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FACTBOX-Sudan and South Sudan oil payment dispute

Source: Thomson Reuters Foundation - Thu, 26 Jul 2012 17:05 GMT
Author: Reuters
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By Hereward Holland and Alexander Dziadosz

JUBA/KHARTOUM, July 26 (Reuters) - Sudan and South Sudan resumed talks on oil payments on Thursday for the first time since border fighting brought the two countries to the brink of all-out war in April.

Pressure is mounting on the neighbours to make a deal on oil exports, financial disbursements, security and disputed territory before an August 2 deadline.

The two countries face United Nations sanctions if they fail to settle issues related to the partition of Sudan one year ago.

In an economic race to the bottom, both countries are running out of dollars, witnessing spiraling inflation and depreciation of their banknotes, all worsened since South Sudan shut off its oil output in January during the dispute.

Here are some key facts about the row and its implications:

ROOTS OF THE QUARREL

South Sudan inherited about three quarters of Sudan's oil output when it declared independence in July 2011, giving it about 350,000 barrels per day (bpd).

The catch is that the landlocked new nation must pipe the crude through its northern neighbour to the Red Sea terminal at Port Sudan to export it. The two have failed to agree how much Juba should pay to do this.

Both rely heavily on oil - it contributed about 98 percent of state revenues in South Sudan and over half in the united Sudan before the split - and so both need to get a good deal.

Almost all the oil in both countries comes from fields near the disputed border. The two routinely accuse each other of supporting and harbouring insurgents in the area.

Sudan began confiscating some oil from the South last year, prompting Juba to shut down its output in January and accusing Khartoum of "stealing" the oil. Sudan said it was entitled to a share because Juba had refused to pay fees since it seceded.

Apart from oil, the two also need to create a demilitarised buffer zone along the border and resolve the status of five disputed areas including Abyei.

Any oil deal will probably be tied to cash transfers from the South to help Sudan cope with the loss of petrodollars.

THE INDUSTRY

U.S. trade sanctions and a long history of conflict have deterred most Western investors from Sudan. The most prominent oil firms in both countries are Chinese, Malaysian and Indian.

In March the oil consortiums in South Sudan registered as separate companies and changed their names. Petrodar became Dar Petroleum. Greater Nile Petroleum Operating Company became Greater Pioneer Operating Company. White Nile became Sudd Petroleum.

Dar Petroleum, whose major shareholders are the state-owned China National Petroleum Company (CNPC) and Malaysia's Petronas, was pumping much of South Sudan's oil before the shutdown. The consortium is active in South Sudan's Upper Nile state.

Greater Pioneer Operating Company, which operates blocks in South Sudan's Unity state, pumped most of the rest. CNPC also leads this consortium with Petronas and India's ONGC Videsh.

The other consortium in South Sudan is Sudd Petroleum, a 50/50 joint operating company between Petronas and South Sudan's state-owned Nilepet.

Other firms include France's Total SA, which has a roughly 120,000-square-km concession - about the size of nearby Eritrea - mainly in South Sudan's Jonglei state. The firm stopped exploration in 1985 after the civil war between north and south escalated, but says it will start again soon.

Unipec, the trading arm of China's top refiner Sinopec Corp, bought most of South Sudan's oil before the shutdown. China bought about 12.99 million barrels from both countries last year - around five percent of the Asian country's crude imports.

Sudan's oil since July has served only domestic consumption.

HOW MUCH OF SOUTH SUDAN'S OIL HAS KHARTOUM TAKEN?

Sudan has confiscated more than 6 million barrels of southern crude since December, according to figures provided by South Sudan's negotiating team in Addis Ababa. Sudanese officials have not publicly confirmed or denied this amount.

This included 1.2 million barrels taken in December, four shipments totaling roughly 2.5 million barrels in January and another 2.4 million barrels reported in February, according to the figures provided to Reuters.

