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[Dehai-WN] (Reuters): Oil risks fuelling flames of Sudan conflict

From: Berhane Habtemariam <Berhane.Habtemariam_at_gmx.de_at_dehai.org>
Date: Thu, 2 Feb 2012 21:30:00 +0100

Oil risks fuelling flames of Sudan conflict

Thu Feb 2, 2012 5:34pm GMT

By Hereward Holland and Ulf Laessing

PALOUGE OIL FIELD, South Sudan/KHARTOUM, Feb 2 - South Sudan's oil minister
was riled when he discovered production from one of his remote oil fields
was out by 40,000 barrels per day, and immediately knew who to blame.

Stephen Dheiu Dau said his old civil war foe in the north, the government of
Khartoum, had stolen the crude, illustrating the depth of acrimony and
mistrust over oil negotiations that some say risks tipping the two nations
back into conflict.

"We believe Khartoum is pumping more reserves from this concession to allow
them to operate the Khartoum refinery," the minister told journalists on a
visit to the well in the dusty Palouge Oil Field close to the restive border
with Sudan.

Old suspicions festering along the poorly defined boundary between Sudan and
South Sudan, which split away as an independent country in July last year,
came to a head recently.

In an emotional speech, President Salva Kiir said he had no choice but to
shut the oil fields to stop Sudanese President Omar Hassan al-Bashir from
"stealing" oil, raising the question of how he will feed a country as big as
France and pay his soldiers, who would be needed to quell any unrest.

Having failed to reach a deal on transit fees, which must be agreed as part
of the 2005 deal to equitably split revenues from the oil that is mostly
located in South Sudan, Khartoum started seizing South Sudan's oil and sold
one cargo.

Talks are expected to resume next week but diplomats say it's hard to see a
compromise acceptable to both sides, while meanwhile, some hear the drumbeat
of war.

Fee terms are far apart, Khartoum wants $1 billion in back payments and $36
for each barrel shipped through the pipeline. Juba wants to pay less than $1
in line with world norms, saying it refuses to shoulder a share of Sudan's
external debt of $38 billion. Kiir says Sudan has "looted" $815 million from

China, the biggest buyer of oil from South Sudan and trusted by both sides,
has the best chance of brokering a deal and sent an envoy to both nations in
December to help bridge differences.

The world's newest nation is landlocked and must pump its oil through
Sudan's pipelines to the Red Sea port of Port Sudan. Industry analysts say
the alternative of building a pipeline through Kenya will probably never


The discrepancy over the figures in the Palouge field -- more than one tenth
of total daily output -- highlights the dangerously opaque nature of much of
Sudan's oil industry. Before their independence, southerners regularly
complained Khartoum was not giving them a true picture of the oil reserves
in their own territory.

Alongside Malaysian engineers in the control room, Dhieu Dau said: "They
confess that the metering system is not working and no justification has
been given."

Dhieu Dau told Reuters his suspicions were already aroused after he found
out that the Upper Nile area had 600 wells, 200 more than previously
thought, while Unity, another oil-producing state, had almost 50 more wells,
showing that Sudan underplayed oil output in negotiations.

The oil industry in Sudan, with its data flows, mapping and contracts with
refiners and oil field operators, was dominated by Khartoum until
independence. Opportunities for wrangling over accounts and figures between
Juba and Khartoum are legion.

Oil is the lifeblood for both economies but South Sudan is much more
vulnerable, a war-ravaged country that must be built almost from scratch.
Oil revenues make up 98 percent of state income compared to more than 50
percent in former unified Sudan.

Meanwhile Kiir's government - mostly former rebel commanders - is trying to
assemble functioning ministries in a country which has no property or
banking laws.

The fertile Nile corridor splits the dry, desert north from the plains of
grassland and forest in the south where about 85 percent of the people live
off agriculture. The threat of famine is an unnerving fact of life and
tribes have regular clashes over cattle and grazing rights.

Western diplomats fear that the new African nation, where most follow
Christian beliefs, could easily slide into instability as tensions escalate
with the mainly Muslim north.

The West also fears a return to radicalism, as Sudan once hosted Osama bin
Laden. Most Western firms shun Sudan due to a U.S. trade embargo in place
since 1997 over Khartoum's role in hosting past militants such as bin Laden
and Carlos the Jackal.

There is also unease over Sudan's President Bashir who is wanted by the
International Criminal Court accused of war crimes committed in the
unresolved rebellion in the Darfur region where Janjaweed Arab nomads have
been blamed for mass killings.

Apart from oil, Sudan and South Sudan have also failed to solve a long list
of disputes from marking the violent border where the deadly cattle raids
flare and sharing debt to finding a solution for the disputed region of


South Sudanese rallied outside the assembly while Kiir was speaking to
support the shutdown in oil output as a strategy to try to force Sudan's
hand. They said the row was yet another chapter in their long struggle to
win freedom from the north.

"Given our history with the administration of President Bashir, we realise
that unfortunately we must prepare for a disruption of revenue that could
last many months," Kiir said.

