FACTBOX-Sudan and South Sudan oil payment dispute

FACTBOX-Sudan and South Sudan oil payment dispute Mon, 23 Jul 2012 18:24 GMT Source: reuters // Reuters By Hereward Holland and Alexander Dziadosz JUBA/KHARTOUM, July 23 (Reuters) - Economic and political pressure is mounting on Sudan and South Sudan to make a deal on oil exports, financial disbursements, security and disputed territory before an August 2 deadline. The two countries face United Nations sanctions if they fail to settle agreements relating to the partition of Sudan one year ago. The quarrel pushed the newly independent South to shut off its 350,000 barrels per day of crude output in January and border skirmishes brought the two countries to the brink of all-out war in April. In an economic race to the bottom, both countries are running out of dollars, witnessing spiraling inflation and depreciation of their banknotes. Here are some key facts about the row and its implications: ROOTS OF THE QUARREL South Sudan inherited about three quarters of Sudan's oil output when it declared independence in July 2011 - giving it about 350,000 barrels per day (bpd), compared with Sudan's then roughly 115,000 bpd. The catch is that landlocked South Sudan must pipe the crude through its northern neighbour to the Red Sea terminal at Port Sudan to export it. The two have failed to agree how much Juba should pay to do this. Both rely heavily on oil - it contributed some 98 percent of state revenues in South Sudan and over half in Sudan before the split - and so both are under pressure to get a good deal. Further complicating the issue, almost all the oil in both countries comes from fields near the disputed border. The two routinely trade accusations of supporting and harbouring insurgents on both sides of the border. The dispute boiled over in January, when South Sudan shut down its entire output in protest after Sudan began confiscating some oil from the South. South Sudan accused Khartoum of "stealing" its oil, while Sudan said it was entitled to a share because Juba has refused to pay fees since it seceded, fuelling inflation and a foreign currency shortage in Sudan. Relations plummeted in April when the two armies clashed on their shared frontier. South Sudan briefly captured Heglig oil field which had been controlled by Khartoum but, under strong international pressure, pulled out 10 days later. Apart from oil, the two also need to create a 10-km (6-mile) demilitarised buffer zone across the whole border, resolve disagreements over five disputed areas including Abyei, and end support for militias in each other's countries. Any deal on oil fees also will be tied to cash transfers from the South to help Sudan's economy cope with the loss of petrodollars. THE INDUSTRY The most prominent oil firms operating in the two countries are Chinese, Malaysian and Indian. A long history of conflict and U.S. trade sanctions against Sudan have deterred most Western investors. In March the oil consortiums operating in South Sudan registered as separate companies and changed their names. Petrodar became Dar Petroleum. Greater Nile Petroleum Operating Company became Greater Pioneer Operating Company. White Nile became Sudd Petroleum. Dar Petroleum, whose major shareholders are the state-owned China National Petroleum Company (CNPC) and Malaysia's Petronas, was pumping much of South Sudan's oil before the shutdown. It is active in South Sudan's Upper Nile state. Greater Pioneer Operating Company, which operates blocks in South Sudan's Unity state, pumped most of the remainder. CNPC also leads this consortium, along with Petronas and India's ONGC Videsh. The other consortium operating in South Sudan is the Sudd Petroleum, a 50/50 joint operating company between Petronas and South Sudan's state-owned Nilepet. Other firms include France's Total SA, which has a roughly 120,000-square-km concession - about the size of nearby Eritrea - mainly in South Sudan's Jonglei state. The firm stopped exploration in 1985 after the civil war between north and south escalated, but says it will start again soon. Unipec, the trading arm of China's top refiner Sinopec Corp, bought most of South Sudan's oil before the shutdown - a South Sudanese official said in November the Chinese firm was purchasing more than 80 percent of the country's oil. China bought some 12.99 million barrels from both countries last year, amounting to five percent of the Asian country's crude imports. Sudan's output since July has served only domestic consumption. HOW MUCH OF SOUTH SUDAN'S OIL HAS KHARTOUM TAKEN? Sudan has confiscated more than 6 million barrels of southern crude