Sudan oil deal no quick fix

2012-08-05 17:30

Khartoum - A last-minute oil deal reached on Saturday between Sudan and South Sudan offers no quick fix for Khartoum's economic crisis and remains tied to progress on security issues, analysts say.

Both sides agreed Juba would pay Khartoum a package amounting to about $3bn, as well as a per-barrel fee for sending its oil through the north's infrastructure for export via Port Sudan.

Juba said the fee is $9.48 per barrel.

Khartoum has not commented on the final fee, but El Shafie Mohammed El Makki, head of political science at the University of Khartoum, said the figures are not encouraging although "something is better than nothing".

"I think that the economic crisis is very, very, very serious," he said. "I don't think such an amount of money can solve the problems."

The true economic value of the deal is also difficult to assess because numbers mentioned by either side are "directed towards the domestic audience," said Magdi El Gizouli, a fellow at the Rift Valley Institute, a non-profit research organisation.

Oil has been at the heart of tensions and economic difficulties for Sudan since the South separated in July last year with roughly 75% of the 470 000 barrels per day produced by the unified country before independence.

The lost oil accounted for more than 85% of Khartoum's export earnings, which reached $7.5bn in the first half of 2011, according to the World Bank.

Without its largest source of hard currency, which is needed to pay for imports, inflation has soared and the Sudanese pound has plunged in value while the government tries to boost exports of gold and other non-petroleum products.

Losses of $2.4bn

The budget received a further shock when the planned-for oil transit fees from South Sudan failed to materialise as the two sides could not agree on how much Juba should pay.

In January South Sudan shut its oil production - the impoverished nation's prime revenue source - after accusing the north of theft.

Khartoum's Finance Minister Ali Mahmud al-Rasul in May placed Sudan's losses from not reaching a fee deal at $2.4bn at the time.

The government subsequently devalued the exchange rate under austerity measures that Rasul said would save about $1.5bn.

It also began phasing out costly fuel subsidies and said taxes on bank profits would rise, along with value-added tax,

Officials cut cabinet posts, trimmed ministers' salaries and laid off presidential advisers - measures which University of Khartoum economist Mohammed Eljack Ahmed said were not enough.

While the oil deal - if implemented - will increase government revenue its impact on the economic crisis will depend on whether the government can seriously cut costs, Ahmed said.

"The government up to now is not able to reduce its expenditure," he said, and state spending is being driven even higher because of inflation, which rose 37% year-on-year in June.

There is also talk that an oil deal may not be implemented unless other issues "particularly security" are agreed upon, he said.

"To be frank, it's an offer on the table rather than a final deal," said Gizouli.

"As long as there is no security arrangement talk of oil will remain provisional," he said, adding that underlying Saturday's announcement must have been unspoken movement by South Sudan to address Sudanese security concerns.

Political scientist Makki agreed that Juba must have made some compromise on security.

Sudan accuses South Sudan of backing a major insurgency in South Kordofan state, a charge analysts believe despite denials by Juba.

On Thursday Sudan reiterated that any deal on oil must be subject to a "full and final agreement" on security, to avoid obstacles in the movement of people, goods and services at the border.

Analysts noted that the oil deal came just hours after US Secretary of State Hillary Clinton met South Sudan's President Salva Kiir in Juba and urged the two sides to reach an urgent compromise.

"We praise the courage of the Republic of South Sudan's leadership in taking this decision," Clinton said in reaction to the oil deal.