The Oil War

Victory is Certain!
Victory is Certain!

SPLM-IO has signalled its intention to seize them. The government will throw everything it has at their defence. Here’s why the oilfields at Paloich matter.


 

1. Why is Paloich so important?

It is the last man standing.

Exact figures are hard to come by, but it’s widely accepted that oil production is at 165,000 barrels per day which equates to a two thirds reduction since 2013. With production in Unity State’s oilfields effectively offline, Upper Nile State’s Paloich region finds itself home to the last significant oilfield that’s pumping oil in South Sudan. An energy analyst noted that “A long closure will severely damage the pipeline or even render it obsolete”. This raises concerns about the feasibility of a speedy resumption of production in Unity State leaving Paloich as the governments only source of income for some time to come. If Paloich itself is shut down or severely damaged for a long period of time, then oil revenue may be unavailable for years.

2. What are the political implications?

Bad for citizens, worse for the government.

The National Legislature has already suspended sittings due to lack of fuel for running the generators which power nearly all government offices. But this is only the tip of the iceberg. Two thirds of government spending is being funded through debt. Debt which is secured against future oil earnings. Without those earnings, the government has no means to pay off the debt and worse, and will not be able to secure further debt to keep the machinery of government running. The lights at J1 might stay on, but everywhere else across our vast nation, we could be faced with a collapse of national, state and county government. This nightmare scenario would face whoever is in government, be that SPLM-Juba, SPLM-IO or a TGoNU comprising the two factions.

3. How have the oil companies reacted?

By scaling back operations or pulling out completely.

The main oil companies operating in South Sudan are China National Petroleum Corporation (CNPC), India’s Oil and Natural Gas Corporation (ONGC) and Malaysia’s Petronas. ONGC has already pulled out of South Sudan and has indicated it won’t resume operations until the security situation improves. CNPC, which is the largest stakeholder, is scaling back its own operations having evacuated close to 400 Chinese nationals from the region. It is planning to repatriate them back to China.

4. What does this mean for China’s investment in South Sudan?

Having committed its first peacekeepers to South Sudan, China isn’t ready to cut and run just yet.

It’s worth noting that China now only gets 2% of its crude oil from South Sudan. It has already managed to pay back the capital cost of its investment in oil extraction infrastructure – so everything from that point is pure profit. Having taken the opportunity to fill its strategic oil reserves when oil prices crashed in last the months of 2014, China is able to absorb the loss of South Sudanese crude without immediate impact to its economy. China’s Africa desk has admitted it is spending a disproportionate amount of time and effort on the situation in South Sudan. Without a strategic or commercial inducement, can we expect this level of commitment to carry on forever?

5. What is the outlook for the future?

Desperate government, loan sharks and confidence tricksters

There are other oilfields. But getting these ready for production will take time and will require significant investment. Confidence in South Sudan is plummeting and this is putting off reputable companies that are already investing in exploration or were willing to operate in our country. The high level of risk coupled with a government that’s increasingly desperate to keep the oil pumping, opens the country up to speculators and dubious operators. Global Witness’s excellent report on a contract awarded to Star Petroleum is a must read. Star Petroleum is closely connected to a European businessman convicted of a million euro fraud. Expect more deals like this one.

Make sure your community is prepared

Our country is standing at the edge of economic and political meltdown. The loss of Paloich could just push us over the edge.

“Our impression is the central bank has no reserves. We are under the impression the Treasury is empty. Income from petrol is down 75 percent, the currency is depreciating sharply against dollar, and the gap between the official rate and the parallel is widening ever faster.”

This quote from Toby Lanzer, the United Nations humanitarian coordinator in South Sudan, highlights the dire situation our nation is facing. Now more than at any time since CPA, citizens need to take notice and take action in support of our nation.

I’m not asking you to pick up a gun and join the fight in support of SPLM-IG, SPLA-IO or an independent militia. I’m asking you to engage at the local level with your neighbours and with traditional and official authorities at the Payam, County and State levels and start making contingency plans for service provision – e.g. health, education, security.

After all, failing to prepare is preparing to fail.

@CitizenLagu