July 8, 2011 / 8:51 AM / in 6 years

EXCLUSIVE-S.Sudan says can live off credit if north blocks oil

4 Min Read

* South Sudan becomes independent state on Saturday

* North threatening to block oil pipes if south fails to pay

* Groups have approached south offering credit - diplomat

JUBA, Sudan, July 8 (Reuters) - South Sudan can survive on credit, using its oil as collateral, if the north goes ahead with its threat to block pipelines after the south secedes on Saturday or if war between them breaks out again, officials told Reuters.

Such economic independence may give the new state an edge in tortured negotiations over oil rights with its old civil war foe which has received 50 percent of the revenues from southern oil for six years and which wants pipeline fees after secession.

"In case the south is forced not to export its own oil through the existing pipeline infrastructure through the north, we will use our resources to continue to live ... The south can still survive without a problem," the south's Director General of Energy Arkangelo Okwang told Reuters.

"If we are forced not to export our crude, we will definitely use some of our (oil) blocks to ensure we have roots," he said, roots meaning money for the government.

The south produces about three quarters of Sudan's roughly 500,000 barrels of oil output and depends on oil for 98 percent of its revenue. The south funnels its oil through northern pipelines to Sudan's only commercial port on the Red Sea coast.

Diplomats and southern officials have said it is unlikely the north's President Omar Hassan al-Bashir will shut down those pipelines as the country is so dependent on oil revenues and which already faces debts of about $38 billion.

The south is due to split away at midnight tonight local time (2100 GMT), a separation it won in a 2005 peace deal that ended decades of civil war with the north.

The territories are yet to agree on how they will handle oil revenues and payments, among other disputes -- a situation that has unnerved diplomats who fear a return to war.

The conflict fought over ideology, ethnicity, resources and religion killed an estimated 2 million people and left a legacy of deep mistrust between the two sides.

Offers of Credit

Senior officials told Reuters a number of institutions had approached the south offering it credit in exchange for oil.

"A resource is a resource, and we have the resources. We have the petroleum resources... They are there. They are like financial guarantors for a country like south Sudan," Okwang said.

Such deals would allow the south the time to build a link southwards to an existing pipeline through Kenya, bypassing north Sudan altogether.

One Western diplomat said he knew that "there have been approaches" from parties to set up agreements that would allow the south to use future oil sales as collateral if the exports were shut down but did not name the groups.

"We are a sovereign state. We will borrow money. We have oil in the ground. We have a lot of friends who are prepared to offer us money," Information Minister Barnaba Marial Benjamin told Reuters.

Southern officials say they would be willing to pay a transit fee to use the north's pipeline, but insist that they will stop "sharing" oil revenues from the moment they secede. They have also said accepting credit offers would be a last resort, a contingency plan, if the north shuts its pipeline.

Asked what fee might be acceptable, Okwang declined to name a specific limit but said it must fall within international standards, as with other landlocked countries like Chad that must export oil through their neighbours.

"We need to stick to international standards, so we are not abnormally treated," Okwang said.

South Sudan has talked to Toyota Kenya about the possibility of linking to a proposed regional oil corridor to help export crude from fields far from the north, a southern energy official said on Thursday. (Editing by Louise Ireland and Andrew Heavens)

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