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Recovering South Sudan oil fortunes

Africa’s youngest nation banks on current political calm, recent truce with neighboring Sudan, to bounce back to original promising oil production levels

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By Ben Oduor

Africa’s newest nation, South Sudan, was doing pretty well in oil production. That was until a prolonged civil war broke out in 2013 (two years after independence), claiming nearly 400,000 lives, displacing thousands and wrecking the emerging economy.

The country produced 300,000 barrels of oil per day then, but the crisis dropped output to 170,000, owing to the shutdown of most oil fields during the unpredictable season.

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For a country that has Africa’s third largest oil reserves, estimated at 3.5 billion barrels, and almost 70 percent of the economy dependent on oil, the challenges have since affected macroeconomic performance, contracting real GDP by an estimated 3.8 percent in 2018, according to the 2018 Africa Development Bank (AfDB) Economic outlook.

In light of such backdrops, and the need to bring long-term solutions to the perennial conflict, longstanding political rivals President Salva Kiir and his former deputy Riek Machar met in Khartoum in June 2018, where they agreed to a permanent ceasefire, raising hopes of a peace deal.

Deal’s impact on oil production

Signing the landmark agreement, overseen by now ousted Sudanese President Omar al-Bashir, the two leaders agreed to rehabilitate South Sudan oil fields in collaboration with the government of Sudan in a bid to increase production levels. They also agreed to form a new transitional government to rule the country for 36 months leading up to national elections, among other negotiations.

Speaking in Juba early March, Ezekiel Lol Gatkuoth, South Sudan minister of petroleum said improved relations with Sudan would help restore crude production to the levels it reached when it gained independence.

Gatkuoth said relations between the neighboring countries are at their best, and that they had been strictly instructed by their respective leaders to work as closely as possible to resume and increase production.

“Relations between South Sudan and Sudan are at their best. We are being strictly instructed by the two leaders,” Gatkuoth, a former ambassador to Washington and the UN, told Financial Times in an interview.

With the developments, the country now trains its focus on increasing production to 260,000 barrels a day, before improving this to 350,000.

In January this year, the Ministry of Petroleum said the country had begun to repair wells damaged in the civil war, starting with the Unity Oilfields, which would add 12,000 bpd to output, raising it to 70,000 bpd by the end of the year.

“We promise that this is going to be on stream and we can expect the production to increase,” said Azhari Abdel Qader, Sudan’s oil minister- his South Sudan counterpart, Hon Gatkuoth, terming Unity Oilfields “officially opened for oil production”, during the opening ceremony.

The latest cooperation between the two Eastern African countries is seen to be of benefit to both. While South Sudan is landlocked, Sudan borders the sea, providing ground for oil infrastructure.

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According to industry sources, of the oil produced in the country, 40 percent goes to operating costs, 20 percent is shared by licensed oil producing companies and the remaining is shared between the two countries. Sudan reportedly receives between $9 and $11 per barrel of oil that landlocked South Sudan pumps through its pipeline to the port.

Since last year’s truce with Sudan, South Sudan ministry of Petroleum has been on a lobbying mission to attract more business partners into its oil business. In November last year, Minister Gatkuoth signed a memorandum of understanding with his South African counterpart, Jeff Radebe, which would see the southern African country invest $1billion in the sector.

The funding, South Sudan ministry of petroleum said, would be used for refining and processing of oil and gas, research and development, and the transfer of technology. The South African petroleum minister, on his part, revealed that his country intends to build a refinery with a capacity of 60,000 barrels of oil per day in South Sudan.

The deal came hot on the heels of the East African country’s second Africa Oil and Power Conference, whose main intention was to attract more investors to the country’s energy sector; the conference being the first in many years to go through successfully.

Recently, Hon Gatkuoth announced that the government was intending to invite more refiners to take part in its ‘competitive tender’ for government owned crude cargoes, clarifying that the tenders would be conducted through ‘competitive and transparent processes.’

“…with the target of reaching previous levels of more than 300,000 bpd, we do expect to put more crude on the market and are seeking to expand our base of buyers. Prepayments allow the government to access revenue at competitive rates, especially as the government continues to finance the ongoing peace process,” the minister was quoted in a local publication saying.

The latest socio-economic developments in South Sudan are a welcome call to the big Asian companies producing oil in the country. Chinese National Petroleum Company (CNPC), Malaysia’s Petronas and India’s Oil and Natural Gas Corporation are licensed to operate the country’s oil-producing fields through tw0-joint ventures.

These companies are expected to play a big role in turning the fortunes of the country’s most essential sector.

Concerns from the West

Unfortunately, damning reports emerged last year that a section of foreign oil producers in the country were using their monies to fuel the war.

According to the statement, released by U.S Bureau of Industry, Commerce and Security on 21st March 2018, South Sudanese government and corrupt official actors use oil revenue to purchase weapons and fund irregular militias that undermine the peace, security and stability of South Sudan.

The Department would therefore require a license from the U.S and Non-U.S companies to export, re-export or transfer exports of any U.S origin goods or technology to the listed entities.

“By placing these entities on the U.S Department of Commerce’s Entity List, the United States will impose a license requirement on all exports, re-exports and transfer of any U.S-origin to those entities,” the statement read in part.

South Sudan ministry of Petroleum on its part termed the measures counterproductive to the two countries’ shared mission to bring peace and stability in South Sudan, vowing to work with U.S Department of Commerce to remove the restrictions and resume normal relations with the western country.

For now, it remains to be seen how the youngest African state will turn the socio-economic tides to realize its independence promise to its people.

 

 

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