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No Quick Resolution on Sudanís Oil Transit Fees

Source: Reuters 3/12/2012, Location: Africa

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A senior Sudanese official dashed hopes of a quick end to a row with South Sudan over oil export fees, blaming Juba for blocking chances of a deal that would relieve both countries' beleaguered economies. State Oil Minister Ishaq Adam Gamaa insisted Sudan was under no pressure to rush any deal because its economy could still survive without oil, a veiled warning to Juba, which depends on oil revenues for 98 percent of its income. The U.N. Security Council and the European Union last week urged both countries to end their oil row which some Western diplomats fear could lead to war as oil is the lifeline of both economies.

South Sudan split from Sudan in July under a 2005 peace deal that ended decades of civil war, but both states are still wrangling over how much the landlocked new nation should pay to export oil through northern pipelines. In January, Juba shut down its entire output of about 350,000 barrels per day (bpd) after Khartoum started taking some oil to compensate for what it called unpaid transit fees.

The African Union is trying in a new round of talks in Addis Ababa to broker a deal, but Gamaa accused Juba of blocking a compromise. "They have insisted not even to talk about proposals by (the African Union)," he told Reuters in an interview in the oil ministry, adding it was up to Juba to choose whether it wanted a deal or not. "The decision is theirs," he said.

Gamaa said Khartoum was in a better position than Juba to weather the oil shutdown because its larger economy had diversified revenue sources such as gold and livestock exports. "We came into the oil business only 10 years ago, so we have our system of taxing. We have our system of agricultural products. We have our system of livestock," he said.

In contrast, South Sudan looks vulnerable. Southern officials have said the new nation has foreign exchange reserves to manage for up to a year, but analysts have said the country may struggle after just a few months. Gamaa countered southern statements that oil exports could resume quickly after a deal, saying it would take at least one month to restart the pipeline, which was now fully flushed with water to avoid gelling. "If you want to start it, you have to fill it with 3 to 4 million barrels," he said in his office on the banks of the Nile.

Gamaa said Sudan was willing to look with "flexibility" at a compromise over pipeline fees but that Juba's proposal to pay less than $1 a barrel would lead to no compromise. Khartoum has said it wants fees totalling about $36 a barrel, plus $1 billion in arrears from July. Gamaa declined to give specific charges, but said a pipeline fee should not be based on international norms such as mileage, as Juba had demanded, and should take into account that Sudan owns the pipeline. "Sudan owns the pipeline... It's not (a) typical (case)," he said. Sudan has said it wants a wider deal with South Sudan which would also cover sharing debt of almost $40 billion.

Both states also need to find a solution for the disputed border region of Abyei, mark the poorly-demarcated border and end accusations they are supporting rebels on each other's territories. Gamaa declined to confirm that Khartoum had sold at least one shipment of confiscated oil, saying only that the government had taken the amount of oil it was entitled to as a transit fee. He confirmed Sudan had diverted some southern oil to its two refineries, as the South has said, but added the government was allowed to do so to keep the pipeline running. "It is flush oil. The South is trying to make an issue of it. This oil is part of the pipeline," he said.

Sudan hopes to resume oil exports from next year, when production would hit 180,000 bpd from 115,000 bpd due to a better recovery rate and production from new fields within existing blocks, he said. "By the end of the year we will have 180,000 barrels," Gamaa said. Sudan signed a technical agreement with Norway last month to boost the recovery rate to around 45 percent from 23 percent.

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