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Sudan investors prepare for great oil divide

Dividing up Sudan’s oil industry between north and south is emerging as a challenge akin to separating conjoined twins, a fact that has heavily invested Chinese interests uneasy as the country prepares to split.

Final results released on Monday showed that nearly 99 per cent of 3.9m southern voters cast ballots for separation from the Arab-led and Muslim north in January’s referendum.

The outcome should mean that an independent south Sudan will emerge on July 9, following five decades of intermittent civil war.

Among many issues the north and south have to negotiate before then – such as citizenship rights and the destiny of their mutual currency – oil is one of the trickiest. An oil wealth-sharing deal included in a 2005 peace agreement is due to expire in July.

Revenues from oil production, estimated at 500,000 barrels a day, are critical for both the north and south. Both sides must decide how to divide up three producing blocks that straddle the border, and manage contracts, infrastructure, staff, oil debt and tax systems.

China’s state oil company, CNPC, has a 40 per cent share in these blocks through the Greater Nile Petroleum Operating Company (GNPOC) consortium, in which Malaysia’s Petronas Carigali Overseas has 30 per cent, India’s ONGC Videsh 25 per cent and state Sudanese company Sudapet the remaining 5 per cent.

“Carving up the GNPOC Consortium along the border may have dire consequences for all parties involved,” said a report by the research network the European Coalition on Oil in Sudan: “How to Separate Siamese Twins”.

A senior CNPC official told the Financial Times the GNPOC companies want their current contract to continue unscathed, with the blocks managed by a joint venture formed between the two new states.

Drilling and other activities will already involve crossing the future border daily, the official said. “The worst thing for the joint ventures is just to separate things completely,” he added. “It’s very easy to talk about the surface but very difficult to talk about what is underground. It is impossible to know how much is in the south and how much in the north.”

There are also questions about plans for a southern pipeline favoured by the south’s ruling Sudan People’s Liberation Movement as a way to free the region from dependence on the north’s infrastructure.

Production from the relevant fields is expected to peak next year and they could run dry within 15 years, the CNPC official said. “If [the southern] government wants to build a pipeline it will take a lot of time and where is the financing?”

Under the current agreement, the north and south split the Sudanese share of revenues equally.

But the south has long argued it has been short-changed and vice-president Riek Machar, who is in charge of negotiations for the south, told the FT the south would seek retrospective payment should unpaid dues emerge. The Referendum Act provides for oil contract negotiation in any post-referendum scenario, although the south has so far sought to reassure investors that it will honour pre-2005 contracts.

China, which has long been criticised for its close ties to Khartoum, has also moved quickly to prove itself amenable to an independent south, after previously backing unity.

“Oil is a pillar of the economy – everybody depends on it and we hope settlement between north and south will not affect production,” said Zhang Jun, China’s consul for economic affairs in the southern capital Juba. “For that we need co-operation.”

While GNPOC has offices solely in the north, CNPC – which is responsible for about half of Sudan’s oil output – established a satellite office in Juba late last year, staffed by Chinese expatriates.

“China has a substantial amount of oil interests in the south and one of the interesting parts is the very positive role that China has been playing behind the scenes,” said David Abramowitz, policy director at Humanity United, a US rights group.

The CNPC official said conditions in the south were worse than in the north, however, and that the consortium was losing $10m a year to corruption, theft and damage.

He said trucks bringing in fuel vital to operations were stopped at 12 illegal checkpoints on one 200km stretch of road alone, each time being charged $300. Waste oil has been set ablaze and workers kidnapped, he added.

Mr Zhang said: “Our people are risking their lives for this oil and the benefit of this country.”

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