since December, according to figures provided by South Sudan's negotiating team in Addis Ababa. Sudanese officials have not publicly confirmed or denied this amount. This included 1.2 million barrels taken in December, four shipments totaling roughly 2.5 million barrels in January and another 2.4 million barrels reported in February, according to the figures provided to Reuters. The documents showed the four shipments included 605,784 barrels of Dar Blend loaded onto the Sea Sky, 618,712 barrels of Dar Blend loaded onto the Al Nouf, 629,368 barrels of Nile Blend on the Ratna Shradha and 600,121 barrels of Nile Blend loaded on the ETC ISIS. It is unclear if the remaining barrels were intended for domestic consumption in Sudan or for export. Swiss-based commodities trader Trafigura bought at least one of these shipments - the cargo loaded on the Ratna Shradha - industry sources have said. The fate of the other shipments is unclear, but Middle East-based trader FAL Oil was managing two of the tankers. South Sudanese officials have also accused Khartoum of building a "tie-in" pipeline to divert some 120,000 barrels per day of southern production to Sudan's Khartoum refinery. Sudan says it has diverted some oil to refineries but insists it is entitled to it. WHICH FEES ARE THEY ARGUING ABOUT? One of the central disagreements revolves around how much landlocked South Sudan should pay in transit fees, as well as the cost of using the two pipelines, processing facilities and the Red Sea marine terminal near Port Sudan. South Sudan points to oil company documents that show it has been paying transportation, processing and marine terminal fees directly to the oil companies since the split. Khartoum says those fees need to be renegotiated because the infrastructure lies within its territory and that South Sudan is not a signatory to crude oil production and transportation agreements signed by the Sudanese government and operating companies before partition. There is often confusion over the numbers proffered by both sides. Initial positions showed Khartoum asking for a compound figure of $36 per barrel for each pipeline against South Sudan's offer of $8.09 and $6.13 per barrel. Sudan wanted $18.50 per barrel for the use of the pipelines (transportation fee), $6.50 per barrel for the use of the marine terminal and $5 per barrel for the use of processing facilities, bringing the total to $36 per barrel. The South's proposal included commercial fees it had been paying to the consortiums that own the pipelines before the shutdown ($7.40 and $5.50 per barrel), and a separate tariff to the Khartoum government ($0.69 and $0.63 per barrel.) The eastern pipeline is wholly owned by Dar Petroleum's sister company in Sudan, Petrodar, while Khartoum owns a 70 percent stake in the Greater Nile Petroleum Operating Company pipeline with the remainder owned by the consortium partners. However, the Sudan government argues that it has ultimate title of the oil facilities within its territory and therefore has the right to levy charges of its choice on third-party users like South Sudan. GRAND BARGAIN Any oil deal will be linked to a grand financial agreement. Sudan wants financial help to overcome a fiscal gap of $7.8 billion and a balance of payment gap of $15.99 billion between 2011 and 2015, according to the International Monetary Fund. In late June, South Sudan presented a new oil deal within a greater financial package to help bridge Sudan's fiscal, balance-of-payments gap and service debt repayments. The offer involves a $9.1 and $7.26 per barrel fee for use of each pipeline, including transportation, taxes, processing and port charges. Alongside that, South Sudan is offering a $3.245 billion cash transfer and forgiveness of what it calls oil arrears they claim are worth $4.968 billion, up from $2.8 billion previously. South Sudan describes their grand bargain as a "total wealth transfer of $8.213 billion" to Sudan, comprised of direct financial contribution, a transit tariff over calculated over 3.5 years, a central processing fee profit component ($0.07) and debt forgiveness. Sudan insists it wants to agree a deal on border security before discussing any oil or financial deal. Earlier this year Khartoum said it would accept African Union proposals for a $3 per barrel tariff on oil and the sale of 35,000 barrels per day of the South's Nile Blend oil at market prices, linking it to a cash transfer of $5.4 billion. (Reporting by Hereward Holland and Alexander Dziadosz; Editing by Michael Roddy) ================== Insight: A year on, Nigeria's oil still poisons Ogoniland Sun, Aug 05 12:21 