Another Snag for Oil From South Sudan

John C.K. Daly

World markets will have wait a little longer for oil from South Sudan; last minute wrangling with its northern neighbor has put production and transit plans on hold.

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The deadlock comes just as it seemed negotiations between the two countries had finally reached fruition.

"It is after the successful completion of negotiations with the Sudan (that we) will re-launch the transportation of oil next week," South Sudan President Salva Kiir declared during a Nov. 14 meeting in Juba with visiting Kenyan deputy Prime Minister Uhuru Kenyatta. Production has been 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.

The announcement represented a rare triumph of fiscal reality over politics, with both countries suffering massive revenue losses over the shutdown. But it was shattered before it could become a reality. On Nov. 20, Kiir announced that production resumption would again be delayed after Khartoum changed its mind over a border resolution agreement.

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Two months ago the two nations reached an agreement on 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 would have paid $9.10 to $11 a barrel to export its crude through Sudan's pipeline network. In addition, Juba would also have paid 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. A subsequent vote for independence in an internationally supervised plebiscite in July 2011, unfortunately lacked bilateral agreements on oil and other issues, which in April 2012  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 percent 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.

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 cents a day.

The agreement — now dead in the water — had represented a significant climbdown by both countries, as a year ago South Sudan offered to pay a mere 70 cents for each barrel sent through the Sudanese pipelines, but authorities in Khartoum were demanding $36 a barrel.

But there were always 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 had told reporters that South Sudan oil would 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.

—This story originally appeared on Oilprice.com.

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