The youngest state in the world has one of the biggest oil logistics problems

The chasm between potential and achievement could not be vaster. The new democracy in South Sudan is stumbling and fumbling along, beset by enormous challenges to its efforts to become an eastern African powerhouse.

 In 2011, South Sudan became the 193rd country in the world and the 54th United Nations member state in Africa.

“South Sudan has the capacity to feed the entire population of Africa, provided it develops the agricultural sector optimally,” reported www.indiatoday.in in April 2011.

The country produces 500 000 barrels of oil per day, of which 375 000 are unearthed in South Sudan.

Although the referendum was a success, reconciliation of numerous issues has not occurred, with most of the responsibility resting with Khartoum.

There are three unresolved problems, according to John Campbell, the Ralph Bunche senior Fellow for Africa policy studies at the Council on Foreign Relations.

The delineation of the border between the northern and southern regions remains incomplete; citizenship issues for southerners living in the north and vice versa are not resolved; and a formal agreement on a formula for sharing oil revenues does not exist.

The Abyei area did not participate in the 2011 referendum and remains in limbo.

South Sudan is one of Africa’s poorest and most undeveloped nations.

Despite significant support from the South Sudan Diaspora, non-governmental organisations and the international community, the Juba administration of Salva Kiir Mayardit resembles a liberation movement more than a governing party.

Government institutions are still developing; corruption is widespread. While much of the oil is located in the south – with the potential for generating revenues – the region’s large army absorbs much of the government’s operating budget.

Furthermore, Africa provides countless examples that commercial exploitation of natural resource wealth is no guarantee of economic or social development.

Rather than resolving the generations-long Sudan crisis, Juba’s independence opens a new chapter in a complicated story.

South Sudan’s relationship with its southern neighbours will be important in terms of trade, technical assistance, entrepreneurial skills and labour, said Alan Goulty, former United Kingdom ambassador to Sudan.

Water

Independence is sparking questions about South Sudan’s future water use.

Under colonial-era treaties, Sudan as a whole is entitled to use 18.5 billion cubic metres of Nile River water per year, about 22%. How will north and south will share Sudan’s current water rights?

Negotiations have yet to reach a conclusion, noted Jon Temin, director of the Sudan programme of the United States Institute of Peace (USIP).

Another question is whether future agricultural and other developments in the south would increase demand for water.

Oil

Sudan and South Sudan are negotiating over control of oil and natural gas assets.

Combined, they between five and six billion barrels of proven oil reserves. The government of South Sudan receives nearly all – 98% – of its revenue from oil operations.

Khartoum derives 60% of its revenue from oil.

Raymond Gilpin, director of the USIP’s Center for Sustainable Economies (one of the Institute’s Centers of Innovation), suggested that Juba focus on infrastructure improvements and management and not merely oil revenue.

It should ensure that the use of oil revenue does not exacerbate ethnic or regional tensions within the south.

Gilpin called the petroleum resources an opportunity to demonstrate that this is a government for all. He cautioned, however, that the south’s oil dependence creates much opportunity for corruption. (Source: www.usip.org, 18 April 2011).

The international community should make it clear that the support is there, but also the scrutiny, added Gilpin.

“South Sudan may also have opportunities for regional energy partnerships,” claims www.usip.org.

With other oil deposits in the Great Lakes region coming online, Gilpin said the collaboration between South Sudan and its neighbours on the building of pipelines could benefit all by lowering the cost of carrying oil to market.

‘Flirting diplomatically with two global giants’

As the nation of South Sudan began to show sign of life at its formative stage, China had the prescience to initiate a game of diplomatic ping pong whereby it continued support its old ally al-Bashir while developing new and meaningful friendships with the South, said Energy Corporate Africa. (Source: www.energycorporateafrica.com, 21 July 2011)

China wasted no time in putting money where it wanted to have a say and foothold. The Red Dragon nation was quick to set up a consul in Juba and assisted in building new schools and hospitals.

China further created a new technology-based programme in welding and fabrication to train the human capital of the South in running its emerging oil industry.