PM EDT 1 of 9 By Tim Cocks OGONILAND, Nigeria (Reuters) - A bright yellow sign above the well in this sleepy Nigerian village says 'caution: not fit for use', and the sulphurous stink off the water that children still pump into buckets sharply reinforces that warning. "Can you smell it? Don't get any in your mouth or you'll be sick," said Victoria Jiji, 55, as she walked past the bore hole in her home village of Ekpangbala, one of several in Ogoniland, southeast Nigeria, whose drinking water has turned toxic. Prosperity has flowed from Ogoniland, one of Africa's earliest crude oil producing areas, for decades. But it has flowed to the big oil companies and to Nigerian state coffers. Locals have long complained that precious little goes their way. A landmark U.N. report on August 4 last year slammed multinational oil companies, particularly leading operator Royal Dutch Shell, and the government, for 50 years of oil pollution that has devastated this region of the Niger Delta, a fragile wetlands environment. It said the area needed the world's biggest ever oil clean-up, taking at least 25 years and costing an initial $1 billion. Shell and the government swiftly pledged to act on it. One year on, residents say they've seen no evidence that it has begun. Shell says it is committed to cleaning up Ogoniland, but argues the government must also do its part. Most oil spills are the result of theft by armed gangs hacking into pipelines, it says, and this must be addressed alongside any clean-up. Nigerian oil ministry officials were not available for comment, but government last week announced a new committee to look into implementing the report's recommendations. When BP's Macondo well in the Gulf of Mexico ruptured in April 2010, spewing nearly 5 million barrels of oil into the sea, its reputation took a devastating blow, and it had to pay billions of dollars to those affected. In Nigeria, thousands of barrels are spilled every year, largely without negative consequences for the oil companies. POISONED WELLS The United Nations Environment Programme (UNEP) report found that the Ogale community, a group of nine villages including Ekpangbala, was drinking water from wells contaminated with benzene - a known carcinogen - at levels over 900 times the World Health Organization's guidelines. "Even before the U.N., we knew this water was turning bad. It smells, and people are complaining of itching and skin rashes," said Walter Olaka, Ogale's youth president. Shortly after the report, the government provided Ogale's villages with water tanks, part financed by Shell. They get refilled most days with potable water, but locals say it's never enough, and they still use the polluted groundwater for washing. The tank Reuters visited in Ekpangbala was empty. "Until now, nothing whatsoever has actually been done ... towards the clean up," said Ben Naanen, chairman of the Movement for the Survival of the Ogoni People (MOSOP), founded by the environmental activist Ken Saro-Wiwa, whose campaign against oil pollution drove Shell out of Ogoniland in 1993 - although the firm's dilapidated pipelines still criss-cross its swamps. Saro-Wiwa was hanged in 1995 by the then military government, to worldwide horror. "We continue to hope that things will change, but those hopes are quite honestly looking slim," said Naanen, a history professor at the university of Port Harcourt, in the heart of Nigeria's roughly 2 million barrel-a-day oil industry. Yet many activists remain upbeat that the U.N. findings are slowly gathering enough momentum to spur action. The government last week announced "the formation of a Hydro-Carbon Pollution Restoration Project", though it gave few details. "The project shall implement the recommendations of the UNEP report on Ogoniland as well as investigate, evaluate and establish other hydrocarbon impacted sites," the statement said. UNEP cautiously welcomed the government's pledge on Thursday, but warned that the clean-up was a huge task that will require long-term financing and urged funds to be released now. OILY WASTELANDS A rainbow-tinted film of crude cloaks the water throughout the creeks and swamps of Nigeria's Bodo community, giving off intoxicating petrol fumes. Spidery husks of dead mangrove trees blacken the landscape for miles around. An oil-coated heron picks its way through the sludge. Joe Vikpee left at 5.30 a.m. on his small dug-out canoe in search of fish. Still on the water 10 hours later, his haul is a handful of small fish barely enough to feed two people. "They used to be abundant before the spills," he says. Shell accepted responsibility for two major