August 4, 2012 (WASHINGTON) – The United States quickly welcomed the announcement made by African Union (AU) mediator and former South African president Thabo Mbeki that the delegations of Sudan and South Sudan reached an agreement regarding oil transit fees.
- A worker walks at the power plant of an oil processing facility at an oilfield in Unity State April 22, 2012 (Reuters)
The sticky issue has all but debilitated the economies of the two neighboring nations and both sides were entrenched in their negotiating positions despite intense regional and international pressure to reach a compromise.
South Sudan broke away from the north last year and took with it around three-quarters of the oil reserves but due to its landlocked situation the new nation could only export and process the crude through the pipelines inside Sudan’s territory to terminals in Port Sudan coastal city.
But due to a disagreement on pricing of the transportation service Juba decided to suspend its oil production which came after it was revealed that Khartoum started seizing some of the south’s oil in late 2011 to make up for what it says are unpaid fees.
Khartoum demanded the payment of $36 per barrel by Juba to export its oil but the latter offered around $1 saying this figure is consistent with international norms.
Sudanese officials also made it clear that the loss of oil revenue left a gap in the budget that needs to be built into any deal with south on oil.
Late on Friday, Mbeki made the surprise announcement to reporters that the two sides reached a comprehensive understanding on oil.
"It’s an [oil] agreement about all of the matters. The issues that were outstanding were charges for transportation, for processing, transit," he told reporters according to Reuters.
"What will remain [now]...is to then discuss the steps as to when the oil companies should be asked to prepare for the resumption of production and export," Mbeki said.
Officials in Khartoum and Juba were slow to confirm the news and both sides gave conflicting accounts of the price that was agreed upon.
A senior Sudanese official told Sudan Tribune on Saturday that Juba will export its oil for $25 per barrel. South Sudan government on the other hand said they will pay $9.48 for every barrel in addition to around $3 billion in one lump sum.
The accord is good for three and a half years after which the rates can be re-negotiated but only downwards, South Sudan government said.
Sudanese presidential assistant Nafie Ali Nafie today described the agreement as "rewarding" but that its implementation is contingent on concluding negotiations on security issues. He said the deal will provide a conducive environment to weaken rebel movements.
Khartoum accuses Juba of harboring and supporting rebels fighting the Sudanese army in Darfur, South Kordofan and Blue Nile. It insisted on tackling this issue prior to discussing all other post-secession items.
Luka Biong, senior member of Juba’s ruling Sudan People’s Liberation Movement (SPLM), said in an opinion article that Sudan has made "considerable concession" which he said "showed beyond any doubt that it [Sudan] is desperate to reach a deal on oil and other payments".
He also said the price agreed upon was $11 as contradicting the $9 reported in Juba.
"As the South would not want to set precedence in oil tariffs as it intends to diversify its access to ports, the current deal of oil tariffs of $11 per barrel that has been reached provides a basis for confidence building and resolving other issues. On other payments, the offer of South of financial transitional assistance of about $3 billion to Sudan is unprecedented as it did not happen before in the post-independent history of Sudan to receive such free budget support from any country or organizations" Biong wrote in an Op-ed in ’New Nation’ newspaper.
The SPLM official however went on to say he wished the issue of Abyei was attached as a condition for the oil deal to be signed.
"One would have wished that the acceptance of the South of the current oil deal to be conditional on finally resolving the issue of Abyei Referendum, particularly the issue of eligibility to be exclusively for members of Ngok Dinka and other residents except nomads," he wrote.
South Sudan’s chief negotiator Pagan Amum, despite also praising the deal, lashed out at the international community accusing it of siding with Khartoum in the talks.
"America, the U.K., all were silent. They were abetting the theft of Sudan," he said. "They [international community] were all telling us ’let it flow, let Sudan take it.’ Because they don’t want it to affect prices" Amum said.
He also said that international pressure on the negotiations was based on desperation and the search for a "quick fix."
U.S. president Barack Obama issued a statement welcoming news of the agreement.
"The leaders of Sudan and South Sudan deserve congratulations for reaching agreement and finding compromise on such an important issue, and I applaud the efforts of the international community which came together to encourage and support the parties in finding a resolution. In particular, I am grateful for the work of the African Union High-Level Implementation Panel, led by President Thabo Mbeki, for its determined and skilled leadership in bringing about this agreement" according to the statement on the White House website.
Obama’s Secretary of State Hillary Clinton said in a separate statement from Kenya praising the "courage" of South Sudan government.
"We praise the courage of the Republic of South Sudan’s leadership in taking this decision," added Clinton, who had visited Juba on Friday on her current Africa tour.
"Now was the time to bring this impasse to a close, for the good of the people of South Sudan and their aspirations for a better future in the face of ongoing challenges. South Sudan’s leaders have risen to the occasion" she added.
A senior U.S. state department official speaking to reporters on background from Kenya said that that Khartoum and Juba "were in a downward economic spiral that was accelerating at a rapid pace that would have led them into major economic destruction" as a result of the oil shutdown.
"Ninety-eight percent of the revenues of South Sudan lost 95 percent of their budget – lost. And from all indications from the World Bank, from the IMF, and from independent economic analysis that we’ve done, would’ve shown that the South would have probably run out of foreign exchange sometime between the end of August and the first of October. Others say they might have been able to last up until December of this year or January, but this was a major disaster waiting for a new government" the official said.
"In the North, you can see what was also happening. For the first time probably in a decade, we were seeing on the streets of Khartoum daily an increasingly vocal and violent demonstrations against the government. We saw a large rise in inflation; we saw spiraling high fuel prices and fuel shortages and higher food costs in the North, demonstrating that they were in economic trouble as well" the official added.
The official suggested that Clinton pressed South Sudan president Salva Kiir successfully into sealing a deal with Khartoum on oil.
"[T] Secretary did point out very clearly that the prospects of the situation getting worse economically were very, very apparent. But she also said to President Salva Kiir and his leaders that the global economic community, which has helped South Sudan over the last several years with large infusions of money, is going through a tough time itself and that it could not expect an international bailout of the type that would be needed to be able to provide for all of the lost revenue and assistance that it was losing as a result of the oil shortages" the official said.
It remains to be seen how quick the oil will start flowing though experts say that it will take few months to get the pipelines up and running.