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Jevans Nyabiage

More than two decades ago, sanctions-hit but oil-rich Sudan in northern Africa could count on at least one friend.
As the government in Khartoum battled US bans on the country over its suspected links with terrorists such as Osama bin Laden, China was bankrolling Sudan’s economy.
Sudan supplied about 5 per cent of China’s imported oil. In return, Beijing and Chinese companies pumped billions of dollars into Sudan’s infrastructure and its petroleum exploration, production and refinery.
Not any more.
Fast forward to 2020 and Sudan is now two countries, with the South assuming ownership of three-quarters of the oilfields.
Although Sudan still has control of an oil refinery and pipeline, it is in deep debt distress, struggling under the crushing weight of political instability and low crude oil prices.
Khartoum has fallen so far behind that foreign investors in the country’s oil sector, including Chinese backers, are threatening to halt operations in the country.
Why China is hoping for a peace dividend in South Sudan
One of the major sources of the distress is the US$2.5 billion the Sudanese government owes to Chinese oil and gas giant China National Petroleum Corporation (CNPC).
Along with Oil and Natural Gas Corporation of India and Malaysia’s Petronas, CNPC and the Sudanese NOC Sudapet are partners in an oil exploration and production joint venture known as the Greater Nile Petroleum Operating Company.
Greater Nile operates the country’s remaining oilfields as well as a refinery and pipeline to the coast.
According to local media reports, Sudan’s undersecretary of the Ministry of Energy and Mining, Hamid Suleiman, said early this week that the country had been trying to service its debts by reducing the share of its oil proceeds going to state-owned Sudapet by 95 per cent but the debt continued to mount.
Khartoum has already served CNPC with a notice of the intention to terminate the Chinese company’s contract on Block No 6 of the Muglad Basin in West Kordofan State when it expires at the end of this year.
The field is one of a handful of blocks in the basin producing oil, and, by ending the contract, the government hopes to save money and force the Chinese company to renegotiate. Also, according to observers, Sudan could be preparing for the entry of American and European investors into the sector after the country was removed from the US Department of State’s State Sponsors of Terrorism List (SSTL).
Donald Trump moves to end Sudan’s terror listing amid push for Arab nation to normalise ties with Israel
David Shinn, a professor at George Washington University’s Elliott School of International Affairs, who tracks diplomatic developments between African countries and China, said that after South Sudan’s secession, China’s imports from the area plunged. Sudan exported almost nothing and South Sudan’s share of China’s market dropped to about 2 per cent because of internal conflict in the newly established country.
Winifred Michael, Sub-Saharan Africa country-risk analyst at London-based Fitch Solutions, said oil production in Sudan had fallen precipitously over the past decade from more than 450,000 barrels per day in 2011 to little over 100,000 barrels per day in 2012. Production lingered at around these levels over 2012-2018, with companies operating in the country investing to maintain output levels, but with a lack of new resources to bring online, Michael said.
Since then, production has declined once again to stabilise around 60,000 barrels per day.
Michael said the cause of the decline was a dispute between the Sudanese government and various stakeholders, including China, in blocks 2A and 4 in the basin.
“The government had failed to pay the project partners for the oil lifted from the blocks since 2011 ... As a result, the companies wound down their investments and ultimately exited their positions,” she said.
China welcomes ‘encouraging developments’ in South Sudan as rivals form unity government
Beijing has tried to help, extending the repayment period for its loans by five years in 2012 and writing off US$160 million in debt in 2018.
Kristoff Potgieter, an analyst at NKC African Economics, said that nevertheless, 95 per cent of Sudan’s oil revenues went towards debt repayments.
Potgieter said that before Sudanese oil exports collapsed entirely in the second quarter as global energy prices fell, most of the oil exported had gone to China as payment on onerous government debt.
“[The] contractual arrangements entered with the CNPC are a sign of the desperation that the Sudanese government has historically had in obtaining foreign financing, while debt overhangs remain over US$60 billion,” he said.
Analysts said the removal of Sudan from the US terrorist sponsors’ list would attract American companies into the country’s oil business.
“Removal from the SSTL will also increase investment into South Sudan, which relies on Sudapet to bring its oil exports to the market,” Potgieter said.
He said this, along with increased flows of development aid, would reduce the government’s reliance on China for funding key infrastructure projects.
“While debt overhangs will remain a problem in the medium term, reducing the payments of onerous debt will allow the Sudanese government to gain access to much-needed revenues,” Potgieter said.


Michael, of Fitch Solutions, said American and European interest in Sudan’s oil market would likely increase. She said a Sudanese trade ministry official met American embassy representatives in Khartoum in November, the sort of meeting that had not been held in years. They discussed Sudan’s potential accession to the World Trade Organization and developing its exports to the US, she said.
Nevertheless, Michael said China would still play a key role in Sudan’s economy. She said China Harbour Engineering Company was building a port for shipping livestock from Sudan’s Red Sea coast, opening Sudan’s economy to more exports as part of China’s Belt and Road Initiative.
Shinn doubted that CNPC was willing to write off any Sudanese debt, “but it will probably agree to reschedule it”.
“China will almost certainly continue to play some role in Sudan’s economic development,” he said.


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News

China

Diplomacy


Before the plunge in oil prices and before the country split in two, Khartoum could count on backing from Beijing
But Chinese investors and other stakeholders are in dispute as Sudan’s unmet repayments mount



Before the plunge in oil prices and before the country split in two, Khartoum could count on backing from Beijing.


Dealing with debt

World Trade Organization (WTO)

Belt and Road Initiative