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South Sudan to Pay Sudan $2 Billion in Oil Fees by 2015

Source: Reuters 5/7/2013, Location: Africa

Sudan looked set to receive $2 billion in oil pipeline fees from South Sudan by the end of 2014 and should prioritize overhauling its agricultural sector with the money, the International Monetary Fund (IMF) said. Sudan lost most of its oil reserves - the main source of dollar revenue to pay for food imports - when South Sudan seceded in 2011, driving down the local currency, taking inflation to almost 50 percent and fuelling dissent.

The neighbors, embroiled for decades in a civil war that ended in 2005, agreed in September on access to two pipelines and Port Sudan. Juba had stopped all exports last January after clashes in a disputed border area over oil revenues and land. The oil flow restarted in April and, analysts say, fees will be paid from around June.

"Our estimate is that in 2013 Sudan will receive just under $500 million from South Sudan," Paul Jenkins, the IMF's resident representative in Sudan, told Reuters. "That reflects that oil will be flowing only for part of a year," he said.

This amount - less than half of the up to $1.2 billion forecast by Finance Minister Ali Mahmoud last month - would make "a big contribution" to plugging its deficit, Jenkins said. The IMF estimates Sudan will get $1.5 billion in fees next year.

The oil deal expires in 2017 when South Sudan hopes to have a pipeline of its own, bypassing Sudan.

"If they don't use the period wisely, if expenditure increases in response to the oil money then the inflation rate will continue to rise and the exchange rate will continue to be under pressure," Jenkins said.

The IMF is one of few bodies with access to Sudanese government data and does not lend to Sudan which has not repaid previous loans since the mid 1980s.

"It is important to avoid the temptation of using the oil money which is temporary in nature to put in place expenditure increases like salary increases for public servants that are pretty much likely to be permanent," Jenkins said. Sudan agreed in principle to a salary increase for public servants in January.

The government has been addressing the loss of oil with austerity measures including scaling back fuel subsidies. The central bank, which is funding the deficit with high-yield Islamic bond sales, has also devalued the Sudanese pound.

More needed to be done to diversify and improve the economy such as tightening up tax collection and building up alternative industries such as agriculture sector, Jenkins said. "Eighty percent of the people pay less than 20 percent of taxes they owe," he said. Sudan's tax yield, the ratio of revenues to gross domestic product, is 7 percent compared with 20 percent in neighboring Kenya, a disparity analysts blame on corruption and cronyism.

The government is overhauling its budget forecast to include the oil deal. It projected in December a 2013 deficit of 10 billion pounds, or $1.6 billion based on black market rates.

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Related Articles: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Insurance  Investment  Mergers and Acquisitions  Risk Management 

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