Oil Production Shutdown of 2012
About half a year after South Sudan's secession from Sudan, a dispute over pipeline fees between the governments in Khartoum and Juba - in the broader context of the two countries' failure to resolve the management of their oil wealth - led to South Sudan's complete shutdown of its oil production in January 2012.
Pipeline fee dispute and production shutdown
After South Sudan seceded from Sudan in July 2011, the Sudanese government in Khartoum asked for fees of US $30 per barrel for South Sudan to use its oil pipeline infrastructure, according to the Civil-Military Fusion Center think tank, with international standards typically lying between $0.40 and $1.00. South Sudan countered that it would pay only $0.63-0.69 per barrel, in addition to a one-time payment of $1.7 billion to compensate for Sudan’s loss in oil revenue when South Sudan gained independence.
When South Sudan refused to pay the high transit fee, Khartoum began in December 2011 diverting South Sudan's Nile Blend crude to its Khartoum and el-Obeid refineries. According to the Civil-Military Fusion Center, Sudan also seized at least four tankers laden with South Sudanese oil headed for export as compensation until an agreement was reached.
In response, on 20 January South Sudan announced that it would shut down its oil production until a fair deal was reached on transit fees, or an alternative pipeline was built. The shut-down took place incrementally, first at Block 5A and moving to Blocks 3, 7 and oil fields in the Greater Nile Oil Project (Blocks 1, 2 and 4). Water was injected into South Sudan's 2,500 kilometer pipeline to prevent clogging, according to international oil companies operating in the area, and some of the companies' foreign workforce was sent home.
Attempts at resolving dispute
In February 2012 the African Union's High-Level Implementation Panel (AUHIP) suggested two possible solutions to break the deadlock: the first was to initiate a “30-day transition period” in which South Sudan would continue using Sudan's infrastructure while negotiations continued; the second was for South Sudan to pay Sudan approximately US $4 billion over five years as compensation for Sudan’s lack of access to the oil fields; South Sudan was also to pay Sudan the value of 35,000 barrels per day. Juba, however, rejected the deal, with President Salva Kiir citing a lack of clarity in several provisions and claiming that the solution does not comprehensively address the issues underlying the stalemate.
As of July 2012, the issues which led to South Sudan's production shut-down had yet to be resolved; negotiations between South Sudan and Sudan on the pipeline fee dispute, among many other unresolved issues, were taking place in Addis Ababa, Ethiopia.
Marcelo Giugale, the World Bank's Director of Economic Policy and Poverty Reduction Programs for Africa, said in May 2012 that the South Sudanese government was not aware of aware of the economic implications of the oil shut-down, which he predicted would also have debilitating social impacts. Giugale said that despite austerity measures adopted by the government to offset the loss in oil revenues, South Sudan's foreign reserves might be depleted by July 2013, "at which point state collapse becomes a real possibility."
Some potential social impacts of the shut-down Giugale mentioned included: the percentage of population living in poverty could jump from 51% in 2012 to 83% in 2013; under-five child mortality could double from 10% live births in 2012 to 20% in 2013; and school enrollment could drop from 50% to 20% over the same period.
- "Sudan and South Sudan’s Oil Industries: Growing Political Tensions" Civil-Military Fusion Center, May 2012.
- "Sudan and South Sudan" US Energy Information Administration, 19 March 2012.
- "East Africa: Sudanese Oil Stalemate Persists" All Africa, 2 February 2012.
- "Sudan: 'Slow and Uneven' Progress As Bashir and Kiir Meet in Addis" All Africa, 30 May 2012.
- "South Sudan: Exclusive - South Sudan Economy On the Verge of Collapse, World Bank Warns" All Africa, 6 May 2011