South Sudan shutdown of oil production not wise

By Steve Paterno

January 22, 2012 — South Sudanese leaders are always accustomed to blaming the Northern Sudanese rulers and in the process forgetting their own responsibilities and faults. However, they will not continue to shift the blames as they will be demanded to own up to their responsibilities. For the last six years, South Sudan has been relying entirely on oil revenue for its budgetary needs. Nonetheless, no one South Sudanese leader bothered to push for investment in the oil industry, which is actually the only source of revenue. Instead, much of this oil money is squandered through rampant corruption, shady contract deals, and gross mismanagement.

When South Sudan obtained its independence last July, the new state found itself with only oil wells, but nothing else. The oil refineries are laying in the North. The pipelines for transporting the oil to the world market cross through the North. Oil workers with the most expertise who are Northerners, decamped. The few South Sudanese workers who are left behind can hardly cope up with the workload. Even their basic necessity such as food rations, which were supplied to them from the North are now dwindling. This resulted into a drastic reduction of South Sudanese oil output for the last several months.

Knowing too well that South Sudan is facing such serious dilemma, Sudan government and oil companies resorted into blackmailing and extorting South Sudan to paying huge and unreasonable charged fees for facilities and land usage. Since then, both South Sudan and Sudan could not agree on the amount. Faced with the standoff, Sudan unilaterally enacted a legislation, legally empowering its ministry of energy to confiscate South Sudanese oil as it deems necessary so as to compensate for what Sudan considers to be the charges.

This unilateral move compels South Sudan to plan for the shutdown of all its oil production, while it seeks alternative transportation routes. Even though the shutdown will deny Sudan certain percentage of revenues, it actually adversely affects South Sudan more. For Sudan, South Sudan is calling a bluff, since it has no alternatives, at least in the foreseeable future. So, Khartoum lies and wait for South Sudan to come running back. The compounding challenges facing South Sudan are quite enormous.

First, South Sudan is depending almost a hundred percent on oil revenue. The country cannot afford to survive without the oil revenue. To make matters worse, a bulk of South Sudanese budget is spent on salaries. This will mean even a minor halt or adjustment in oil revenue generation can negatively reflects on the employees who expect their salaries on monthly basis.

Second, South Sudan can never be able to switch quickly from an oil revenue base economy into another source of revenue generating economy. The taxation system which is supposed to be an alternative and is estimated in billions is in state of disarray. Few well placed individuals are actually pocketing the collected tax revenues, while the other potentially taxable sources are untouched. Agriculture, which is a quintessential for South Sudanese livelihood and would have been great source of revenue is left in waste. South Sudanese import their food from their neighboring countries, including from the Sudan. Very soon, with the lost of oil revenue, many people, especially the salaried employees will have no more money to purchase those expensive imported food. With the world financial crunch, international donations are hardly coming in. Besides, those international aids come with strings attached, the conditions that South Sudan can barely meet, since it has no system for accountability. The only readily available option for South Sudan for a financial rescued package are loans. But why spend and even squander the money you don’t have, which will create huge burden to the South Sudanese posterity and hinder the potential for future growth.

Third, for South Sudan to seek alternative routes for transporting its oil for sale, it is rather a long term plan, not a quick fix to the current crisis the country is facing. First of all, if there is such a plan of constructing a pipeline or building a railroad, it must address the current issues as well as considering all the future implications of such a plan. Secondly, the plan will require enormous amount of time from the day it is envisioned to the day it is finalized and ready to be operational. Thirdly, this plan will cost a substantial amount of money—the money South Sudan is losing currently through lost of oil revenue, corruption, and mismanagement.

Let the South Sudanese leaders be realistic on handling this crisis by embarking on practical solutions than trying to be sentimental. Just last December South Sudanese Vice President Riek Machar announced a grandiose plan of making South Sudan the ’hub’ of seaports shipments in Africa, connected by highways, railroads, airports and the likes. This fantasized plan, which sounds more like a joke, is coming from a leader of a country that cannot even transport its own oil—the oil that the country feeds on—a clear indication that some of these South Sudanese leaders are totally out of sync with the reality. In this case, the notion of prioritization is replaced with romanticized ideas.

What South Sudan needs now is not some absurd and baloney plans, but rather a political will and negotiating skills to strike a quick deal with Sudan on an interim basis. Such an agreement should not be permanent. It must be subject to renewal within a given short period of time, while the negotiations between the two countries continue until a permanent agreeable solution is found. This is the only viable alternative that can guarantee South Sudan continuous flow of revenue as oppose to the total shutdown of the only source of revenue. As South Sudan is pursuing alternative routes for transporting its oil, it must ensure proper management of its finances by clambering down on corruption and making sound investments along the way. The country must then simultaneously seek ways to diversify its economy so as to avoid over reliance on oil as the only source of revenue. After all, the oil is not going to be there forever. With that said, South Sudan has more to lose under the current prevailing situation.

Steve Paterno is the author of The Rev. Fr. Saturnino Lohure, A Romain Catholic Priest Turned Rebel. He can be reached at [email protected]