Through a well-orchestrated diplomatic efficiency, China became a strong player in ensuring the separation of the South from Sudan happened without invitations to the dogs of war in order to protect her interest in the region.

Immense credit must be given to the US for being a major economic power that gave a platform on which the birthing of South Sudan took place. It has always recognised South Sudan’s right to decide on its freedom as a nation and provided it with economic and diplomatic support.

South Sudan could have been considered an exclusive safe haven for the US government, investors and oil companies for the fact that it gave the Government of South Sudan a colossal shoulder to lean on when it needed it most amid the massive supply of arms that China was shifting to the North during its days of war.

However, nation building of South Sudan coincides with America’s economic suffering and the debt ceiling forcing clouding the Obama administration, says www.energycorporateafrica.com.

This is the cog in the wheel of America in consummating a relationship it established from the onset.

China, with its glowing economic might and neo-diplomatic moves through “cash-and-carry” and oil-for-infrastructure agenda, has deeply penetrated the heart of the cash-starved government of South Sudan.

Beijing is now entrenched in South Sudan and is giving the US a run for her foreign policy in Africa.

Although South Sudan needs China’s quick money for her urgent infrastructural needs, it will be like a camel passing through the eye of a needle for Juba to forget Washington gave her succession when she needed it most.

Since the present situation in Juba cannot do without America or China, one alternative remains for Juba: to enjoy the romance and competition these two wary energy-hungry partners would create in her oil enclave, claimed www.energycorporateafrica.com.

Dealing with al-Bashir

South Sudan rejects the fees proposed by Khartoum for transporting the oil produced by the landlocked state. “The amount of money Khartoum wants us to pay is unreasonable,” David Loro Gubek, undersecretary at the South Sudan Ministry of Energy and Mining, told Reuters.

The bulk of oil produced in pre-secession Sudan was produced in the South, and officials in Khartoum have been warning citizens in the North of hard days ahead, as exports of oil were the main source of income and hard currency over the last six years.

Sudan has been banking on recovering part of the lost revenue by charging fees to the South for using the pipelines running through the North all the way to the coastal city of Port Sudan.

Sudan reportedly demanded $32 per barrel for the service. This is worth roughly a third of South Sudan’s export value at current prices, according to calculations by Reuters.

In July, Sudan’s parliament approved an alternative 2011 budget which, lawmakers said, included an annual income of $2.6bn for transit fees to offset the loss of South Sudan’s oil production.

“If Khartoum insists that unless we pay, they are not going to allow us to use these things, then the Republic of South Sudan... could request them to close the pipeline because it is discriminative,” Gubek said.

The role of China in resolving oil conflicts

China could use its influence to reduce the tension between the two countries.

According to the Chinese Academy of Social Science, China imports more than 60% of Sudan’s oil and owns a 40% share in PetroDar Operating Company and the Greater Nile Petroleum Operating Company – the largest oil giants in Sudan.

But ongoing conflict has impacted oil production, with the South Sudanese Petroleum and Mining Ministry saying that production in South Sudan has dropped from 85 000 to 60 000 barrels per day on the border states.

The ministry further noted that Sudan’s production of oil in the border states dropped from 60 000bpd to 48 000bpd.

Southern Kordofan, a Sudanese state bordering South Sudan, has witnessed ongoing fighting since June; Sudan’s Blue Nile state near the Ethiopian border erupted into conflict in early September.

In both cases, the Sudan People’s Liberation Movement Northern Sector, a group affiliated with the ruling Sudan People’s Liberation Movement, is confronting the Sudanese army.

Southern Kordofan, explained Sudanese political commentator Magdi El Gizouli, became the largest oil producer in Sudan after South Sudan’s independence.

The only actor with real diplomatic leverage over Sudan is China. Its hunger for endless oil profits – which will now depend on maintaining warm relations with al-Bashir’s foes in oil-rich South Sudan – may have to trump its avuncular attitude toward the North, which has persisted through decades of atrocities committed by the ruling National Congress Party, claimed www.ecosonline.org.

Fanie Heyns