The January shipments included 605,784 barrels of Dar Blend loaded on the Sea Sky, 618,712 barrels of Dar Blend loaded on the Al Nouf, 629,368 barrels of Nile Blend on the Ratna Shradha and 600,121 barrels of Nile Blend loaded on the ETC ISIS.

It is unclear if the remaining barrels were intended for domestic consumption in Sudan or for export.

Swiss-based commodities trader Trafigura bought at least one shipment - the Ratna Shradha cargo - industry sources said. The fate of the other shipments is unclear, but Middle East-based trader FAL Oil was managing two of the tankers.

South Sudanese officials have also accused Khartoum of building a "tie-in" pipeline to divert about 120,000 barrels per day of southern production to Sudan's Khartoum refinery.

Sudan says it has diverted some oil to refineries but insists it is entitled to it.

WHICH FEES ARE THEY ARGUING ABOUT?

A central disagreement revolves around how much South Sudan should pay in transit fees and to use the pipelines, processing facilities and marine terminal in Sudan.

South Sudan points to oil company documents showing it has been paying transportation, processing and marine terminal fees directly to the oil companies since the split.

Khartoum says those fees need to be renegotiated because the infrastructure lies within its territory and because South Sudan is not a signatory to production and transportation agreements signed by Sudan and the operating companies before partition.

There is often confusion over the numbers both sides give.

Initial positions showed Khartoum asking for ${esc.dollar}36 per barrel against South Sudan's offer of ${esc.dollar}8.09 per barrel for one pipeline and ${esc.dollar}6.13 per barrel for the other.

Sudan wanted ${esc.dollar}18.50 per barrel for the use of the pipelines (the transportation fee), ${esc.dollar}6.50 per barrel for the use of the marine terminal and ${esc.dollar}5 per barrel for the use of processing facilities, bringing the total to ${esc.dollar}36 per barrel.

The South's proposal included commercial fees it had been paying to the consortiums that own the pipelines (${esc.dollar}7.40 and ${esc.dollar}5.50 per barrel) and a separate tariff to the Khartoum government (${esc.dollar}0.69 and ${esc.dollar}0.63 per barrel).

The eastern pipeline is wholly owned by Dar Petroleum's sister company in Sudan, Petrodar, while Khartoum owns a 70 percent stake in the Greater Nile Petroleum Operating Company pipeline with the remainder owned by the consortium partners.

Sudan's government says it has ultimate title of oil facilities in its territory and should have the right to levy any charges it wants on third-party users like South Sudan.

GRAND BARGAIN

As part of any deal, Sudan wants financial help to overcome a fiscal gap that will reach ${esc.dollar}7.8 billion and a balance of payment gap that will be ${esc.dollar}15.99 billion between 2011 and 2015, according to the International Monetary Fund.

On Monday, South Sudan presented a new oil deal within a greater financial package to help bridge Sudan's fiscal, balance-of-payments gap and service debt repayments.

The offer involves a ${esc.dollar}9.1 and ${esc.dollar}7.26 per barrel fee for use of each pipeline, including transportation, taxes, processing and port charges. South Sudan is also offering a ${esc.dollar}3.245 billion cash transfer and forgiveness of what it calls oil arrears it claim are worth ${esc.dollar}4.968 billion, up from ${esc.dollar}2.8 billion previously.

South Sudan describes the offer as a "total wealth transfer of ${esc.dollar}8.213 billion" to Sudan, comprised of a direct financial contribution, a transit tariff over 3.5 years, a central processing fee profit component (${esc.dollar}0.07) and debt forgiveness.

Sudan said on Wednesday it might revise its oil fee demand, without elaborating. Sudan has previously said it wants a deal on border security before discussing oil and financial issues.

Earlier this year Khartoum said it would accept African Union proposals for a ${esc.dollar}3 per barrel tariff on oil and the sale of 35,000 barrels per day of the South's Nile Blend oil at market prices, linking it to a cash transfer of ${esc.dollar}5.4 billion. (Reporting by Hereward Holland and Alexander Dziadosz; Editing by Andrew Heavens)

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