Creaking door to north-south pipeline deal could use a little oil

Under the 2005 Comprehensive Peace Agreement (CPA), Sudan’s oil wealth was divided evenly between north and south. After 9 July, when the south seceded, 75 percent of the revenues from the 500,000 barrel-per-day production went to the new nation, where the oil originates.

But since South Sudan is a landlocked country, it still relies on the north’s infrastructure to export its oil from Port Sudan on the Red Sea.

Deals delayed

Khartoum originally demanded a pipeline usage fee of $32 a barrel from Juba, which some promptly dubbed daylight robbery” since the international fee is usually a fraction of that, around $0.25 a barrel.

Pagan Amum
UN Photo: Paul BanksPagan Amum, South Sudan’s Peace Minister, said he expects South Sudan to pay $0.41 a barrel, the amount Chad pays to Cameroon for transporting oil through its pipeline of roughly the same length.

After earlier talks broke down, the African Union (AU) was requested to intervene as a third party. David Loro Gumbek, Undersecretary of South Sudan’s Ministry of Petroleum and Mining, told Reuters news agency that Juba is ready to accept any amount the AU proposes. In the meantime, Juba will pay Khartoum in arrears.

In July, Sudan’s parliament approved an alternative budget with an annual income of $2.6 billion in transit fees--about the same amount it expects to lose from South Sudan’s oil production. Omer Mohammed Saleh, the cabinet spokesman, said the new budget aims to compensate for the lost oil revenues, according to the official Sudan News Agency.

South Sudan’s oil, given its waxy nature, requires special treatment at field processing facilities before shipment. Under a deal with Khartoum, the cost is estimated at ten to 20 dollars per barrel for the procedure, which includes water and gas extraction, then heating the oil to prevent it from hardening.

However, one observer quoted a fair price would be half the proposed amount, between five and ten dollars a barrel for processing.

Southerners in the oil sector

In recent years, Southern Sudanese were rarely visible in the region’s oil industry, according to a newly recruited employee at a major oil company. Northern workers now fear they may lose their jobs in the wake of the south’s secession, since most of the oil is now officially a resource of South Sudan.  

Port Sudan.
Photo by: Zeinab Mohammed SalehI’m glad we southerners finally have a chance to be part of this industry,” said one employee, But it’s stressful not knowing how the situation will be affected, depending on the agreement that is finally reached.”

Shortly after the south’s independence in July, all South Sudanese residing in the north lost their jobs except for those working in the oil sector. This suggests an agreement on transit fees and wealth sharing is of direct interest to both countries’ economies.

South Sudanese have high expectations that their government will use the new nation’s oil wealth to build basic infrastructure, which is largely lacking. Continued delays on oil agreements with the north will likely mean setbacks for South Sudan’s development.

If the South does not use the pipeline, the north would be at loss,” said Gach Puok Dak, a South Sudanese oil employee, adding South Sudan would also suffer as a result. Both countries should reach an agreement, he concluded.

Others argue South Sudan would be better off ending its dependence on the north completely where oil is concerned.  

Read also: "Rerouting Southern oil: Empty threats or a promise to keep?" by Richan Oshi

A senior southern official said Juba is exploring other ways to transport South Sudan’s oil. We are having conversations,” Pagan Amum said earlier this month. We are looking to the alternatives.”

Oil experts say a proposed 1,400-kilometre pipeline from South Sudan’s oil fields to the Kenyan coast at Lamu would cost around $1.5 billion and take years to complete.

Peaceful and reasonable compromises

Nerves were rattled last month when Khartoum blocked an oil shipment from South Sudan in a dispute over customs fees. At the time, observers feared halting a cargo of 600,000 barrels of crude in Port Sudan would escalate tensions between the two countries.

Once the delayed payments were remitted, the situation was quickly diffused. But many Sudan watchers say this incident points up the urgency of resolving oil issues between Khartoum and its new neighbour.