South Sudan and Sudan at loggerheads over oil talks

McClatchy NewspapersNovember 22, 2011 

NAIROBI, Kenya — The South Sudanese government has seized what had been Sudan's share of the south's oil production and has decided to build a new pipeline that would not cross through Sudanese territory, the latest sign that the two former war foes are unlikely to resolve by negotiation the issues created when South Sudan became an independent country this summer.

South Sudan's leader, President Salva Kiir, issued the order divesting Sudapet, Sudan's national oil company, of its shares in South Sudan's oilfields and transferring them to Nilepet, South Sudan's state-owned firm, on Nov. 7. But the government didn't announce the action until last week and didn't offer clarification of its plans until Tuesday.

The government said the decision will be imposed retroactively to July 9, the date of South Sudan's independence, meaning that South Sudan will seek to have Sudan repay any money Sudapet had received after that date. Sudapet had a 5 percent to 8 percent share in South Sudan's production blocks. South Sudan says its revenue from oil sales will total $3.2 billion for the final six months of 2011.

"The Republic of South Sudan is making it clear that this new nation and not Khartoum or another entity shall control the management of its natural resources," South Sudan's ministry of petroleum and mining said in a statement. Khartoum is the capital of Sudan.

Sudan's official Sudan News Agency called the move an "astonishment" and urged South Sudan to "reconsider this step that would negatively affect the progress and atmosphere of the negotiations."

On Tuesday in Juba, South Sudan's capital, Oil Minister Stephen Dhieu Dau made clear his government would not roll back the action.

"They have a right to talk and to raise their concern, but we are here as a sovereign country," he said. "We are not concerned to listen to such statements."

The move came as months-long negotiations over resolving sensitive disagreements between the two countries appear stalled, with mediators struggling even to bring the two sides together into the same room. A new round of talks sponsored by the African Union and mediated by former South African President Thabo Mbeki did not start as scheduled this week in the Ethiopian capital of Addis Ababa and may not take place at all.

South Sudan claims that the automatic divestment of Sudapet in its territory was already assumed through pre-secession negotiations. However, the issue was formally expected to be resolved through the Mbeki-led negotiations as part of a wider package that also addresses oil export fees and disputed border territories.

The fact that the Juba government decided to simply bypass the African Union forum could be a sign that both capitals are beginning to look past the negotiation phase toward what actions they can take on their own.

But analysts say that when it comes down to the multibillion-dollar per year oil industry South Sudan took with it when it seceded, the two sides really have no choice but to work together — even if there is little political will on either side to do so.

South Sudan currently can export its oil only through a pipeline and refinery facilities that lie in Sudanese territory. Sudan could seize the oil as it flows through the pipeline, but it might not be able to sell it because international buyers might view it as a stolen commodity.

"It wouldn't be smart to go too far with these unilateral actions," said Kathelijne Schenkel, an official at the European Coalition on Oil in Sudan, who said both sides need the oil to keep flowing.

Most of South Sudan's oil is heavily acidic, requiring specialized refining capabilities that exist only in China and Japan outside the major Western players. Both countries would have incentives not to buy such contested oil, given the likely consequences.

China is the most heavily invested outside player in South Sudan's oil industry.

In the long term, South Sudan says it wants to build its own pipeline through a friendlier country to the east or south, most likely Kenya. Barring future oil discoveries, most experts doubt the plan's dollars and cents add up.

In addition, a future pipeline does little to solve today's dilemmas.

"It's still very much a literal pipe dream for these projects. They would take years," said Adelaide Schwartz, an analyst for Stratfor, a private intelligence company based in Austin, Texas.

Schenkel said it would be a mistake to underestimate the resolve of the South Sudanese to free their oil industry from their hated rival's hands, however.

"All the analysts say the pipeline has to be economically feasible. Of course, it has to be, but maybe not to the extent that the analysts are thinking, because they (South Sudanese) really want to get rid of that connection to the north. If they see a way, they will do it," she said.

(Boswell is a McClatchy special correspondent.)

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