Oil-for-Electricity Deal Between Sudan and Ethiopia Could Be a Regional Boon Says Report

Sudan’s north-south halves and Ethiopia will benefit greatly from striking a deal to exchange the former’s oil with the latter’s electricity, a new study has argued.

Horn of Africa’s countries, Sudan, an independent South Sudan and Ethiopia, face remarkably similar challenges in terms of core-periphery inequalities, food and energy production, climate change and poor infrastructure, says the London-based think-tank Chatham House in a paper released this month.

A history of mutual mistrust and lack of regional integration around oil, water and hydropower between the three neighbors will make it harder to address these challenges, and may even lead to conflicts, the paper goes on to say.

Sudan, sub-Saharan Africa’s third-largest oil producer, behind Nigeria and Angola, is currently producing between 470,000 to 480,000 bpd.

Over 70 percent of that figure is due to be assumed by South Sudan when it officially splits from the north in July 2011.

North Sudan, which depends on oil revenues for some 45 percent of its budget, is scrambling to find other sources of income to make up for the loss of billions of dollars expected to be incurred as a result of south Sudan secession.

Sudan feeds 80 percent of Ethiopia’s oil demand, according to Sudan’s Nile Petroleum Company (NPC).

But Horn of Africa’s most populous country, Ethiopia, is a leading producer of hydropower, with the potential to generate up to 45,000 megawatts of electricity.

Chatham House’s paper, titled “Black Gold for Blue Gold? Sudan’s Oil, Ethiopia’s Water and Regional Integration”, suggests that north, south Sudan and Ethiopia have the choice of sharing resource wealth to build better economic relations that lock in political stability and address the ecological pressures confronting their populations.

North and South Sudan can continue to supply Ethiopia with oil whereas the latter could use its substantial hydropower potential to export electricity to its neighbors, the paper recommended, arguing that such cooperation would contribute to sustainable regional development and might lead to wider reductions in tensions in the region.

It further proposes that the regional integration between the three countries can be built on a revision of the 1959 Nile Treaty and the synergies between Sudan’s oil for Ethiopia’s water.

However, the paper acknowledges the existence of fundamental obstacles to regional cooperation on energy.

It summarizes these obstacles in north and south Sudan’s “greater focus on building a new relationship with each other than on broader regional cooperation; North Sudan’s insistence on pushing ahead with its own dam programme; and internal factors in Ethiopia constraining its emergence as a regional leader.