South Sudan rejects AU oil plan
South Sudan’s chief negotiator has rejected African Union-backed proposals that could see it pay up to $6.5bn to Sudan in the latest attempt to break a vicious deadlock between the two over sharing oil revenues.
The impasse, which reached a head at the weekend when AU-mediated talks collapsed at a summit in Addis Ababa, threatens to reignite conflict between the former enemies.
South Sudan, which seceded from Khartoum last July after decades of civil war, has shut down its 350,000-barrel-a-day production, forcing its top buyers, China and Japan, to seek crude elsewhere. The shutdown came after Khartoum unilaterally seized oil shipments claimed by the south.
The latest draft proposal from the African Union, given to both sides and obtained by the Financial Times, foresees the less developed South giving Sudan a direct cash transfer of between $2.6bn and $5.4bn, plus transit fees worth up to $1.1bn, covering the period until the end of 2014. The AU set these figures as parameters for discussion, with an exact figure to be decided on within 30 days.
Khartoum has said it is happy to sign the deal and blamed South Sudan’s intransigence for the failure to reach agreement.
The payment is to compensate Sudan for losing three-quarters of its oil production as a result of the split, and for the South’s use of pipelines, processing and export facilities that run through Sudan.
Pagan Amum, lead negotiator for the South, told the Financial TImes:
“The AU has lost sight of the principle of mutual economic viability.”
He added that the South must now develop an alternative pipeline and refining capacity.
“We could not sign; they were stealing the oil and obstructing the flow of our oil, and this robbery continues up to today. Now it is not secure for us to put our oil through Sudan because of this state piracy. This is about our economic independence. No country can continue through a country that is hostile.”
Mr Amum is seen as a hardliner in the ruling Sudan Peoples’ Liberation Movement in South Sudan.
Both countries depend on oil for their livelihoods and have adopted increasingly entrenched stances in their attempt not to lose out.
Khartoum says it confiscated southern oil in lieu of transit payments that the South says it does not owe, prompting the southern Juba government to turn off the taps.
Mediators from the region and beyond are increasingly exasperated with both parties. “They [the South] have done damage to political and investor confidence,” an AU official close to the talks said, referring to the unilateral move to shut oil production and to walk out of the talks.
He added that it was not clear how Juba could pay the army with oil revenues drying up. Another AU official described the two parties as equally intransigent.
Mr Amum said the upper range of the AU proposals would see the South – which depends on oil for 98 per cent of its revenues – forfeit up to $6.5bn, equivalent to 97 per cent of the financing gap created by Sudan’s loss of oil that was identified by the IMF.
The South previously offered to meet a third of the financing gap, hoping donors and Khartoum itself would take up the slack. Mr Amum said the latest proposed payments, staggered until 2014, would mean the cash-strapped South would pay 117 per cent of the gap in 2012 alone.
Both sides may be over-reaching their negotiating positions because sovereignty is also at stake. The South wants a grand package that would secure for it the contested territory of Abyei and other disputed border areas as part of a settlement over oil.
Khartoum is unlikely to withdraw its own claims on Abyei and other border areas, where it has launched a series of aerial attacks in recent weeks and months.
“Now they [AU] are pushing us on Abyei and the border. The issues of sovereign territory of the South are being pushed off the table by the panel because Khartoum does not want to discuss these things,” said Mr Amum.
“In that situation there is nothing that we can do other than keep the oil in the ground, so it remains for our future generations.”
Some observers fear that oil wells in the six producing blocks that have been shut down may become too depleted to start up again.
Mr Amum said a “litany of bad practices”, such as over-pumping by Khartoum in previous years, had “compromised production”.
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