South Sudan Says Oil Shutdown to Have ‘Big’ Impact on Economy

South Sudan is considering measures to offset the impact on its economy of a halt to oil production the country is carrying out in retaliation for what it says is the theft of its crude by neighboring Sudan.

The East African country has stopped output at more than 300 wells and there is “reduced production” at 600 more, said Pagan Amum, the south’s chief negotiator in talks being held in Addis Ababa aimed at ending a dispute with Sudan on oil tariffs. Output is expected to decline to 135,000 barrels per day by the end of today, from 275,000 barrels previously, he said.

South Sudan says Sudan is seizing oil that passes through its territory to an export terminal on the Red Sea and is demanding $32 a barrel in transportation fees. Sudan says it is diverting the crude to cover unpaid bills. South Sudanese President Salva Kiir said on Jan. 23 Sudan has “looted” $815 million worth of his country’s oil. The country depends on oil for more than 90 percent of its revenue, Amum said today.

“We will lose these for some time, a number of years maybe,” he said. “It is definitely going to have a big impact, but we have no option.”

South Sudan took control of about three-quarters of Sudan’s output of 490,000 barrels a day when it gained independence from its northern neighbour in July. The crude is pumped mainly by China National Petroleum Corp. (135), Malaysia’s Petroliam Nasional Bhd. (PET) and India’s ONGC Videsh Ltd. (ONGC)

South Sudan is looking for alternative ways to export its oil and plans to approach the Ethiopian government to sign a memorandum of understanding for a pipeline to be built via the neighboring country to the Horn of Africa port of Djibouti, Amum said. Yesterday, the government signed an accord with Kenya to build a pipeline to the coastal town of Lamu.

To end the halt to production halt, Sudan must accept transportation fees of less than $1 per barrel and “immediately” pay for the stolen oil, Amum said.

“If the government of Sudan agrees to relate to us in terms of equality and just relations, relations that are based on pursuit of mutual interest and enlightened interest, we will be ready to resume production,” he said.

To contact the reporter on this story: William Davison in Addis Ababa via Nairobi at pmrichardson@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net.

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