China tries to mediate Sudan oil impasse

AP, Wednesday 7 Dec 2011

Chinese diplomats arrives in Juba to broker a solution between north and south and ease investment fears

Chinese engineers inspect a construction site in Sudan - a sign of the Middle Kingdom's growing investments in the country (Photo: Reuters)

China inserted itself into the fight over oil between Sudan and its former territory South Sudan on Wednesday, sending a special envoy to try to break a deadlock between two rivals who often appear on the brink of renewed conflict.

South Sudan's Minister of Petroleum and Mining Stephen Dhieu Dau told The Associated Press that Chinese diplomat Liu Guijin arrived in Juba, South Sudan's capital, on Wednesday. His arrival comes one week after China's Foreign Ministry publicly asked Sudan and South Sudan to resolve the issue through "friendly consultations."
China is a major buyer of and investor in Sudanese oil. It owns a stake in the two pipelines running through Sudan and has dozens of workers in the region's oil fields. Guijin will be in Khartoum, Sudan's capital, on Thursday for more talks.
"They are concerned as investors about the negotiations, so he came to listen to exactly why the two parties have not been able to reach an agreement," said Dau, adding that Guijin said China doesn't want to see a "worst case scenario" — a shutdown of the oil flow.
South Sudan split off from Sudan in July, severing Africa's largest country in two following a 2005 peace treaty that ended nearly five decades of war between the mostly Arab north and mostly black south.
The economic future of the two countries remains intertwined, however. While most of the oil is in South Sudan, the world's newest country must pump it through two pipelines that run through Sudan.
At the centre of the dispute are the transit fees South Sudan must pay to use the pipelines. South Sudan said in a statement last week that it offered to pay an average of 70 cents for each barrel sent through the pipelines. Sudan, the south said, was demanding $36 a barrel.
Dau called that "unacceptable and exaggerated." Dau said South Sudan's proposal to Khartoum includes $2.6 billion in financial assistance to its northern neighbour.
Sudan and the south have several issues to resolve besides oil, including demarcation of the border and ownership of the disputed region of Abyei. Sudan has also carried out military attacks in southern territory in recent weeks.
The oil fees dispute risks sparking further political confrontations between the sides, said Robert Borthwick of the U.K. risk analysis firm Maplecroft. He said the two sides appear to remain "starkly divided."
Also at issue is more than $700 million in transit fees that Sudan says the south has not paid since independence, a figure South Sudan disputes. Sudan recently announced it would take a percentage of South Sudan's oil shipped through the north as payment for use of the pipeline.
Southern officials have denounced the "intimidation" and threatened to stop sending oil to Sudan if the south's oil is not allowed to leave the northern port.
South Sudan took in $4.4 billion in oil revenues in 2010, amounting to 98 percent of the government's revenues. Khartoum lost nearly 75 percent of the roughly 500,000 barrels a day produced by the two countries when the south seceded.
Borthwick said the two sides must reach an agreement or "the fragile economies of both states could be severely harmed."
South Sudan is negotiating a new Exploration and Production Sharing Agreement with foreign oil investors that will open up untapped territory in the south.
China is well positioned to apply pressure on both countries, said Kathelijne Schenkel, an analyst for the European Coalition on Oil in Sudan.
She noted that in addition to its southern oil shares, China is one of the few countries which still invests in and lends money to the north. Guijin's arrival may be enough to get the troubled talks moving again, she said.
"There are so many aspects which need to be negotiated, so I don't think this will lead to the Big Deal," she said. "But (the Chinese) are there to break the deadlock and keep the oil flowing. This could make a difference."
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