Umbilical Discord?

The celebration to usher South Sudan as an independent nation was done with much fanfare and optimism just months ago. Today, much of that optimism appears to have washed off. Insurgency, trampling on rights, feud with the North, are among the host of issues that have taken a toll on the world's newest nation. While it will be interesting to see how South Sudan copes with these troubles in the years to come, the more pressing challenge confronting Juba (capital of South Sudan) today is to work out a working relationship with North Sudan (usually called Sudan).

 

Sudan and South Sudan share an umbilical cord called petroleum. And that happens to be the mother of all discords between the now-separated nations. Before the separation, some analysts maintained that sharing of petroleum resources would be more of a solution than a problem. As it turns out, the latter group has been proven wrong. Those predicting upheaval have been more accurate in their analysis. When the deal to end the civil war between the North and the South was struck way back in 2005, the oil revenue was split 50-50 between the two regions. It was also under this same deal that the idea of plebiscite was introduced. However, the deal was pretty much 'silent' about what was to be done if the South votes for independence. It seems that such a scenario was never worked out and when the South became independent, the logistical issues raised their ugly heads with full force. 

 

To start with, all the commercially viable explored oil blocks – as much as 75 per cent – fall in the South, whereas the downstream logistics comprising refining, transportation and transit almost entirely fall in the North. South Sudan has virtually no refineries and Port Sudan is the only current outlet for its oil. And this logistical dependency is not merely for oil. Most of the imports and agricultural products and by-products come from or through the North as well. There can't be more dependency on each other than this. Optimists had suggested that this dependency will mean that both the parties will have to stick together rather than undermining each other. The reality, as it turns out, is quite different. 

When the two countries split, there was no agreement on the transit cost. This grey area proved fatal last month when the Sudanese government deliberately turned South Sudan's crude towards its refineries while it was on its way to Port Sudan. Juba alleged that this was nothing but plain theft of its oil. Khartoum on its part claimed that they diverted the oil because of South Sudan's unpaid transit and refinery usage fees. Allegations and counter allegations flew, and South Sudan shut down the oil production and refused to restart it before the fee issue was settled. 

 

Wossen Ayele, Sudan expert based at the Forum for Social Studies in Addis Ababa, told TSI: “The problem here is an environment of deep mistrust. In fact it is suffocating. You can not simply talk reason here. All this will only aggravate the problem. I am not very positive about the meeting between the two presidents in the coming weeks. The talks might solve the transit issue for the time being, but I am not very sure about a long term solution.” 

 

There have been preliminary negotiations between the two sides that will culminate in Sudanese President Omer Al-Bashir's visit to Juba. It is learnt from sources close to the regime that some kind of understanding has been reached to allow the resumption of production and transportation of oil. Sudan's foreign-affairs minister Ali Karti said that the South's President Salva Kiir and Bashir are expected to sign recently agreed deals to safeguard the interests of each others' citizens and demarcate their oil-rich common border. 

 

The transit fee issue however will not be an easy one to sort out in the long run. Sudan for instance has been asking for $32 a barrel in transit fees, while South Sudan says it will pay close to $1 a barrel, roughly in accordance with international standards. It is pretty obvious that the situation here is more complicated than other places where similar arrangements have been made. In all likelihood, both sides will agree to a price in between the two extremes. 

Another important party to the settlement is African Union (AU). It has its own version of a settlement deal which appears more practicable. The proposal it has put forward has got only lukewarm reception from both the parties for now but a cursory look at it suggests that this is the best anyone can manage here. 

 

The initial proposition required the South to make a cash transfer in the range of $2.6 billion to $5.4 billion to Sudan as compensation for forgoing 75 per cent of oil output and for the South’s use of pipelines, refineries, and transit and export facilities that run through Sudan. It also asked South to supply Sudan with close to 35,000 barrels of crude a day on loan to avoid oil bill for its economy and postpone arrears negotiations for later. In the amended draft proposal by AU, it was also agreed that the South should pay transit fees of close to $1.1 billion to cover the period until the end of 2014. The proposal appears to put hefty monetary requirements for the South in the short run, but it will clearly bring it security, stability and goodwill from the North in the long run.

 

Meanwhile, South will like to explore a few options of its own too. And it is not sitting idle. Juba has already made overtures to the Kenyan government for a possible link to the Kenyan port of Lamu through an oil pipeline. In fact, Nairobi and Juba also signed a non-binding memorandum of understanding to build a pipeline. But all that is still in the conceptualisation stage. Also, as of now, South Sudan does not appear to be in a condition to invest the kind of money the project will require. Some economists have suggested that it will be as high as $ 4-5 billion. Clearly, any project with such capital investment will take years to realise.

 

Till that happens, Juba has no option but to roll out the red carpet for Bashir and show him some warmth.