Last week South Sudan made its first shipment of oil as an independent nation, despite the lack of an agreement on revenue sharing of oil exports between the two countries.
South Sudan has 85 percent of the oil that comes from both South Sudan and Sudan. Until Jul. 9 the two countries divided oil revenues equally. But with independence, South Sudan says that the deal is over.
The two countries have yet to formally agree on how much South Sudan should pay to export its oil through pipelines in Sudan to Port Sudan. However, a bitter row is now brewing over what the new state sees as exorbitant taxes charged by its neighbour for South Sudan’s first shipments of oil as an independent state. Sudan is charging about 16 times the highest fee that can be paid according to international practises, at 33 dollars a barrel. According to sources in South Sudan, the highest fee charged internationally is two dollars.
The director general for the energy ministry, Arkangelo Okwang, said that one million barrels were shipped out of the country using Sudan’s pipeline on Jul. 18. South Sudan produces about 385,000 barrels of oil a day.
Okwang said South Sudan shipped another 600,000 barrels on Jul. 23 and expects Sudan to bill them for the use of the pipeline.
But on Thursday Sudan’s parliament passed a revised 2011 budget that included expected income from oil transit fees to be paid by South Sudan.
The budget figures showed that Sudan expected South Sudan to pay 2.6 billion dollars in oil transit fees this year. It is almost the same amount that Sudan would have earned if the 50-50 oil revenue sharing agreement was still in place.
For South Sudan’s first shipment of one million barrels, it was charged a tax of 33 dollars per barrel by Sudan. Experts estimate the first shipment to have been worth 100 million dollars.
As South Sudan threatens to halt oil exports in complaint against the high tax, Sudan says the new country has no option other than to pay the fees it is charging.
Lual Deng, the former oil minister in Sudan’s government of national unity, said Sudan had previously agreed to let South Sudan’s July shipments pass through their pipelines until a final deal is reached on the rate of fees.
Taban Deng Gai, governor of the oil-rich Unity State, said that officials in Sudan were imposing unacceptable terms.
“Can you imagine they are charging 33 dollars per barrel for processing and transiting oil from the oil fields in Unity State (in South Sudan) to Port Sudan (in Sudan)?”
The price of oil per barrel varies but oil called Dar Blend is sold for about 80 dollars per barrel, while Nile Blend is sold for 114 dollars per barrel.
“You know, the oil leaves South Sudan when it has 10 percent of water in it. When it reaches Heglig (an oil field located on the Sudan border) they have to remove the water from it. They are charging 2.9 dollars for that process,” said Gai.
“In addition, Sudan charges South Sudan 22 dollars per barrel to transport the oil from the fields in Unity State to Port Sudan. In Port Sudan they charge 6.9 dollars per barrel for handling and impose additional taxes,” he explained. With an additional 1.2 dollars in export tax, the total comes to 33 dollars per barrel.
He added: “If you calculate these fees at the rate of 33 dollars per barrel, you find that we are still giving the north (Sudan) exactly 50 percent of the oil revenue.”
On Jul. 21, South Sudan’s President Salva Kiir told reporters that the country would rather not export any oil at all if they had to pay Sudan unreasonably high fees.
Gai agreed with Kiir and added that Sudan’s fees were “contrary to international practices.”
“Because for Chad, they pay only 0.4 dollars per barrel for their oil to go to the international market. In the whole world the highest you can pay is two dollars per barrel for the whole process,” Gai said.
“We cannot pay 33 dollars and we cannot even pay five dollars per barrel. The highest we can pay is two dollars per barrel because this is the highest fee that can be paid according to international practices,” he asserted.
Kiir said South Sudan would rather wait three years for its own pipeline to be built. However, the country receives 98 percent of its revenue from oil. He did not say what it would do financially while it waited for the construction of the pipeline.
But the North Sudan’s finance minister, Ali Mahoud, said on Thursday that Kiir’s position is unrealistic, given that South Sudan has neither oil pipelines nor refineries.
“South Sudan has no alternative other than exporting the oil through the north (Sudan). What (Kiir) says doesn’t make any sense because he doesn’t have any other options than to use our pipelines,” said Mahmoud.
“For airplanes flying over our skies they pay us a fee, so if South Sudan is using our pipelines on the ground, should they not also pay? This moment, as I am speaking to you, there is oil (from South Sudan) in the northern (Sudan’s) pipelines going to Port Sudan,” Mahmoud said. He added the pipeline was Sudan’s asset and South Sudan had to pay to use it.
Gai said South Sudan’s government would prefer to build its own pipeline and refineries.
“We will ask the people of South Sudan not to receive salaries for two years, not eat for two years so that we can build our pipelines to go through Kenya or Djibouti.”
He acknowledged, however, that building South Sudan’s own pipeline would be expensive.
“It will cost us between 1.5 and three billion dollars to build a pipeline, but it is an option we might have to go for given the conditions being imposed by the Arabs in the north (Sudan),” said Gai.
Earlier, David Loro Gubek, the undersecretary in South Sudan’s ministry of energy and mining, said government planned to build a refinery in each of South Sudan’s three regions of Upper Nile, Equatoria and Bahr al Ghazal.
The refineries would produce oil for domestic use and the pipeline would enable South Sudan to transport its oil through either the Port of Djibouti or the Port of Mombasa in Kenya, which is nearer than Port Sudan.
Despite Kiir’s and Gai’s tough words, experts in South Sudan believe the government will not have money to pay its bills if the country stops exporting crude oil. Currently oil constitutes more than 98 percent of South Sudan’s budget.
South Sudanese and Sudanese officials are scheduled to meet to discuss the pipeline fees. Separate meetings regarding South Sudan’s future use of Sudan’s facilities to process and export its oil are also under way in the Ethiopian capital, Addis Ababa. And until a solution is found, there is a risk that South Sudan’s government could ground to a halt if the country stops oil exports.