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South Sudan Sees Oil Output Resuming in December

Source: Reuters 8/21/2012, Location: Africa

South Sudan expects to restart some oil output in December and more after June next year, an official said, after the new country struck an interim deal with Sudan that would allow it to resume crude exports across Sudanese territory. South Sudan seceded a year ago under a 2005 deal that ended decades of civil war, but the two have been embroiled in disputes including one over how much landlocked South Sudan should pay to export oil through Sudan.

The South halted its output of about 350,000 barrels per day in January as a result of the dispute, erasing the source of 98 percent of its state revenues and causing the government to impose tough austerity measures to weather the shutdown. Under international pressure to make a deal and shore up their faltering economies, the two countries reached an agreement on fees this month, but Sudan has said it wants a border security agreement before oil flows resume. The two sides are expected to resume talks in Addis Ababa on Sunday.

Oil output would not restart immediately even after a final deal, South Sudan Deputy Finance Minister Marial Awou Yol told reporters. "Even when the deal is signed, it will take months to repair damage to production equipment, for the oil companies to rehire and reassign staff, for the pipelines to be flushed of water and refilled with oil, and for the first tankers to be loaded and then payment made," he said.

"The Ministry of Petroleum and Mining expects production of Dar Blend to begin in December, with the first payments possibly received in January. Production of Nile Blend is not expected to resume before June of 2013," Yol said.

It may take half a year before South Sudan is able to dispense with the austerity measures it took to survive the shutdown. The steps included heavy cuts to government spending. The country is also trying to boost non-oil sources of revenues, such as taxation, and has been seeking loans to make up for lost revenues.

Yol said the government's reserves were "greatly reduced" but that there was enough left to pay salaries for the rest of the year, helped by a large loan from the Bank of South Sudan. He later told Reuters the loan amounted to about 1 billion South Sudanese pounds, leaving the government with a remaining deficit of about 2 billion pounds. One billion pounds is about 200 million dollars at recent black market rates of roughly 5 pounds to the dollar. Yol said the government was also seeking foreign currency loans from "external sources" to develop infrastructure and provide services. "These loans will all have a short maturity, as we will be able to pay them back quickly once we start receiving oil revenues," he said.

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