oil spills that devastated the Bodo fishing community in 2008/9, but it says efforts to clean up had been hampered by insecurity. Now, some 11,000 members of the community who say their lives were ruined by the spills have taken their case to the London High Court seeking compensation of "many millions of dollars", according to their lawyer Martyn Day. "The people in Bodo are living corpses. You see them alive but they are dead inside. Look at this water," said Kpoobari Patta, 40, casting his eye over a lead-colored creek. Shell says around 4,000 barrels of oil were spilt in total in the two incidents - 1,640 barrels in one in November 2008, and another 2,500 from a corroded pipe that was fixed in February 2009. A study by Amnesty International on the first spill put the figure between 103,000 and 311,000 barrels. A Reuters visit to the site on a boat revealed oil pollution stretching for miles in many directions. Shell says a lot of that oil has been spilled since by armed gangs in thieving operations known as "bunkering". "The real tragedy of the Niger Delta is the widespread illegal activity," Mutiu Sunmonu, managing director of the Shell Petroleum Development Corporation (SPDC), a Shell-run joint venture majority owned by Nigeria's state oil firm, in which EPNL and ENI also have stakes, told Reuters. He said oil theft was responsible for most of the spilt oil in the delta. Amnesty International's Audrey Gaughran thinks this is a smokescreen to mask Shell's and the government's own failures. "No matter what evidence is presented to Shell about oil spills, they constantly hide behind the 'sabotage' excuse and dodge their responsibility ... to properly maintain their infrastructure and ... clean up oil spills," she said. A page on Shell's website last month said "the company has had very limited access to enter the area to clean up and remediate spill sites" since it was driven out in the 1990s. Ogoni activists dispute that, saying they have invited company officials in to review the damage and replace corroded pipelines, which would be safe with the community's consent. "PRESSURE COOKER" Local activists who have for years been calling on oil companies in Nigeria to be held to the same standards as elsewhere in the world, are skeptical of the government's pledge the clean up the delta, the latest of many. "It's just an announcement of intention, nothing more," said Nnimmo Bassey of Friends of the Earth, Nigeria. "This is a test for the government, whether it cares about its citizens and their survival, or whether they care more about a defective relationship with the multinational oil companies." Sunmonu said Shell was "committed to playing its part" in any clean-up, which is also the responsibility of the state. "It's clear that the ongoing problem of oil spills in the Niger Delta will only be solved through a co-ordinated effort ... We support the Nigerian government's recent pledge that it will implement fully the report's recommendations." Anger is building in Ogoniland. The Bodo spills pushed many fishermen deeper into poverty, says Christian Kpande, a church pastor and fisherman whose own children dropped out of school when his income from fishing fell. He warns violence could flare up again in the region. "I don't know if they are planning war, but ... a hungry man is an angry man," he said, his boat pausing by an oil slick. "One day the youth could just get up and lock things down," he said, adding that they all know where the pipelines are. Militancy in the Niger Delta over the last decade shut down nearly half of Nigeria's oil output, until an amnesty in 2009. The risk of renewed unrest, and the growing risk of financial liabilities from various court cases might ultimately be what spurs action from the government and the oil majors. A clean-up is "not a complicated process", says Nenibarini Zabbey, contamination expert at the Centre for Human Rights and Development. "But it requires a high level of commitment." That commitment might come as the government and oil firms take stock of the risk of further social unrest, analysts say. "The Niger Delta is still a pressure cooker of frustration. If those frustrations boil over, it's impossible to say if it will become another round of protests or militancy," said Chris Newsom, advisor to Port Harcourt-based NGO the Stakeholder Democracy Network. "What's been proven is that it will come on very quickly, very dramatically. If you're an oil company here, the reputational and other risks are very high ... 'Carry on and hope' is not a management technique that can last." (Editing by Will Waterman) ============