Sudan was "playing a game of looting our oil in broad daylight so we are
supporting the shutdown", Ajang Ajang Lino, head of the Student Union at
Juba University, told Reuters.

"Only since the signing of the CPA (2005 Comprehensive Peace Agreement) has
South Sudan started to receive oil," he said. "We will continue to live
without oil as we had been doing 100 or so years ago."

The government will struggle to pay salaries and cover daily expenditures
longer than a few months without new oil revenues and it is not clear
whether impoverished South Sudan is ready for such a sacrifice.

South Sudan's stability rests in large part on the morale of its sprawling
army, estimated by U.N. officials to comprise up to 200,000 soldiers, and
which functions like a welfare system, helping villagers and maintaining

Should salary payments to these troops end or the patronage network of
bureaucrats and high officials crumble, the army and its allies, already
disaffected by old tribal rivalries, could easily slip into mutiny or
rebellion, some observers say.

"Over the medium term, a sustained shutdown of oil output would have
dramatic consequences for the domestic stability of the country and could
lead to a collapse of central authority," said Jean-Baptiste Gallopin, a
Control Risks analyst.

Just across the border from the savannah of the Palouge oil field lie the
northern states of South Kordofan and Blue Nile where the Sudanese army has
been fighting insurgents of the northern wing of the Sudanese People's
Liberation Movement (SPLM), which is the ruling party in Juba.


The Khartoum government has restricted access of U.N. agencies in both
states, a decision that U.S. officials say could lead to large-scale famine.

Some foreign observers say Sudan could be using famine as a weapon to flood
the southern borderland with refugees to destabilise South Sudan, a theory
that Khartoum denies.

"Some SPLM officials fear that Sudan hopes for instability in the borderland
which could give it an excuse to seize the southern oil fields," said a
foreign observer with ties to Juba.

Almost three million South Sudanese - a third of the population - are
expected by the United Nations to need food assistance this year after
tribal violence and bad weather.

Anxious to reassure his people, Kiir said the government will find cash to
cope with the oil shutdown but foreign experts say this will be impossible
as no other industries exist.

Juba said it had contracted oil sales worth around $3 billion before the
shutdown. "It's very hard to say how much money they have. I think much of
the oil revenues has been spent so they need the oil flows," said a senior
banking executive.

The shutdown by South Sudan cut off crude supplies to China National
Petroleum Corp, Malaysia's Petronas and India's Oil & Natural Gas Corp.
China and Japan scrambled to find alternative supplies after South Sudan
closed down its 350,000 bpd. Its heavy sweet grades - Nile and Dar Blend -
are liked in Asia.


The oil shutdown and the drying up of revenues could have alarming
consequences on South Sudan's economy. The central bank in Juba was unlikely
to have dollar reserves lasting more than three to five months, diplomats

South Sudan hopes to borrow funds from international markets using oil
reserves as collateral, but bankers are sceptical while the oil cannot be
sold. Western aid cannot replace oil.

To end dependency on Khartoum, South Sudan wants to build an alternative
pipeline to the Kenyan port of Lamu, but most analysts do not expect the
project to see the light of day.

"Costs are very high, the terrain is very difficult, and security is a major
issue," said Harry Verhoeven, a Sudan expert and researcher at Oxford

Sudan heavily pumped the oil fields while it was in charge. Oil output is
now expected to fall to 200,000 bpd by 2016, to 160,000 bpd by 2018 and
further after that, according to a study by the European Coalition on Oil in

To cut the umbilical cord with the north, Juba would need to build new
processing plants in Upper Nile and Unity state to halt reliance on those on
the northern side of the border.

"Many Western donors tell Kiir that the Kenyan pipeline won't work," said a
foreign expert with close ties to Western donors. "They tried talking him
out of the oil shutdown."


Emboldened by Western criticism of Bashir following his indictment by the
war crimes court, South Sudan officials feel they can be tough in the
deadlocked oil talks, which are sponsored by the African Union.

Kiir and Bashir met on the sidelines of an AU summit in Addis Ababa to
discuss an interim deal that "would have frozen the situation and reversed
the unilateral actions that had been taken by both", a source close to the
talks said.

But, the source said, talks broke down when Kiir pulled out.

"The Arab Spring has reinjected life into that old idea that Khartoum is
about to fall," Verhoeven said, adding that some in Kiir's SPLM believed
"the likelihood of a revolution in Khartoum has increased and therefore they
are more intransigent".

A Western diplomat agreed: "There is a belief in the SPLM that Bashir might
be gone soon so they can sit him out with an oil deal. But Bashir might
actually stay. You never know."

Bashir is facing an economic crisis and high food inflation after losing the
southern oil fields. The north's remaining output of 115,000 bpd serves only
domestic consumption.

Sudan is also taking a hard line with Juba and demanding not just
concessions on the pipeline fee but also on the issues of sharing debt and
giving financial aid, diplomats say.


Setting up a fledgling state in South Sudan and disentangling the two oil
industries was a big enough headache, but corruption and cronyism has also
severely hindered development, particularly in rural areas.

Juba bustles with gleaming Toyota Land Cruisers and Hummers parked in front
of ministries or expensive restaurants on the banks of the Nile,
ostentatious signs of status and power.

