Page 2 of
2 Will
China help out the West in Sudan? By Peter Lee
There is ample national
unity and belligerence in South Sudan against
Sudan, and a willingness to pay the price to get
out from under Khartoum's thumb. But the price
will be pretty steep if the confrontation
escalates.
When South Sudan's President
Salvo Kiir briefed parliament on the oil crisis,
he stated:
H E the President instructed the
Ministry of Finance and Economic Planning to
initiate contingency plans for revenue
collection and allocation and accelerate the
increase of non-oil revenues. He also said that
safely, security and health of the citizens of
South Sudan remain top priorities. [4]
Good luck with that.
Since
the government relies almost entirely on oil
revenues for
98% of its non-aid
funding, if its exports cease the West will find
itself with a significant and unwelcome financial
responsibility to keep the government and economy
humming in Southern Sudan ... unless China steps
in.
Zhang Jun, China's economic counselor
in South Sudan, reportedly stated last year that
China could provide loans secured by resources to
keep South Sudan afloat while the pipeline to Lamu
is built. That might take a while.
Optimists in Juba declare the pipeline to
Lamu, the perceived magic bullet for South
Sudanese security and economic independence, can
be built in 10 months in a crash program. Experts
aren't so sure, per Reuters:
Analysts said a Kenya pipeline would
be difficult to build across rough terrain hit
by tribal violence and also passing through
bandit-stricken regions in western Kenya.
South Sudan has said it would cost
around US$1.5 billion, but analysts say a hefty
insurance premium would have to be added because
of the security concerns.
"It would be
really difficult," said Dana Wilkins at Global
Witness. "We're looking at least a year or two
because of the length of the pipeline, the
terrain it has to cover and security concerns in
the region." [5]
If, in addition to
advancing the direct cost of building the
pipeline, tensions with Sudan shut off the export
pipeline to Port Sudan and required that China
front South Sudan's lost oil revenues for two
years, China's total exposure would approach $10
billion. It would take over 100 million barrels of
oil to pay that back - over two years' production
... during which time the GoSS would still be
relying on outside support to finance its
operations, so the bill would keep rising.
It would appear that the only way to get
the pipeline built and get South Sudanese oil out
would be for China to obtain the forbearance of
the Sudanese regime, and keep South Sudanese oil
and revenue flowing through Port Sudan until the
Luma pipeline is completed.
Khartoum,
which presumably has been looking at the same
figures as everybody else and figured out what its
control of the current pipeline is worth, has
apparently put a price on its forbearance: $15
billion over seven years (plus, one would expect,
a healthy amount of debt forgiveness from the
West). [6]
No wonder China is considered
the key to successful resolution of the crisis.
The West probably lacks the stomach to sit
down with Bashir and offer him $15 billion to
assure the survival of South Sudan. So let China
do it.
However, there's apparently not
some huge bonanza of South Sudanese crude waiting
for China, as the Reuters article points out.
Oil experts have questioned the economic
viability of a pipeline in the medium-term as
output is expected to fall sharply in coming years
because some fields were overpumped by Khartoum in
the run-up to South Sudan's independence.
South Sudan output will decline to 200,000
barrels per day (bpd) by 2016, to 160,000 by 2018
and further thereafter, according to estimates by
the European Coalition on Oil in Sudan, which is
comprised of research groups, non-governmental
organizations and activists.
Some analysts
say a pipeline would be viable only if new finds
were made, but exploration in the vast Jonglei
state have been hampered by tribal violence.
France's Total holds a concession in Jonglei which
is largely unused due to violence.
"Production in Upper Nile peaked in 2010,
Unity in 2005. Even if major new fields were
discovered today, it could be years before they
come online in a real way," Wilkins said.
Another wrinkle is that if/when the
pipeline to Lamu is built, apparently at Kenya's
insistence it will supply a 120,000 bpd refinery
whose output will serve the East African market.
In this case Sudan/South Sudanese crude
will dwindle from an already less-than-critical 5%
to an insignificant share of China's import slate.
For China, it boils down to a
multi-billion dollar, multi-decade bet on South
Sudan, a failed state in ovo in the middle
of a war zone - with dwindling crude export
capabilities.
Therefore, a unilateral
Chinese bailout of the West's recklessly exposed
position in South Sudan is unlikely. All-out war
between Sudan and South Sudan also appears
unlikely, at least for now.
As Reeves
points out, the West has adopted the rhetoric of
"moral equivalence", wrongly implying that South
Sudanese instransigence is as much to blame for
the crisis as Sudan's excessive demands.
This is presumably a signal that the South
is being encouraged to knuckle under and swallow
the medicine Bashir's regime has prepared (perhaps
sweetened by concurrent subsidies to Juba by the
West and China), so that the peace process can
continue to limp on.
The prognosis for
South Sudan appears to be of a landlocked, weak
state whose overmatched government will serve as
an arena for Western fantasies of "capacity
building" as a social and economic panacea; and,
if it actually overcomes its daunting security and
economic problems and builds its pipeline to Lamu,
will primarily benefit Kenya, East Africa's
leading power, as a buffer state and source of raw
materials and markets.
China may decide to
minimize its exposure to Sudan and Southern Sudan
in its Africa portfolio accordingly.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
