An alternative needed to northern Sudan pipeline

By Mariar Wuoi

August 17, 2010 — As Southern Sudan prepares to undertake referendum, it is imperative that we also think hard about our economic future. Nothing gets the attention of Southerners than their oil; and for a good reason. Oil revenues account for a staggering 98% of South’s revenues making its economy vulnerable to fluctuations in oil price and other pressures. When South chooses independence as many analysts expect, the question of how oil will be exported will be on the minds of policy makers. Economically, it is imperative that oil continues to flow via existing pipeline to the international markets in the Far East countries such as Japan and China. The current Energy minister, Dr. Lual Achuek, has been quoted as saying that it is economically unfeasible for South to build pipeline to Lamu Port on Kenya’s coast. And I agree with Dr. Lual on his insights. Under ideal conditions, South would be better off negotiating with North to continue using current pipeline to export its oil to the international markets. However, we do not have the luxury of ideal conditions. South will vulnerable to stringent political conditions from the North.

We have several examples of how reliance on other countries for your export can be fraught with uncertainties and changing political allegiances. The most recent notable example involved Russia and its neighbor Ukraine. Russia relies on pipelines running through Ukraine to export its gas to Western Europe markets. However, due to political tension between two former allies, access to pipeline took the center stage. Russian national gas company, the Gazprom, cut supplies to Ukraine to demand higher price for its product. In response, Ukraine took the logical step of siphoning gas destined for markets in Europe and also demanded higher transit fees. Russia was able to squeeze Ukraine into the corner because it had alternatives to pipeline passing over Ukrainian territory. South Sudan does not have such alternatives at the moment. North can continue to essentially demand 50% of oil revenues in form of exorbitant transit fees. In case of a return to war over the contentious oil-rich border regions, North can effectively choke South into submission by simply refusing to let South’s oil reach Port Sudan and beyond. After all, destroying an opponent’s economic base is a well-tested war strategy that has been successful in the past, and we cannot therefore expect a different outcome.

It is for this reason that it is necessary to revisit the issue of building a pipeline southward through Kenya. Kenya is a natural ally for South and, unlike North, would never entertain messing with our oil export.

Building a pipeline is an expensive undertaking no matter where it is done. Some estimates indicate that a pipeline to Lamu Port in Mombasa would cost upwards of $4 billion dollars. South cannot certainly shoulder this cost on its own. It would have to convince competent multinational companies that it is in their interest to invest in such a venture in return for a favorable access to South’s oil fields. Chinese oil companies might be interested in building a Kenya-South Sudan pipeline as long as conditions are that they will enjoy access to concessions. China’s energy-hungry economy cannot afford to be picky about where their oil comes from. South will continue to account for significant supplies to China for foreseeable future and thus would not have difficulty getting Chinese companies interested in the project.

If China proves susceptible to North’s pressure, Japan is another possible candidate that can be convinced to undertake such project. It’s reported that a notable Japanese company was interested in building Kenya-Sudan pipeline. A good chunk of Sudan’s oil exported ends up in refineries in Japan. It would not be such a bad idea to enjoy exclusive access to South’s oil in return for hassle-free deliveries. It is up to the Government of South Sudan, in conjunction with Kenyan government, to start serious negotiations with reputable companies. Kenya in particular is going to benefit immensely from access to discounted crude to power its Vision 2030 economic plans. Uganda, which has its oil reserves, would also be keenly interested in being part of this project for obvious reasons.

North’s strategy is to make sure that South fails within the first five years of achieving independence so that its warnings can prove prescient. The only argument North is spreading around is that separation would set a precedent for Africa and that South will become a failed state. It has not escaped the attention of NCP leadership that South is most vulnerable economically because of its near-total dependence on oil. Additionally, oil revenues fund South’s military budget and North can therefore hamper economic development in South and deprive it of money it needs to wage a successful war.

So it can be expected that at the heart of its overall strategy is to make it difficult for South to export its oil and deprives it of hard currency. North can always blackmail South into towing its policy orientations and designs in the region and if the South deviates, it can expect its oil export to be blocked. South would therefore have to endure short term economic burden of building an uneconomically feasible pipeline so that it realizes the benefits of stable oil export. At the moment, it is attractive to consider using existing pipeline but in reality, it is a risky choice that we will regret in the near future. Our economic peace of mind depends on decisions we make today. Are we willing to risk our development by letting North control our access to the international markets? We would collectively agree that this would be a wrong-footed way for our country. South needs an alternative to North’s pipeline so that we can weather any mischief being cooked up in the halls of power in Khartoum.

The author is a Sudanese residing and studying in the US. Mariar Wuoi is currently finishing his thesis in Environmental Health and Engineering MS program. He holds first degrees in Geosciences and Geographic Information Systems and minors in Energy Economics. He can be reached at [email protected].