South Sudan’s requirement that oil service providers give a minimum 25 percent stake to domestic companies is deterring investment and should be reduced, the head of the largest oil group operating there said.
Dar Petroleum President Sun Xiansheng said he recently asked two European companies which he didn’t identify to consider operating in South Sudan and both declined, saying they couldn’t make a profit because of the domestic-investment requirement. Sun recommended lowering it or eliminating it entirely in the first phase of joint ventures.
“Maybe for the first three years they come here, then start,” he said in an interview yesterday in South Sudan’s capital, Juba. “And after three years, find the number step by step.”
South Sudan, which gained control of about 75 percent of the formerly united Sudan’s 490,000 barrels a day of output at independence in July 2011, shut down production in late January this year after accusing Khartoum of stealing $815 million of its oil. Sudan said it confiscated the oil to make up for fees its owed from the use of its pipelines.
Sun is also a senior executive at the state-owned China National Petroleum Co., which owns 41 percent of Dar Petroleum, a pipeline operator in South Sudan. Malaysia’s Petroliam Nasional Bhd. owns 40 percent. China Petroleum and Chemical Co. and South Sudan’s state-owned Nilepet own the rest.
Angelina Teny, who’s on Nilepet’s board of directors, said the domestic requirement will save oil operators money.
“Deploying nationally is a lot cheaper than bringing most of your workers from abroad,” she said at a forum in Juba yesterday. “I don’t see any reason why there should be apprehension about it.”
Talks since secession have failed to yield a signed agreement on how much the landlocked South Sudan should pay to use pipelines and processing facilities in Sudan. The countries announced an agreement in principle at the last round of African Union-sponsored negotiations in Addis Ababa, the Ethiopian capital.
Sudan said the deal is contingent upon reaching an agreement on security along their border where clashes in April brought the countries to the brink of war.
Sun said he expects the countries to sign the oil deal at the next round of talks, regardless of whether they reach a definitive agreement on border security.
“These issues are not so easy, maybe they will take some time,” he said. “But otherwise maybe they find a road map of how to solve these issues. Then they can sign this agreement.”
Government spokesman Barnaba Marial Benjamin said by phone from Juba today that South Sudan’s negotiating team will travel to Addis Ababa on Sept. 3.
On Aug. 21, South Sudan’s Deputy Finance Minister Arial Awou Yol said output of Dar Blend crude would resume in December at the earliest, if the deal is signed soon, while production of Nile blend probably wouldn’t begin before June.
The International Energy Agency said Aug. 10 that restarting output may take six months or longer, since the lines have been filled with water and because some wells weren’t closed properly when output was halted.
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