* S.Sudan shutting down oil output in retaliation
* Sudan now says to free ships, ready to sign oil deal
* China biggest importer of Sudanese oil (Adds Sudan denies looting oil revenue, S.Sudan reaction)
By Aaron Maasho
ADDIS ABABA, Jan 28 (Reuters) - Sudan said on Saturday it would free tankers carrying cargoes of South Sudanese crude it had seized earlier this month, in a push to defuse a row over transit fees between former civil war foes that both depend on oil for almost all their income.
Landlocked South Sudan, which became independent in July after seceding from Sudan, has to use a northern pipeline and the port of Port Sudan to export its crude, and the two countries are in dispute over the transit fees it should pay.
The row heated up this month when Sudan said it was confiscating some of South Sudan’s oil exports to make up for what it called unpaid fees. South Sudan retaliated by saying it would shut down its crude output by Saturday.
Oil is the lifeline of both countries’ economies, and the south’s secession left Khartoum with output of about 125,000 barrels per day and South Sudan with production that has fallen slightly to 350,000 bpd from 375,000 bpd in June.
Oil revenue is about 98 percent of South Sudan’s income, and is vital if the government is to develop a country devastated by years of civil war and one of the world’s poorest nations.
China is the biggest buyer of oil from the two countries, taking some 12.99 million barrels last year - five percent of overall 2011 crude imports by China, which is also the biggest investor in South Sudan’s oilfields.
“President Bashir is ready to make this gesture. Sudan is going to release the vessels detained in Port Sudan,” Sayed El-Khatib, deputy head of Sudan’s negotiating team, told a media conference in the Ethiopian capital on Saturday.
“By taking this step, we expect the cover agreement to be signed, the shutdown to be halted, and the terms of the cover agreement to be respected,” said El-Khatib. “Before the end of today, we could be able to sign the cover agreement. We, at least, are ready to sign.”
A South Sudanese official, asked to comment, told Reuters: “We are studying the claim. We are waiting for confirmation from the shipping companies.” He did not want to be named.
Sudanese President Omar al-Bashir and South Sudan’s President Salva Kiir met on the sidelines of a meeting of East African officials in Ethiopia on Friday, but failed to resolve their differences over the oil transit tariff.
Ethiopian Prime Minister Meles Zenawi, a broker between the two sides, met Bashir again on Saturday.
The row with Sudan has angered many in South Sudan, where independence, the result of a referendum following a 2005 peace accord, is often framed as the climax of a long struggle against political and economic marginalisation by the north.
South Sudan’s Kiir accused Khartoum of “looting” oil worth roughly $815 million and of building a tie-in pipeline to divert 120,000 barrels per day of southern oil flowing through the north.
Industry sources have said Sudan has sold at least one cargo of crude seized from South Sudan at a discount of millions of dollars to the official price charged by the South, and is offering more.
Awad Abdelfatah, undersecretary of Sudan’s petroleum ministry, denied South Sudan’s accusations of oil “theft”.
“Since the 9th of July (South Sudan’s independence day), we have opened our export line for them (South Sudan) without any hindrance,” Abdelfatah told Reuters.
“We have been sending them invoices since that time and have been patient until the 1st of December. We decided then to take our dues. We didn’t take anything more than what our invoice shows,” Abdelfatah said.
Sudan’s civil war, fought over issues of ethnicity, religion, ideology and oil, ebbed and flowed from 1955 to 2005 and caused the deaths of an estimated 2 million people. Southerners voted overwhelmingly for secession in a referendum in January 2011.
Writing by James Macharia; Editing by Tim Pearce