South Sudan Seeks Chinese financing for Oil Pipeline

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South Sudan pipeline photo

Proposed Kenyan pipeline route for South Sudan oil

South Sudan intends to ask China to finance an alternative pipeline to export its oil, an official said on Sunday as prospects of resuming use of former transit route via neighboring Sudan have been terminated by renewed conflicts.

The request will be made during a five-day official visit South Sudan’s President Salva Kiir is due to start in Beijing as of Monday, according to Pagan Amum, the country’s lead negotiator and secretary-general of its ruling Sudan People’s Liberation Movement (SPLM).

In a statement to the Financial Times, Amum voiced optimism that China would respond to their request.

“It could be a consortium and China could join. They are positive, they are looking into it, they have agreed to provide South Sudan with technical assistance in building an alternative pipeline” he said.

Amum acknowledged that South Sudan is unlikely ever to resume crude exports through Sudan as already-strained relations between the two neighbors degenerated as of last week into a cycle of military confrontations in disputed border areas and heightened war rhetoric.

Sudan’s President and international fugitive Omer Al-Bashir announced following South Sudan’s withdrawal from Heglig, that Khartoum will never allow South Sudan to resume exports of its oil through Chinese-built infrastructure in the north.

“I don’t think our oil will flow through Sudan any more again,” said Amum.

Land-locked South Sudan has already shut down its oil production of 350,000 barrels per day in February following failure to agree with Khartoum on a fair transit charge.

China, the biggest investor in oil sector on both sides of the borders, has been struggling to handle dual engagement with its old friends Sudan and the new rulers in South Sudan since the latter seceded in July last year, taking with it nearly 75 percent of the oil output of the once-united country.

A report produced this month by the International Crisis Group (ICG), a Brussels-based think tank, highlighted China’s dilemma in its pursuit of balanced relations with Khartoum and Juba, noting Beijing perceived failure to engage in diplomatic efforts to bring the two countries to agree on the oil issue as well as the impact this failure had on complicating its relations with Juba.

As the oil dispute with Khartoum worsened in February, Juba expelled the head of Chinese-led oil consortium Petrodar, accusing him of colluding with Sudan in diverting southern oil.

It appears, however, that South Sudan’s urgent need to resume oil production to save its weak economy has forced a re-think.

Amum said his country considered its ties with Beijing as “the most strategic relations South Sudan will have with any other country.”

The South Sudanese official acknowledged that building a new pipeline would take almost four years but insisted that his country can survive and cover cost of pipeline construction out of future oil sales.

“We are in a situation where we don’t need to be producing the oil now because we can have a future sale of oil – we have the reserves; everybody knows the oil will flow after the construction of the pipeline,” Amum said.

“Financing would not be a problem because we would be using future sales” he added.