production at some oil fields that were shut in at the start of the conflict has resumed. 

Strugglingto get it’s oil industry back on its feet, South Sudan is now looking to pump more than 350,000 bpd of oil by the middle of next year, compared to current production of just 140,000 bpd, South Sudan’s Oil Minister Ezekiel Lul Gatkuoth said earlier this year.

However, until more oil is really pumped out of the ground, South Sudan should carefully manage oil revenues and stop taking oil advances and focus on spending those revenues on immediate peace-related purposes instead, according to the IMF.

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“On the management of oil revenues, the mission urges the authorities to immediately stop contracting oil advances that are expensive and nontransparent. This measure will also help to ensure that oil revenues will be fully available for financing budgetary spending,” the IMF said.

In addition, those oil advances are tightening South Sudan’s finances, the fund said, noting that “Fiscal conditions for the remainder of 2018/19 will be constrained by large repayments of oil advances. With a tight resource envelope, the authorities should strictly prioritize core peace-related spending and payment of civil servant salaries.”

Apart from extending loans, Chinese companies are also dominant in South Sudan’s oil industry. Oil Minister Gatkuoth met with CNPC in Beijing earlier this month and urged the Chinese state energy conglomerate “to bring new production on-stream at its concessions by exploring for new oilfields.”

By Tsvetana Paraskova for Oilprice.com

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