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More than a year after South Sudan abruptly stopped its oil output in January 2012 after Sudan imposed “exorbitant” transit fees and tariffs, oil export has not resumed and it is uncertain when it will restart.
However, Minister of Petroleum and Mining of South Sudan Steven Dhieu Dau was optimistic and said oil export from landlocked South Sudan through pipelines in the north in Sudan could begin in March 2013.
The inactivity has left both countries in dire straits and comes despite the presidents of both countries reaching an accord at the Addis Ababa summit on Jan. 4-5, 2013, following talks mediated by the African Union High Level Implementation Panel. Hopes were that oil companies in South Sudan such as China National Petroleum Co., Petronas, and NilePet would resume oil production.
President Omar Al-Bashir of Sudan and his South Sudan counterpart Salva Kiir agreed to immediately implement cooperation agreements that were reached in September 2012 but were never executed. The two countries agreed to end hostilities, create a demilitarized border zone, and restart oil exports.
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 of its foreign currency. Also, Sudan needs the petrodollars it gets as transit fees for allowing South Sudan to send its oil through its pipelines to the export terminal at Port Sudan.
Both sides have expressed support for settling outstanding differences by creating demilitarized zones along the border and resuming oil production.
However, the most important point of difference remains the relationship between the South and the Sudan People’s Liberation Movement-North (SPLM-N) that is fighting against the Sudanese army in South Kordofan and Blue Nile. Sudan has repeatedly demanded that South Sudan disengage with the rebels before allowing its neighbor to use its oil infrastructure and maritime port.
South Sudan insists it severed ties with SPLM-N three months before its independence in July 2011, adding that Southern Kordofan and Blue Nile are in Sudan and Juba cannot be expected to disarm rebels in the territory of another country.
South Kordofan state and Blue Nile state, sometimes referred to as the “Two Areas,” are located along Sudan’s volatile southern border with South Sudan. “Security will only come if Sudan cooperates with South Sudan and begins direct talks with the SPLM-N to address the Two Areas conflict,” US State Department spokeswoman Victoria Nuland said in a release.
Nuland added “the government of Sudan’s intent to postpone the restart of oil production until the implementation of security arrangements runs counter to the fundamental principles of the (September) accord and continues to undermine the economic and security situation in both states.”
There is a stalemate and disappointment that neither side can live up to its own agreements.
Pagan Amum, South Sudan negotiator at the talks with Sudan, said “The only way out of this is to abandon all ideas about oil flowing through Sudan and build refineries inside South Sudan and alternative pipelines to the Indian Ocean.”
Amum, who also is the secretary general of South Sudan’s ruling party, said as long as Sudan continues its preconditions, the two countries will find themselves in a state of no war, no peace, no flow of oil, and no trade.
South Sudan appears convinced that it has to look for an alternative route to export its crude production of 350,000 b/d of oil, and has stepped up the search for alternative pipelines routes. The government is looking to build an alternative pipeline to connect the country to the East African coast through three possible routes: Ethiopia-Djibouti, Uganda-Kenya, or directly through Kenya to a proposed new port in Lamu.
In September 2012, South Sudan signed an intergovernmental agreement with Ethiopia and Djibouti to create a mechanism for the construction of a pipeline through their countries.
The South Sudanese government in a press release in August 2012 said it has signed a memorandum of understanding (MOU) with the government of Kenya and the areas of cooperation include the development of a crude pipeline between the oil fields of South Sudan and the port of Lamu in Kenya. The MOU further established a joint coordinating commission to fast-track the development of the pipeline.
Dau told the Sudan Tribune in February 2013 that work on the alternative pipeline is due to begin in October, but added the route still needed to be decided.
ILF, a German company, and the South Sudan government signed a contract in February 2013 on pipeline feasibility studies on both ports through Lamu port in Kenya and Ethiopia-Djibouti port.
Barnaba Marial Benjamin, South Sudan’s information minister, said the Lamu project estimated to cost US $22 billion to $23 billion is a multi-approach project that includes the construction of highways, tourist cities, a pipeline (South Sudan-Kenya pipeline), the port, an airfield, and railway lines connecting the two countries. He expressed optimism that South Sudan could export its oil via the Kenyan transport link by 2014, if construction started immediately after completion of feasibility studies on the proposed route.
“There is deep mistrust between both countries after decades of war. South Sudan wants total economic independence from Sudan, and this is a key reason why it wants to build an alternative pipeline despite the huge cost of such a pipeline,” an oil and gas expert in Lagos, Nigeria, said. South Sudan separated from Sudan in 2011.
He said the pipeline will face technical and security challenges as it has to be built across rough terrain and bandit-stricken regions in northern Kenya.
Perhaps it would be better for South Sudan to begin a new pipeline for its oil export now because even if the September 2012 agreements are implemented there is no guarantee that new problems will not start between both countries in future that may also lead to oil shut down by South Sudan.
Gatwech Thich, director of pipelines at South Sudan’s Ministry of Petroleum and Mining, said regardless of the route the government of South Sudan eventually deems to be the most appropriate, construction of the pipeline will begin in October 2013.
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