The Asian companies which exploit Sudan’s oil are holding on tight as tensions mount over Abyei and a new constitutional order is created in the South

As Khartoum and Juba discussed new oil arrangements in Addis Ababa, the Sudan Armed Forces (SAF) seized control of the contested district of Abyei on 19-21 May. Nevertheless, as it approaches Independence on 9 July, the Government of South Sudan has assured Asian investors of continuity. The GOSS is, however, in the challenging position of relying upon oil for development – and upon its long-time foe, the National Congress Party (NCP) government in Khartoum, to get that oil to market. The pipelines that carry the South’s oil to Port Sudan all run through the North to refineries there. Some think that Abyei is just a bargaining chip in the oil negotiations, but Abyei also matters politically to both sides.

Tensions have risen again between the NCP and Sudan People’s Liberation Movement. The South is grappling with a series of internal rebellions in oil-producing areas. In April, Northern oil workers were evacuated from Unity State when troops loyal to rebel Peter Gadet fought the Sudan People’s Liberation Army. In Khartoum, National Oil Minister Lual Deng, a Southerner, said that the fighting had forced production down by 20,000 barrels per day from Unity’s average 84,000 bpd. 

GOSS Energy Minister Garang Diing Akuong accused Khartoum of ‘having its cake and eating it too’ – benefiting from the South’s oil and sponsoring militias there. He says the fact that the militias arrive from the North and avoid attacking oil installations is evidence of directions given by Khartoum. The tension increases the risk of the North refusing to recognise South Sudan’s Independence. (Among other things, this would complicate the transfer of oil contracts from North to South). But that looks unlikely. 

Instead, Khartoum is causing major disruption to give the new country a shaky start. Major new exploration and drilling has stalled. Malaysian national oil company Petronas, state-owned China National Petroleum Corporation and the French giant Total all have offices in the South’s capital of Juba, but new exploration has yet to begin. Companies are waiting for Independence to clarify the legal status of agreements.

A large portion of Sudan’s oil is produced by the Greater Nile Petroleum Operating Company, which is owned by CNPC (40%), Petronas (30%), India’s ONGC Videsh (25%) and Sudapet (5%). GNPOC controls Blocks 1, 2 and 4 in Unity State, which spread over the contested region of Abyei. The White Nile Petroleum Operating Company 1, which is owned by Petronas (68.875%), ONGC Videsh (24.125%) and Sudapet (7%), operates Block 5A in Unity State. The Petrodar Operating Company produces about 200,000 bpd from Blocks 3 and 7 in the Melut Basin and is shared between CNPC (41%), Petronas (40%), Sinopec (10%), Sudapet (6%) and Kuwait’s Tri-Ocean Energy (3%).

Towards independence
India’s ONGC Videsh is happy to work in the North and South. In Sudan earlier this year, asking for reassurances that the transition to Independence would not interrupt operations, ONGC executives expressed interest in unexploited blocks in the North. In late April, the New Delhi government announced that it was sending multisectoral teams to both North and South to evaluate areas for cooperation. ONGC Videsh and the Ministries of Agriculture, Rural Development and Petroleum and Natural Gas would visit first. At the same time, Priscilla Joseph Kuch, Minister in the Office of the President of the GOSS, met External Affairs Minister SM Krishna to invite India to the 9 July celebrations and reiterated calls for continuity and confidence. MEA Joint Secretary Rajiv Shahare said that ONGC had already offered training opportunities and ‘many things to go beyond the present relationship.’ Delhi has promised help for health, education and agriculture. 

Other countries interested in oil maintained their charm offensives ahead of 9 July. Petronas donated school materials in April and touted its scholarships to Petronas Technology University. Juba also signed a two-year memorandum of understanding with Petronas in mid-March, which covers issues of capacity-building and training.

Experts say that South Sudan will be a significant oil producer for the next decade, but the fields are mature and the NCP’s rush to export has damaged the big reservoirs. In its official oil policy, the GOSS addresses the need for major exploration after Independence. The GOSS gets about 98% of its revenues from oil exploration. That will decrease once it takes control of its borders and can collect import taxes. Then it will also be free of the sanctions and loan-restrictions long imposed on the NCP. These have meant that mainly Chinese companies have supplied rigs and surveys to companies operating in Sudan.

South Sudan will be born as one of the world’s poorest countries, with little infrastructure and underfunded education and health systems. The GOSS is already battling discontent over the lack of progress since it took power in 2005. It will need to increase revenues after Independence. 

The need for funds has raised concern that transparency and a focus on development will be forgotten in the rush to find new oil. ‘Over the past five years, when communities in oil areas protested and delayed company operations due to issues surrounding the contamination of water and a lack of economic benefits passed on to local populations, leading GOSS officials made empty promises that such benefits were coming and urged them to allow the oil companies to continue to work,’ says Luke Anthony Patey, a researcher at the Danish Institute for International Studies. At the time, though, the NCP was in ultimate control.

A key feature of the civil war was the ethnic cleansing of communities based in or close to oilfields run by the NCP. Beijing came under heavy international pressure for continuing to pump oil while human rights violations were committed to keep the oil flowing. The GOSS has accused the NCP of supporting militias in the South so they can seize the oilfields after Independence. The North-South border is not yet fully demarcated and the recent move into Abyei by the SAF indicates a willingness to use the military to establish the border when negotiations stall.

Uncertainty surrounds the oil companies’ contracts with the North, since about 75% of Sudan’s oil is drilled in the South. The GOSS promises to honour existing contracts, but reserves the right to include ‘required addenda’ in new ones. ONGC Videsh officials in Sudan say that both parties have agreed to respect existing contracts and ensure access to the pipeline to the Red Sea. 

The GOSS may decide to create a national oil company to rival Sudapet. That would require changes to the joint ventures operating in the South. North-South rulings on citizenship will also affect the oil business since few Southerners have technical training in oil and gas. The GOSS planned to send 150 workers to Malaysia for training and has talked about building up to three refineries to meet local demand. Earlier this year, GOSS Energy Minister Garang Diing Akuong said that the negative environmental and human rights impacts of the operations of oil companies like those in Upper Nile and Unity states would be addressed by new regulations in the South. He said that people displaced by oil operations should be compensated and insisted that South Sudan needs to diversify its partners away from a dependence on Asia.

The European Coalition on Oil in Sudan, a civil society group, has been advising the GOSS, which wants to attract finance and technology from the United States and Europe. It is part of a plan to boost production from 450,000 bpd to 1 mn. bpd over the next three years. Garang Diing said GOSS was in talks with Japan’s Toyota Tetsua, which plans a $1.5 bn. pipeline to link the South’s oilfields to the new Kenyan port at Lamu. A rival plan dovetails with plans by Tullow, Total and the China National Offshore Oil Corporation for the Ugandan side of Lake Albert and a new refinery there. In mid-May, the Ugandan Energy Ministry’s Permanent Secretary, Fred Kabagambe-Kaliisa, said it wants to start buying South Sudanese oil to ease price pressures.

source: www.africa-asia-confidential.com