Juba broke as war takes a toll on South Sudan economy

By IAfrica
In South Sudan
Aug 16th, 2014
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By BARBARA AMONG, Special Correspondent, THE EAST AFRICAN,

Posted Saturday, August 16 2014,

IN SUMMARY:-
*The current oil output is half of what South Sudan was producing before the war broke out in December last year.
*The biggest oil production wells in northern Upper Nile and Malakal have shut down, and only the Faloch oil well in Unity State is producing oil.
*Earlier in the year, rebel leader Riek Machar said that the oil fields were targets for his forces and that revenues generated from oil sales should be placed in independent coffers. *He accused the government, which he served till July 2013, of corruption and mismanagement of oil money.

POSTED ON SSN, AUG/16/2014;

The South Sudanese government is struggling to stay afloat as months of fighting with rebels loyal to former vice president Riek Machar have halted oil production, the lifeline of the country’s economy.

Currently, the country is not in position to pay its debts, amounting to hundreds of billions of dollars borrowed from the oil companies, and yet it plans to borrow another $1 billion to fund the budget for 2014/2015, read last week.

The current oil output is half of what South Sudan was producing before the war broke out in December last year. Its revenues are thus expected to drop by more than 60 per cent to about $200 million.

“All oil fields, except one, have been shut down. And as you know, 98 per cent of funding for government budget comes from oil revenues,” South Sudan’s acting ambassador to Uganda Micheal Amanamoi told The EastAfrican.

He confirmed that oil production had decreased to 15,000 barrels per day from 30,000. The biggest oil production wells in northern Upper Nile and Malakal have shut down, and only the Faloch oil well in Unity State is producing oil, Mr Amanamoi said.

“We were caught off guard; even the non-oil revenue sources are not generating enough revenue. The government is now selling the oil before it is pumped out. We are getting the funds to run the country through promises to oil companies,” Mr Amanamoi revealed. “This has gone on since the war broke out, especially revenue to pay civil servants’ salaries and provide social services.”

Earlier in the year, rebel leader Riek Machar said that the oil fields were targets for his forces and that revenues generated from oil sales should be placed in independent coffers. He accused the government, which he served till July 2013, of corruption and mismanagement of oil money.

President Salva Kiir’s government, however, rejected Dr Machar’s proposals of an independent body to monitor oil revenues and said that if allowed, it would amount to a violation of the country’s sovereignty.

Media reports and the UN Security Council indicate that the money borrowed from oil firms, especially Chinese firms, being used to purchase arms, a claim President Kiir’s government denies.

The economic crisis, and the government’s inability to pay some of its civil servants and the army, has led to shootings in military barracks among South Sudanese soldiers, and also between South Sudanese soldiers and Ugandan troops over what the former claim is special treatment of the latter, at their expense. This has prompted fears of a mutiny.

The South Sudan government is not only afraid oil companies will soon run out of patience, but regional governments as well.

Joint regional infrastructure projects such as the Lamu Port South Sudan-Ethiopia Transport corridor and the standard gauge railway are halted. The construction of several major roads linking South Sudan to the region have also stalled.

Defiant Juba to issue oil contracts
There have been fears that proceeds from oil will be used on military spending in the power struggle between President Salva Kiir and former deputy Riek Machar, who was sacked in July last year.
Concessions for blocks B1, B2 and B3 located mainly in Jonglei and Lakes States are believed to be under negotiation. The states are among those most affected by insecurity.
Since the outbreak of conflict, oil revenues have reportedly been diverted to finance the war instead of going towards infrastructure and social programmes.

South Sudan has said it will continue issuing new oil contracts despite concerns by a global watchdog on natural resource use that the deals could be used to aggravate the conflict that broke out in December.

Petroleum and Mining Minister Stephen Dhieu Dau said oil was the backbone of the Juba economy and suspending issuance of new contracts for prospecting and drilling activities would hamper growth.

“We do not agree that a moratorium on petroleum contracting is at this time in the best interests of the citizens of South Sudan,” said Mr Dau.

Global Witness, which investigates the role of natural resources in funding conflict and corruption, had in June asked the government to suspend new contracts and review existing ones until peace and the rule of law are restored.

Mr Dau, in a letter to the London-based non-governmental organisation dated July 8, said that South Sudan’s budget was too dependent on oil production.

“Even while we seek to diversify our economy and attract investments in new industries, we foresee the oil industry remaining a substantial, if not predominant sector of our economy for a number of years,” wrote Mr Dau.

Global Witness had recommended a halt in issuance of new exploration and production agreements (EPSAs) including in refinery and transport until the Petroleum Act 2012 and Petroleum Revenue Management Bill are enacted and operational. It said reports of human rights abuses by both sides, particularly in oil-producing areas, needed to be investigated and those found guilty held to account.

Concessions for blocks B1, B2 and B3 located mainly in Jonglei and Lakes States are believed to be under negotiation. The states are among those most affected by insecurity.

“If contracts for these concessions are granted, companies would need to employ armed security forces. In a region home to high numbers of military and militias, a further influx of armed actors could worsen the conflict,” said Global Witness.

Since the outbreak of conflict, oil revenues have reportedly been diverted to finance the war instead of going towards infrastructure and social programmes. END


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