South Sudan Chaos Halts Prince’s Plan for Oil Refinery

(Corrects to remove reference in 12th paragraph to gum-arabic shipments in story published on May 23.)

As the former head of U.S. security company Blackwater USA, Erik Prince thrived in war zones like Iraq and Afghanistan. South Sudan, the world’s newest nation where violence erupted in December, is proving a little tougher.

Prohibitive costs, transport difficulties, political instability and growing insecurity have rendered the former U.S. Navy Seal’s plan to build an oil refinery in the north of the country unfeasible for the time being, said Sean Rump, a partner at Prince’s Frontier Resource Group. Talks this month with financiers failed to revive the project that was set to be completed by December, he said in an interview on May 18.

“We believe in the future of South Sudan,” Rump said. “If we thought it was going to be a failed state, we wouldn’t be here. But when will the trouble end and the refinery be built? We just don’t know.”

Fighting broke out in South Sudan after President Salva Kiir accused his former deputy, Riek Machar, of trying to stage a coup. At least 10,000 people have been killed and a million people are estimated to have fled their homes in the ensuing conflict, while oil production that funds 98 percent of the government’s budget has been cut by a third.

An attempt at a truce in January and another earlier this month failed to gain traction, with government and rebel forces accusing either side of violating the agreements. Parts of the country may be at risk of a famine because of a lack of funds and logistical hurdles to providing humanitarian relief, according to the United Nations humanitarian agency.

Diesel Refinery

Frontier, a private-equity firm based in Abu Dhabi, has a 12-year agreement with the South Sudanese government to build, own and then transfer to the state a 10,000–50,000 barrel per day refinery that will supply diesel to the domestic market. The landlocked nation currently imports all of its refined fuel.

“Producing 10,000 barrels per day of diesel for the domestic market is going to loosen up a lot of capital for South Sudan investment,” Rump said. “Their economy relies on importing diesel so this project will have an impact.”

The refinery is part of 44-year-old Prince’s new role as chairman of Hong-Kong listed Frontier Services Group Ltd. (500), a logistics and transport company that’s investing in Africa using cash injections from Asian investors including Citic Group, China’s largest state-owned conglomerate.

Frontier Resources has already spent $10 million on the project in partnership with Africana General Trading Ltd., a closely held South Sudanese company, and hired Pasadena, Texas-based Vintech Engineering International Ltd. to build the facility at Thiangrial, near the border with Sudan.

Viable Project

Africana Managing Director Obac William Olawo, one of South Sudan’s richest men and an economic adviser to Kiir, said he’s confident the refinery will be viable once the war ends.

Prince is “still committed to the investments, but let us get the conflict resolved,” Olawo said. “Once it is resolved we as partners are ready.”

Olawo, who runs South Sudan’s Toyota Motor Corp. (7203) dealership, said Africana has a 25 percent stake in the project. President Kiir personally supports the plan, he said.

Frontier Resource plans to focus on “pan-African logistics, aviation services and risk management,” according to its 2013 annual report. The company wants to tap Chinese funding to the continent that is expected to total $1 trillion over the next 12 years, it said.

Mobile Assets

In April, Frontier agreed to buy 49 percent of Phoenix Aviation in Kenya for $14 million. That followed the purchase of Kijipwa Aviation, based in the Kenyan port city of Mombasa, in November.

“Our business model is centered on aviation capabilities, which support logistics operations and security for fixed and mobile assets,” Prince said in the annual report.

Prince ran Blackwater from 1997 to 2010, when the company earned an estimated $1 billion in U.S. government contracts. The company, which has since been renamed Academi, faced a U.S. congressional committee hearing into an incident in September 2007, when the company’s guards killed 17 civilians in a firefight in Iraq’s capital, Baghdad. Blackwater denied any wrongdoing.

Prince didn’t respond to e-mailed requests sent by Bloomberg via Rump for an interview. Rump said Frontier has no connection to Blackwater.

“Prince sold his stake in 2010, there is no on-going relationship,” he said. “We’re investors, we do logistics and operate in tough conditions.”

(An earlier version of this story corrected the name of Africana General Trading Ltd. in the ninth paragraph.)

To contact the reporter on this story: Ilya Gridneff in Nairobi at igridneff@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net Paul Richardson, Karl Maier

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