South Sudan: Oil and financial crisis
By Aldo Ajou Deng Akuey
February 29, 2012 — The Republic of South Sudan is currently facing a financial crisis that has been provoked by the closure of the pipeline. While I full support the Government on their decision to close the pipeline and I feel, along with many others, the concern and indignation on the aggression being displayed by the Khartoum regime in the North, I still believe that we should seek a solution to this problem through intelligent dialogue and negotiations that should lead both the Republic of South Sudan and the Republic of Sudan to reach a mutually agreed compromise on terms and conditions that are good for all parties concerned.
To quote an article published by the Financial Times “But its decision to halt oil production, part of a year-long dispute with former warring foe Sudan, could threaten not only the foreign investment that has started to trickle in but also have a disastrous impact on the world’s newest country. Besides being the newest country in the world, South Sudan is also one of the poorest and most fragile”.
“Oil brings in nearly all income and keeps state salaries and the army – which soaks up 40 per cent of spending in a country wracked by internal conflicts – afloat. The oil crisis comes at a difficult time. Nearly a third of the country’s 8.3m population are expected to need food aid this year and half a million South Sudanese may be expelled from Sudan by April”.
The attempts to settle this dispute should continue to be exerted by the AU negotiators to bring the two countries together in agreement on the transportation of oil through the Sudan Pipeline, and through the Sudan seaport. These attempts to settle the matter peacefully and through proper diplomatic relationship is the proper way of conducting such negotiations will succeed if all the parties sit down at the negotiating table with the will to negotiate, and by approaching the negotiations not as antagonists who are using historical fact to use the negotiations as a forum to speak their mind on past grievances.
The economies of both the North and the South are being badly damaged by the failure of the negotiators to reach agreement, and it seems as though each side is convinced that the other side is being damaged more by this current economic war than their opponents.
It seems to me that the Republic of Sudan’s plans of aggression have gone too far to be stopped by these negotiations, or is it still possible through diplomacy and international pressure to stop this talk of aggression and the posturing by the North of it’s military strength. Sudan’s belligerence has been, and will continue to be for the development of this delaying process into a situation of devastating violence that they have stated that they wish to visit on us as a Nation. It would appear as though they have advanced in their war plans with the intention of extending their borders beyond the oil fields of Malute, Renk, Abyei, Bentieu and Aweil. These indications are apparent by statements made in the Republic of Sudan and are the early warning signs of proposed war plans that are being made, and can be confirmed by the movement of troops and military equipment into the border areas. It is a known fact that Bashir has instructed his air force to bomb the areas along our borders, including reported bombings in our sovereign territory. What are our plans in terms of either peace or war?
In peace, we have done our best to sustain the values incorporated in the CPA and abide by the terms and conditions contained therein. We condoned the fact that Sudan (Northern Sudan at that time) was not living up to its commitments, but was more interested in exploiting us in the South and continued to pump our oil for a quick market abroad, and for its Refineries inside the Republic of Sudan to continue and make profit at the expense of the South. Frankly speaking, the Republic of Sudan was never for the freedom of the South, but was forced to accept it because our referendum proved that we wanted to separate, and the International community put a lot of pressure on the Khartoum regime to accept our independence. In war, it must be remembered that we were driven from our land, and then we came back and took it back again against overwhelming odds. The people that suffered the effects of the wars and will suffer again, are the civilian populations, but soldiers never die, because there are always people who are prepared to fight for their rights, and they will ultimately win.
The main reason why we still have the border and pipeline transport and transit issues today, is because the North did not want to agree to the conditions set out in the CPA, because it affected Oil and their rights to our oil, and they knew that these issues if resolved would have a devastating impact on their economy, which has subsequently proved to be correct now that we are in control of our own oil. With the understanding that we in the Republic of South Sudan are capable of controlling our own oil resources, I am of the opinion that the Bashir regime in Khartoum has decided that it will invade our oil fields and extend their boundaries, annex or dominate all our oil producing areas for as long as they can, in order to get the oil flowing again and support their economy which has become oil dependant, and is now oil dependant on the Republic of South Sudan for it to be able to sustain its economy. If the Republic of Sudan decides to go the military route and invade or annex our lands, then we must fight to retain it, or regain it as we did in the last war.
Recently, when his Excellency the President Salva Kiir Mayardit decided to close down the oil fields, it became apparent that there were many more oil wells than were declared by the oil companies. It is an acknowledged fact that the metering system on the pipeline was not working, so therefore no accurate measure could be put against the production from the fields. In simple terms, we were being cheated by the Khartoum regime, as well as the oil companies that were producing. How much revenue did we lose from the signing of the CPA is a question that will never be answered unless there is a full audit done on the oil companies production records. Khartoum cries today, but was quite comfortable to pump and sell our oil prior to the signing of the CPA. Sudan started exporting Crude oil in the last quarter of 1999. What happened to the South’s share of oil from 1999 up to the signing of the CPA? Where did the money come from to build the oil infrastructure of pipelines and refineries in the Republic of Sudan? From the 75% of oil produced in the Republic of South Sudan is where the money came from, and therefore, we should have a 75% share in the entire oil sector infrastructure established in the North, because they spent nothing on us in the south after 1999 when they started exporting our oil.
