The decision by the presidents of Sudan and South Sudan implement all outstanding agreements between their two countries during their recent summit in Addis Ababa, Ethiopia, was apparently a move to save their struggling economies from getting worse.

Though the accord reached in Addis Ababa is a signal to international oil companies operating in South Sudan such as the China National Petroleum Co., Petronas, and NilePet to begin preparations to restart production, there is no exact date yet to resume oil exports. South Sudan is believed by oil experts to have seven billion barrels in proven reserves although more oil wells could be drilled to boost reserves.

Dau said oil exports could begin in March. One oil expert in Lagos, Nigeria, said South Sudan may get back to its previous output of 350,000 b/d by July 2013 if all outstanding agreements are implemented without further delay.

South Sudan abruptly stopped its output in January 2012. This represented about three-fourths of the former undivided Sudan’s crude oil production. The action, South Sudan officials said, was sparked by tensions over failed attempts to reach an agreement with Sudan on pipeline fees and accusations that Sudan was stealing oil from South Sudan.

Oil revenues constitute more than 98% of the government of South Sudan’s budget, according to its Ministry of Finance and Economic Planning, and the source of nearly all its foreign currency. The crude oil is in landlocked South Sudan while the oil export pipelines run through the north in Sudan.

Sudan needs the petrodollars it gets as transit fees. High oil prices had helped the growth of Sudan’s GDP. However, economists said the abrupt oil shut down led to huge loss of income and lower values of the currencies of both countries, driving up the cost of imports.

It was in the interests of Pres. Omar Al -Bashir of Sudan and his South Sudanese counterpart Salva Kiir to agree to an accord at their Addis Ababa summit on Jan. 4-5, 2013, that stipulates the immediate implementation of the cooperation agreements that were reached in September 2012 but were never implemented.

A release issued Jan. 5, 2013, by the African Union High Level Implementation Panel (AUHIP), which mediated the talks, said, “The AUHIP will act immediately to draw up a matrix with timeframes for the speedy, unconditional, and coordinated implementation of all these agreements with the implementation proceeding immediately. The matrix should be ready by Jan. 13, 2013.”

The September 2012 agreements included the establishment of a long-delayed demilitarized buffer zone along the disputed border, reopening of border points for general trade, and restarting southern oil exports through pipelines in the north in Sudan.

Sudan had charged $36 a barrel to transport oil through the pipelines in its territory to the oil terminal at Port Sudan but South Sudan rejected the fees.

The countries’ negotiating teams in August 2012 reached an agreement on tariff and transit fees for using Sudan’s oil infrastructure to export South Sudan crude, according to a release signed by Stephen Dhieu Dau, Minister of Petroleum and Mining of South Sudan in Juba.

The agreement stipulated that South Sudan will pay a fee of $11 per barrel to use the Nile Blend (Western) Pipeline and $9.10 per barrel to use the Dar Blend (Eastern) Pipeline. These fees include all transportation, transit, processing, and marine terminal costs associated with transporting crude oil through Sudan’s pipelines.

To help bridge Sudan’s budget shortfall as a result of South Sudan’s secession in 2011, South Sudan has offered to pay Sudan, over a three-and-a-half year period a total of amount of $3.03 billion. This is separate from the pipeline transportation fees. The government in Juba called the payment “direct transitional financial assistance to Sudan equivalent to one-third of Sudan’s financial gap resulting from the loss of South Sudan’s oil.”

Upon signing the agreements, the South Sudan Ministry of Petroleum will work closely with the oil operating companies in South Sudan to determine the timelines for restarting production and exports.

South Sudanese Petroleum and Mining Ministry, will continue to implement the signed memorandum of understanding (MOU) with Kenya, Ethiopia, and Djibouti to establish alternative pipelines and other petroleum infrastructure projects vital to the development of South Sudan’s economy.

Dau said the MOU with Kenya on economic cooperation includes the development of a crude oil pipeline between the oil fields of South Sudan and the port of Lamu in Kenya.

Though a pipeline to Kenya will give South Sudan complete economic independence from Sudan, experts say such a pipeline will face technical and security challenges.

Luke Patey, a research fellow at the Danish Institute for International Studies stated that South Sudan’s main oil production is connected to Sudan by a 1,360-km (816-mile) pipeline from the Melut basin of Upper Nile state. The proposed alternative to Lamu would be around 1,800 km (1,080 miles), depending on the route through Kenya.

The new route, he said, may cross the impoverished, and bandit-riddled territories of northern Kenya, where Nigerian-style oil theft and pipeline sabotage could potentially be a problem.

“Economically, the best scenario for South Sudan’s oil is undoubtedly to stop pipe-dreaming, work out an agreement with Sudan, and continue to send its oil north,” he said.

But, Patey added, the longer it takes to foster stable relations over oil, the more likely the people of South Sudan may one day hit the streets in celebration of a new pipeline.

Obafemi Oredein

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