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Sudanese president warns of other options if no deal reached on oil with Juba

September 25, 2011 (KHARTOUM) – The Sudanese president Omer Hassan al-Bashir issued a veiled threat to the newly established Republic of South Sudan (RoSS) that an agreement on oil transit fees must be reached by the end of October.

Sudanese president Omer Hassan al-Bashir (AFP)

In an interview with the London-based al-Sharq al-Awsat newspaper, Bashir stressed that the main purpose of the fees charged for transporting oil produced in RoSS is to shore up the budget shortfall in Sudan after the south’s secession.

“For oil, the reality says that there are two neighboring countries that have to coexist together. Oil which was part of the north must be compensated in the transitional period if a [budget] gap happens within the coming four years due to loss of oil,” Bashir said.

Following South Sudan’s official independence last July, Sudan lost 75% of the oil reserves that existed under the united country. Prior to the country’s breakup, Sudan produced close to 500,000 barrels per day.

But the landlocked south needs the pipelines in the north that transport the oil for exportation through Port Sudan.

Sudan has been hoping that fees assessed on using its oil infrastructure will help recover part of the revenue lost with the south’s independence. But the two neighbors have yet to agree on what the fair fee should be per barrel.

Sudanese officials have reportedly asked RoSS for $32 per barrel which was swiftly rejected by Juba and described as "daylight robbery".

But Bashir suggested that this rate was agreed for in principle by South Sudan which would help shore up the funding shortfall he estimated at $10 billion.

“[I]t was agreed to cover the [budget] gap is by taking $32 for each barrel of the south’s oil which is exported through Sudan,” the Sudanese president said.

“We have given the Government of South Sudan a transitional period during which an agreement would be reached by the end of the month of October,” he added.

“If we don’t reach a solution we have our options to resolve this issue,” Bashir warned without elaborating.

In August, Khartoum blocked an oil shipment in Port Sudan belonging to RoSS over non-payment of custom duties before releasing it later. It was not clear on what terms Sudan agreed to let the shipment sail to its destination.

RoSS officials said that any payment will be put on hold until a deal is reached through negotiations in Addis Ababa under the auspices of an African Union panel chaired by former South African president Thabo Mbeki.

The worsening economic situation in Sudan in the form of soaring inflation and acute shortage of hard currency is adding to pressure on policymakers in Khartoum who want a quick resolution of this item.

The Sudanese finance minister Ali Mahmood Hassanein this month said that the country needs no less than $1.3 billion to cover the budget deficit.

Furthermore, the Bank of Sudan (BoS) governor Mohamed Khair al-Zubeir said he asked Arab countries to deposit funds into his institution and commercial banks.

"I have requested the governors to deposit some reserves in the central bank and also in Sudanese commercial banks," al-Zubeir told Reuters in an interview after a meeting of Arab central bankers in Qatar’s capital this month.

Zubeir said he did not ask for a precise amount, but said: "We of course need about $4 billion for this year”.