The Greater Nile Oil Pipeline was constructed by the Greater Nile Petroleum Operating Company (GNPOC) and commenced operation in 1999. It is operated by the China National Petroleum Corporation (CNPC) which is a 40% stakeholder in GNPOC. GNPOC is a joint operating company owned by:
China National Petroleum Corporation: 40%
Petronas Carigali Overseas of Malaysia: 30%
ONGC Videsh (the overseas arm of ONGC) of India: 25%
Sudapet of Sudan: 5%
According to my information, the pipeline is not yet an asset of the Republic of Sudan, as it was financed and built by GNOPC in the above joint venture and only becomes an asset of the Republic of Sudan in 2013. As a commercial operation, it would have been charging itself as an exploration and production company as well as the other partners and exploration and production companies that use the pipeline a fee. It would be good for us to know what they were charging as a transport fee during the time of the Government of National Unity and use that as a benchmark for what we should be negotiating for now.
As a nation, I believe that the people of the Republic of South Sudan, as well as those of the Republic of Sudan are tired of war. Our joint task as neighbours should be for us to identify the need to seek a peaceful solution and settlement in order to divert the impending crisis of impending military aggression and economic ruin that faces both countries. As I said earlier, that in order to be able to do this, we need to continue with the present dialogue and continue with the AU process in Addis Ababa. I propose that we stick to what would be considered as fair and reasonable international tariffs and transit fees and commercial terms for the use of the pipeline, such as are being charged in Chad and the Cameroons for example.
As a nation, we should understand that the pipeline was developed with the proceeds from the majority of oil from the South, and we should understand that the regime in Khartoum built their economy on oil from the South. Let us accept that Khartoum became an oil dependant nation and that Bashir never thought that the South would secede from the North. I firmly believe that both the Governments of the North and the South should seek to jointly own the pipeline and run it as a commercial enterprise that generates income for both countries. I further believe that we should understand that the North has financial problems since they lost the majority of their share in the oil fields. If we face each other across the negotiating table, and each one of us understands our strengths and weaknesses, and then we work together as nations to strengthen each other, then we will both be in a better position. Let us in the South help those in the North to sustain their economy for the next 4 years while they look for alternative sources of revenue to support their economy. I advocate the construction of an alternative pipeline through either Kenya, or Ethiopia/Djibouti at a cost of Billions of US$, but that will take time and we should ask ourselves if we have the time to survive as an economic entity while we build the proposed pipelines.
To quote the article from the Financial Times by Katrina Mason. “The country has begun looking for grants and loans to tide the gap. It will soon become a member of the World Bank and International Monetary Fund but it can take up to a year to secure loans. The ministry of finance has asked the African Development Bank to consider loans and a fund to pool cash for direct budget support, something donors do not offer at the moment, not least because corruption is entrenched.” “Ultimately they will need to borrow seriously and we know they are actively trying,” says a foreign official, citing trips to commercial banks in London, state lenders in South Korea and plans to tap China. “This debt can quickly balloon and it could be very dangerous.”
My research has shown that the rates used for the pipeline in 2008 ranged from$4 to $8.6 per barrel, with Blocks 1, 2 & 4 accounting for the lowest, and Block 5A the highest fee. Pipeline costs for Blocks 3 & 7 were standing at US$ 5.5 per barrel. We should also take into account the length of the respective pipelines when establishing transport value. Because Khartoum owns part of the pipeline, operational costs for company’s de-facto charges include pipeline usage, these tariffs vary per location.
I propose that we continue to negotiate in good faith and seek to get what are considered internationally acceptable commercial terms. We must ensure that Sudan comes to the negotiating table with the intention to negotiate in a reasonable manner without further threats against us, and they should not be allowed to create and set new world standards. They should understand that we are no longer sharing oil with Khartoum, and that the only thing that we share, are common borders whose standards are based on international law. Borders of a sovereign nation are not relinquished easily, as is evidenced by border wars that were fought by the colonial powers in Europe in the past. We in the Republic of South Sudan likewise should ensure that we retain our borders as they were drawn by the British on the 1st January 1956, the date when Sudan gained independence from Britain.
Our country’s foreign policy, also called the foreign relations policy, should consist of national self-interest strategies chosen by the state to safeguard its national interests and to achieve its goals within international relations. The approaches we use should be strategically employed to interact with other countries, especially our neighbouring countries. We need to recognise who our friends are, and make them recognise who we are, and then partner with them in our development. We should not practise a policy of appeasement but one of reality under the UN Charter. This should be done at all levels from the Political to the Economic. We should avoid aggression with our neighbours that border us, but should rather share common difficulties and seek diplomatic solutions, which I believe is the best policy. Having come from war, we should now seek peaceful coexistence and I suggest that we avoid war at all costs as it is expensive and wasteful of both human and financial resources. Our negotiations with Khartoum should be conducted in a diplomatic manner, and we should not be seen to be belligerent negotiators, and our negotiators should serve the interests of the nation as a priority.
In conclusion, I will quote the Financial Times article “What happens next depends on how long the country can eke out its reserves, which are secret but estimated at $1.5bn. If and when this runs out – in two or three months – foreign investors drawn to a Juba growth bubble buoyed by oil, independence and international aid, may be forced to think twice.”
Hon. Aldo Ajou Deng Akuey is an Elected Member of Parliament & Chairman of Legislation, Legal Affairs & Humanitarian Rights Committee,
Council of States (SENATE) in the Republic of South Sudan. He can
be reached at [email protected]