Thursday, 21 July 2011

South Sudan sells first oil, but still no agreement on transit fees

South Sudan's President Kiir is taking a hard line on oil revenues

South Sudan has sold its first oil as an independent country this week, despite the lack of an agreement on oil revenues with Sudan.

South Sudan, which declared independence from Khartoum on 9th July, sold 1 million barrels to Chinese buyer Chinaoil, a Petrochina subsidiary, on Monday 18th July. Reuters estimates the shipment to be worth US$110 million.

Director General for Energy in South Sudan, Arkangelo Okwang, said they would ship a further 600,000 barrels on 23rd July.

Okwang said he expected the north to bill the South for the use of its facilities, but that nothing had yet been decided.

Sudan fought a decades-long civil war, which ended with the signing of the Comprehensive Peace Agreement (CPA) in 2005. The CPA outlined a revenue-sharing agreement for oil, in which Sudan and the autonomous South Sudan each received 50 per cent.

Three-quarters of Sudan's 500,000 barrel-a-day output comes from the South, and is crucial to both countries economy. While much of the oil lies in South Sudan, the new nation lacks the infrastructure to exploit its reserves, and so the oil has to be moved to market through the north.

While South Sudan's President Salva Kiir said in June, 2010 that it would be possible for oil revenues to continue to be shared, he has taken an increasingly hard line in recent months.

On Wednesday 20th June, Kiir threatened to stop using the pipelines in Sudan if Khartoum insisted on sharing oil revenues as opposed to receiving transit fees.

“I am saying that we will rent the North's oil pipelines and we will give them money for our oil to be transported, and we will of course pay and there is no problem," Kiir said at a speech to a military base in South Sudan.

"However, this offer is unaccepted by the North. We have agreed on one thing that the oil issue should not be disrupted. They [Sudan] need oil. But we fought for 21 years without oil and we can still go for 3 years until we build our own oil infrastructure,” Kiir added.

Lead negotiator for South Sudan on oil issues, Pagan Amum, was reported in the Sudan Tribune as saying that the north had asked for “unfair and unreasonable” conditions of passage.
“They came with crazy ideas saying they are going to impose several transit fees – a usage fee, something called a normal transit fee, then something called a special fee – maybe $15 per barrel, even more – then maybe other charges, and they wanted revenue-sharing to continue,” Amum said.

Amum said the south was instead prepared to offer $3bn in “assistance” to the north and offered transit fees in line with international norms, citing 41 cents per barrel charged by the Chad-Cameroon pipeline, which is a similar-length.

Khartoum is keen to salvage as much from the south's oil supplies as possible, and Sudan's Finance Minister Ali Mahmood Hassanein said on 19th July that Khartoum was in the process of crafting laws which would set the fees they would expect the South to pay.

He said the fees would contain three levels based on the fact that oil passes through Sudan which requires the imposition of sovereign fees.

Khartoum has threatened to cut shipments of oil from the south along its piplines if the south refuses to pay transit fees or continuing sharing oil revenues. Likewise, Juba has said it will build its own oil infrastructure, moving the oil south, if Khartoum doesn't agree on transit fees.

A delegation from the South is expected to travel to the north to carry out talks soon.

Sources: Sudan Tribune, Reuters

For more information, please see the Menas Borders website, here.

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