South Sudan expects the oil companies like OVL to pay the enhanced fees rather than absorb the cost

Sudan and South Sudan have agreed to resume the production and export of crude oil in two weeks, a decision expected to provide critical support to the two faltering economies.

Negotiators signed an “Implementation Matrix” that commits both nations to a specific timeframe, beginning March 10, that sets clear dates for the implementation of a bouquet of agreements signed in September last year. Last week, the defence ministers of both countries agreed to withdraw their troops from a 20 km wide demilitarised buffer zone along the 1,800 km long border.

The decision to resume the production and export of oil comes more than a year after a dispute over the transit fees demanded by Sudan for use of its port and pipeline facilities. South Sudan responded by ceasing oil production, bringing both economies to the brink of collapse. India’s state-owned ONGC Videsh Ltd (OVL) has a stake in the southern oil fields, and has also constructed and financed a 741 km pipeline from the Khartoum refinery to Port Sudan on the Red Sea.

The two nations have been in a state of undeclared war ever since South Sudan seceded from its northern neighbour in 2011. While the south gained most of the oilfields, the landlocked country is dependent on the north for processing and transport facilities.

Last year, South Sudan agreed to pay $11 and $9.1 for the processing, transport and transit of oil along the western and eastern pipelines, but failed to implement the accord. Analysts estimate that the two countries have between 4.2 billion and 6.7 billion barrels, a fraction of the estimated global reserve of 1,653 billion barrels.

Under the implementation agreement signed this week, South Sudan will instruct oil companies to resume oil production by March 24 while Sudan shall order companies to re-establish transport and processing facilities. However, oil production and transport, the agreement notes, shall “take place as soon as technically feasible.”

It appears that the Government of South Sudan expects the oil companies like OVL to pay the enhanced fees rather than absorb the cost. Last month, The Hindu reported that OVL’s Managing Director D. K. Sarraf had written to the Indian Petroleum Ministry, stating that the new fees were unjustified and unreasonable and would cost OVL an additional $55 million a year for its share of production in South Sudan’s oil fields.

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