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Sudan referendum expected to end in partition

Announcement of the referendum result is expected in early February, and is almost certain to result in secession

JANUARY's referendum in oil-rich southern Sudan is almost certain to result in a vote in favour of secession from the north – home to the national government since independence in 1956. But the vote is only the start of what could be a protracted process to negotiate precisely how the country's assets – notably its oil revenues – will be shared.

The formal announcement of the referendum result is expected in early February, although the provisional result should be know earlier. An important milestone was passed on 12 January when the turnout passed 60% of registered voters, a level necessary to declare the vote valid.

The referendum is the latest stage in a protracted process to end decades of unrest and civil war between the Muslim-dominated north and the non-Muslim south, which gained impetus after the US brokered a peace deal in 2005. But this is nowhere near the end of the road.

Assuming the vote goes in favour of partition, southern Sudan is not scheduled to become a fully fledged state until 9 July. Before then, points crucial to the creation and survival of the new state must be agreed by the two sides. A host of issues remain uncertain, such as exactly where the border will run, how to split the country's economic assets and national debt of more than $35bn, and how to share oil revenues.

While President Omar al-Bashir has been making positive noises about the split, claiming he accepts the south's right to secede, he is likely to be swayed by sentiment in his stronghold in the capital Khartoum and the north. Regional observers say that if he feels generous concessions to the south will weaken his grip on power, his negotiating stance may toughen up. And with the stakes as high as they are, a breakdown in talks could trigger renewed violence, despite the relative calm of the referendum period.

Already this week, unrest has claimed lives in the oil-rich region of Abyei, which lies on the border between north and south and is also due to hold a vote on which side it wants unity with. This referendum has yet to happen because of a regional dispute over who should be able to vote. The region's future may yet be decided as part of the north-south post-referendum talks.

Further problems could also emanate from the volatile Darfur region of northern Sudan, which also has oil and where a long-running, and often violent, dispute over the treatment of local people by the Sudanese government remains unresolved.

All this leaves the future of the oil sector looking very uncertain, although neither side is likely to want to jeopardise production from a business that provides over 90% of Sudan's export earnings and around half of its domestic revenues.

The country's main oil reserves straddle the border between the two regions in the centre of the country, with more than 80% of production on the southern side. But it seems unlikely al-Bashir will give up such riches without a fight. The north has one strong bargaining chip: the only export pipeline to Port Sudan runs through its territory.

Plans have been mooted in the south to build a pipeline to Lamu, Kenya, but that would take several years to complete, so the north may seek to take a substantial amount of oil revenues in return for use of the pipeline, or charge high transit fees, at least in the short-term.

China has provided strong economic and military backing for al-Bashir, ending up as the dominant player not just in the oil sector, but the entire economy. It now fears a government of southern Sudan may not be so accommodating, despite China's extensive role in the region's oilfields and the presence of Chinese businesses in the south's capital, Juba.

The new southern regime may seek to broaden the portfolio of investors, building on the toehold secured by Total and Petronas, which already have acreage there, even if exploiting it has proved difficult. Alert to the possibility that more western firms could arrive – possibly to appease the US-led donor group that helped prepare the ground for secession – Chinese officials have been engaging in some fleet-footed diplomacy with the southern Sudanese officials.

"The Chinese have been building relationships and making sure they are in the best position possible with the southern government," says Roger Middleton, researcher for the Africa programme at Chatham House, a London-based think tank.

But commercial considerations are likely to dominate the south's thinking on oil investment, so there is unlikely to be a large-scale transfer of assets to western firms, unless the economics stack up. "They can't afford to make decisions on that basis, as the oil provides 95% of their revenues. Aid and development money can't make up for that," says Middleton.

Total has been trying to rejuvenate exploration on its 118,000 square km southern Block B concession. The programme all but stalled in 2006, when Marathon withdrew from its 32.5% stake as a result of US sanctions. In December, Total confirmed it was in talks with Qatar Petroleum International (QPI) to take a stake in the project, dependent on the approval of the southern authorities. If the deal goes ahead, Total could end up with around 60% of the project and QPI 20%, with the southern Sudanese energy firm taking 10% and Sudapet, the national oil company, also taking 10%.

Establishing transparency in the oil sector will prove vital both for bolstering confidence among investors and establishing trust between north and south. In this, much remains to be done.

Under an oil-wealth sharing agreement drawn up in 2005, the government agreed to split revenues with southern Sudan, resulting in several billions of dollars already going to the south. But campaign group Global Witness says the government's official production figures for blocks in southern Sudan, for which comparisons were possible, are up to 26% lower than those reported by China National Petroleum Corporation.

While Global Witness stops short of accusing the government of cheating, it says the data does raise suspicions that the north is under-declaring oil revenue and giving less to the south than it should be. If a lasting agreement between the two sides is to be reached, mistrust over this and other issues must be overcome.

Given such discrepancies, Sudanese production figures are approximate. BP estimates that the country was producing 490,000 b/d in 2009, a rise of 60% from just five years earlier, from proved reserves totalling 6.7bn barrels.

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