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Last Updated: Thursday, 13 January 2005, 00:18 GMT
Sudan peace paves way for oil deals
By Orla Ryan
BBC News business reporter

Rebel leader John Garang
Rebel leader John Garang has secured a deal
The signing of a peace deal in Sudan last weekend has reignited interest in the country's vast oil reserves.

Little exploration took place during the two-decade long war.

Sudan, which already produces 320,000 barrels of oil a day, has proven reserves of 635 million barrels.

Current figures barely register when compared to producers such as Nigeria and Saudi Arabia - but if the peace deal remains intact and exploration yields results, Sudan could emerge as a major oil player within the next five to ten years.

In the rush for Sudanese oil, Asian companies appear to have got a head start.

But progress is likely to be slow, and instability persists in the western region of Darfur, where millions of people have been displaced. Oil companies are also likely to face the wrath of human rights groups, who argue that oil revenues fund an oppressive regime.

Fools rush in

Under the peace deal, southern Sudan will vote on independence in six years time.

The rebel SPLA movement has secured a large share of future oil revenues, reflecting the fact that much of the oil is in the south.

Oil leases signed by the government during the war will still be respected under the deal.

These leaseholders include China National Petroleum Company, Malaysia's Petronas, ONGC Videsh Limited of India and Sudan's Sudapet.

In public, oil companies talk of the need for caution but some - such as France's Total and South Africa's PetroSA - have already signed exploration agreements.
The first oil flowed in Sudan in 1999

Total, which previously suspended its operations in Sudan, speaks cautiously of its return.

"We will first look to see if the security of the...area has been restored," a Total spokesman said.

"That would entail the clearing of landmines and easing of tensions between ethnic communities. The signature is not enough, it is just a step."

Asian winners

Asian investors look set to be among the first to profit from Sudanese oil.

Current sanctions forbid US companies from investing in Sudan, and even though Colin Powell has talked of loosening restrictions, Chinese and Indian companies will hope to have the market sewn up before then, said Philip McCrum, the Economist Intelligence Unit's Sudan editor.

"What they are trying to do is establish a strong-enough foothold that Western oil majors won't have an opportunity to get in," he said.

One London-based economist said that China in particular views Sudanese oil as key and has lobbied the United Nations hard against sanctions on trade with Sudan.

Ultimately, American companies remain wary of Sudan, Mr McCrum said.

Austria's OMV and Canada's Talisman both bowed to pressure from human rights groups and sold their Sudanese oil interests to India's Oil and Natural Gas Corp in 2003.

These same pressure groups are unlikely to soften their stance on investment, given the situation in Darfur.

Lack of transparency

Displaced women in a camp in Western Sudan
Peace in the south but the Darfur conflict still continues

The value of Sudanese oil gains greater weight when placed within the context of current high oil prices and rising Asian energy demand, Standard Chartered's chief Africa economist Razia Khan said.

Advanced technology combined with rising demand makes even the most remote oil reserves attractive to investors.

And outside of the global context, even relatively minor oil revenues could make a big difference to Sudan, Duncan Bonnett, partner at Africa research consultancy Whitehouse & Associates pointed out.

Yet Gillian Lusk of newsletter Africa Confidential warns that the deals being struck may not be all they appear to be.

"The oil is basically controlled by the government and that is going to be a big issue....the whole oil exploration, development and marketing has been characterised by a lack of transparency, by front companies, so it is going to be difficult to get the kind of transparency needed," she told Network Africa.

Any investment made could be jeopardised by the results of an independence referendum in six years time.

The juxtaposition of extreme poverty and potentially vast wealth heightens the fragility of peace and if the deal breaks, then the oil is likely to stay in the ground for many years yet.

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