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Sun, 17 Nov 2019 16:16 GMT

Can Sudan Oil Revenues Rebuild Economy?


Khalid Osman - 7Dnews Khartoum

Mon, 03 Sep 2018 17:06 GMT

Sudan is reaping the benefits of its extensive political and economic efforts, as the first barrels of the landlocked South Sudan’s crude oil started to flow through the pipelines in Sudan for export through Port Sudan on August 27th. South Sudan oil extraction and distribution fees could improve the collapsed Sudanese economy but there are fears that political dynamics could negatively impact the hopes placed on South Sudan’s oil as a means of rebuilding Sudan’s economy.

Azhari Abdulqader, the Sudanese Minister for Oil, announced that (Toma South) oil field in South Sudan had restarted production after a five year stoppage. It produces approximately 45,000 barrels daily from crude mixed with water (cross), whilst crude for export is estimated to be 20,000 barrels. Toma South used to produce nearly 300,000 barrels before South Sudan’s war of independence in 2013.

Extraction and distribution of South Sudan’s oil comes after a peace agreement sponsored between South Sudan’s rivals by Khartoum. The agreement allows Sudan to benefit from the oil revenues and, with the help of Sudanese experts, assist in renovating oil plants destroyed by the war. The Sudanese armed forces will assist the government of South Sudan in safeguarding the oil fields. 

The revenues from oil extraction are relatively small but they support Sudan’s role in distributing and exporting South Sudan’s oil. During the time of political tensions between Sudan and South Sudan, South Sudan announced it was constructing a pipeline to pass through Kenya to the port of Mombasa. The relaunch of oil extraction might reassure foreign investors in the oil sectors of the two countries and alert them to opportunities arising from the peace deal.

The independence of South Sudan in 2011 impacted Sudan’s economy heavily. Oil revenues mounted to 95% of income, now mostly owned by South Sudan. According to Sudan’s Ministry of Oil, daily oil exports in 2017 were not more than 8,000 barrels from an oil field in the White Nile state. This is 76% below the export target for 2017. According to the agreement between Khartoum and Juba, Sudanese companies are renovating another five oil fields that can produce 80,000 barrels of crude per day. Those fields will come into operation in two to three years time. 

Foreign companies (Malaysian Petronas, Indian NGC and Japanese CNPC) are financing the renovation projects and operational costs and those funds will be paid back from oil export revenues. The extraction and distribution of South Sudan’s oil is having an immediate impact on the foreign currency black market in Khartoum. The Sudanese pound has retained some of its value against the US dollar on the black market. Since the announcement launching the pumping, in the past few weeks the value of the Sudanese pound against the dollar has gone from 47 to 40. However, this is still high. Before inflation soared, following South Sudan’s independence, one US dollar was worth 2.5 Sudanese pounds. 

Many Sudanese experts doubt whether the contribution of the oil revenues to the Sudanese economy thereby easing the economic crisis is realistic. People who work in the foreign currency black market said they have observed an increase in the value of the Sudanese pound after the increase in oil, but some have told 7Dnews that they fear the Sudanese pound will be devalued.

Dr. Omar Mahjoub Alhussein, a Sudanese economist, said the improvement in the national currency is “a fast fading bubble”. He told 7Dnews that the continuity of the flow of funds depends on South Sudanese rival groups’ commitment to the signed agreement and that they have a history of violating signed agreements dating from the beginning of the war in 2013.

Sudan’s pumping and refining fee is $4.6 per barrel, in addition to the export fees and the monetary compensation agreement signed at the independence of South Sudan.

Dr Adel Abdulaziz, another Sudanese economist suggests that the Sudanese forces safeguarding the oil fields will ensure the sustainability of extraction and thus the flow through Sudanese territory. Abdulaziz said to 7Dnews that oil revenues are currently the saviour of Sudan’s economy and could reach $7.8 million daily, including compensation and customs fees. He said those revenues should be utilised in other production sectors such as agriculture and industry. 

Dr Omar Mahjoub Alhussein responds to Sudanese government optimism over the impact of South Sudan oil revenues by saying it will not solve the economic crisis in the country and will add little to the foreign currency reserves in the Sudanese Central Bank. 

Alhussein said sending Sudanese forces to safeguard South Sudan’s oil plants incurs additional costs, especially if they need to use armed force. He added that relying on South Sudan oil revenues is high-risk business because of its links to politics. He added that Sudan’s economy needs structural reform and cannot be fixed simply with cash from extracting oil.