November 29, 2011 / 2:37 PM / 7 years ago

UPDATE 1-S. Sudan "surprised" by oil export halt, seeks pipeline

* China urges resolution to the transit fee row

* Dispute threatens to disrupt oil supplies from South Sudan

* S. Sudan minister says proposing 5-year financial package (Recasts with South Sudan’s oil minister comments)

By Hereward Holland and Chris Buckley

JUBA/BEIJING, Nov 29 (Reuters) - South Sudan’s oil minister said on Tuesday Sudan’s decision to halt the South’s oil exports over a transit fee row would hurt both countries’ oil interests, and that the South would keep seeking an alternative pipeline.

China, a major buyer of oil from both countries, urged the governments to resolve the dispute.

The row, which surfaced on Monday, has threatened to disrupt oil supplies from Africa’s newest nation and is likely to complicate sensitive talks in Addis Ababa over unresolved issues related to South Sudan’s secession in July.

South Sudan’s Oil Minister Stephen Dhieu Dau said Sudan’s decision was “unfortunate” and, as a result, the new nation would reinvigorate efforts to build an alternative pipeline to decrease its dependence on Sudan’s oil infrastructure.

“We do not see a future in the oil infrastructure of the north. Our oil must have access to international markets. We should not be punished because we decided to secede,” he told Reuters by telephone from the Ethiopian capital.

South Sudan seceded on July 9, taking about three-quarters of the formerly united country’s roughly 500,000 barrels per day (bpd) of oil output. The industry is vital to both economies.

South Sudan’s exports to China and elsewhere still have to pass through pipelines to a Red Sea port located in Sudan. The two sides have not agreed how much South Sudan should pay as a transit fee.

Dhieu said South Sudan had proposed two alternatives to Sudan to help it plug an estimated $7.8 billion fiscal deficit over five years, a figure he said was calculated by the International Monetary Fund.

The first was a $5.4 billion, five-year transitional financial package, half of which would include giving up some arrears South Sudan says it is owed. The second was a transit fee of not more than $0.75 per barrel.

“We have offered to pay $2.6 billion over five years and forgiveness of arrears of $2.6 billion, for a deal in which we would not pay transit fees,” Dhieu said.

“This is the package of financial assistance we are offering to Khartoum, and while this is happening we were surprised by this unilateral decision. This unilateral action taken by Khartoum will have a negative impact on all of Sudan’s oil interests.”

Sudan had been allowing South Sudan to export crude without a final deal in expectation the fees would be paid after an agreement, but decided to stop the exports - roughly 200,000 bpd - on Nov. 17, Sudan’s acting oil minister, Ali Ahmed Osman said on Monday.

Osman said South Sudan already owed Sudan some $727 million in arrears for the period between July 9 and the end of October.

BEIJING’S BALANCING ACT

China has sought to maintain good ties with both countries since South Sudan declared independence from its larger and long-dominant northern neighbour, despite the rancour.

That balancing act is being tested by Monday’s announcement. Chinese Foreign Ministry spokesman Hong Lei urged the two governments to avoid choking off oil supplies.

“We believe that maintaining the normal production of oil is important for both South Sudan and Sudan,” Hong told a daily briefing.

“We hope that north and south Sudan will exercise reason and restraint, and use a flexible and pragmatic approach to resolve their problems through friendly consultation,” he said.

“We are confident that the two governments will abide by their promises, ensure the stability and continuity of oil cooperation, and protect the lawful rights of Chinese businesses and the safety of their personnel.”

By October, China’s purchases of Sudanese crude appeared little affected, with imports in the first 10 months of this year up 5.5 percent on the year at 11.12 million tonnes, or about 5 percent of China’s total crude oil imports.

But a 600,000 barrel oil shipment sold by South Sudan to China’s Unipec did not load as scheduled on Monday because of the decision to halt exports, South Sudanese officials said.

In August, China’s visiting Foreign Minister Yang Jiechi vowed that Beijing would support both Sudan and South Sudan and help both countries develop their oil industries.

China maintained close economic and political ties with north Sudan throughout a U.S. trade embargo and also wants to reach out to the south, which decided to break away from Khartoum under a 2005 peace deal. (Additional reporting by Alexander Dziadosz in Khartoum; editing by James Jukwey)

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