Kiir's cabinet is mainly made up of ex-guerilla commanders and senior SPLM
members, who led the civil war with the dominant Dinka tribe holding the key
levers of power.

"They don't use the potential of many South Sudanese who studied abroad and
are well-educated," a foreign executive said.

"If you don't have ties to the SPLM you struggle to get a senior job," he
said in Juba. "Some even look down on people who stayed abroad during the
war as traitors."

Euphoria that erupted across the south over independence also masked deep
tribal and ethnic splits that grew in the vast Jonglei state where the
government hopes for big oil finds.

The Lou Nuer tribe marched on rival Murle settlements in December killing
hundreds of people and sparking bloody revenge attacks. Tribal violence
started out as revenge for cattle raiding, but critics say years of
administrative neglect in Jonglei, the same size as England, are also to

"They never used to kill women and children. Something has gone very wrong.
Maybe our politicians are to blame," said Mary Buyoi, a famous singer and
peace ambassador for the Murle tribe.


With the money expected to be exhausted within the next few months, Juba
will have no choice but to restart oil production to maintain cohesion even
if no deal is reached with Khartoum.

Flexing their muscle, Sudan's officials say they will carry on helping
themselves to oil from South Sudan that arrives at Port Sudan as long as the
dispute is unresolved.

"The shutdown is their decision. But as long as they don't sign, we will
continue lifting what we think is our right," Sudan's Foreign Minister Ali
Ahmed Karti said.

Sudan and South Sudan have broadened the oil talks by linking them to a
bigger deal to end violence in the border area and find a solution for the
disputed border region of Abyei.

Abyei was meant to have a referendum like South Sudan, as agreed under the
2005 peace deal. But the prospect of a vote was dashed after Khartoum took
Abyei in May just before Juba's independence, forcing tens of thousands to
flee to South Sudan.

Shops and homes were looted, and residents said that their huts were burned
down, raising fears of a fresh north-south conflict. Kiir condemned the
seizure of the border region but at the time refused to be drawn into war.

But with both sides daggers drawn over the crucial oil revenue-sharing,
several Africa watchers see another war as a distinct possibility.

Verhoeven, at Oxford University, said both would try to reach a deal but he
saw a 20 percent chance that the tensions would lead to conflict.

"I think there's a real chance this could go too far and there could be a
border war," he said. (additional reporting by Alexander Dziadosz; Writing
by Ulf Laessing, editing by Peter Millership)

C Thomson Reuters 2012 All rights reserved


South Sudan wants more talks to end oil transit row

Thu Feb 2, 2012 5:33pm GMT

(Repeats to clarify first paragraph)

* Transit row worsening as countries try to disentangle oil industries

* South Sudan took three-quarters of oil when became independent

* Needs to pay for using pipelines and Port Sudan

JUBA, Feb 2 (Reuters) - South Sudan's President Salva Kiir said on Thursday
he wants to end a row with Sudan over oil transit payments but has rejected
a proposal requiring Juba to pay billions of dollars and keep exporting
crude through the neighbouring country.

The two neighbours are locked in a worsening row over disentangling their
oil industries after the South split from Sudan and became independent in
July, following decades of civil war that ended with a peace deal in 2005.

The landlocked new nation took three-quarters of the oil production - the
lifeblood of both economies - but needs to pay for using northern pipelines
and the Red Sea port of Port Sudan.

Tension rose when Sudan said last month it started seizing southern oil as
compensation for what it called unpaid pipeline transit fees. South Sudan
responded last week by shutting down its entire output of 350,000 barrels a

On Friday, Kiir met Sudanese President Omar Hassan al-Bashir on the
sidelines of an African Union (AU) summit to discuss oil but failed to reach
a deal.

Kiir said he had rejected at the meeting a draft agreement by the AU because
it would have required Juba to keep selling oil from some fields through
Sudan's export facilities.

"It is difficult for me to accept a deal that leaves our people vulnerable,
dependent and paying billions they do not owe," Kiir said, according to the
text of his speech published by the government.


The agreement would also have required South Sudan to supply 35,000 barrels
a day to Sudan's refineries, he said.

The value of the oil would be deducted from payments of $5.4 billion South
Sudan also would have to make under the proposal to help Sudan cope with the
loss of southern oil.

Kiir said the agreement had also not covered other conflicts such as marking
the joint border and finding a solution for the disputed region of Abyei.

"I want to be clear that the Republic of South Sudan is committed to
continue negotiations but we would also be wise to pursue efforts to enhance
our economic self-sufficiency, prosperity and national security should we
not find common ground with Khartoum for now," he said.

South Sudan said last month it would build an alternative pipeline to Kenya
within eleven months to end dependency on Sudan's facilities.

But analysts are sceptical the project will take off because it would have
to cross rough terrain and may not be viable.

Sudan accused South Sudan on Wednesday of being "hostile" towards Khartoum
in the oil talks. (Writing by Ulf Laessing; Editing by Sophie Hares)

C Thomson Reuters 2012 All rights reserved



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