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DMEA COMMENTARY DMEA

OVL ready to quit Sudan

With Khartoum failing to meet financial obligations and the amount of oil
involved remaining small, the Indian company has little reason to stay

SUDAN ONGC Videsh Ltd (OVL), the foreign projects sum by 18 payments of $14.135mn each, with
arm of India’s Oil & Natural Gas Corp. (ONGC), the first payment to be submitted on December
WHAT: has decided to withdraw from Sudan. 30 of that year, and subsequent payments to be
India’s OVL is reportedly Sources inside the company told the Indian made every six months.
preparing to exit the press last week that the move to exit Greater Nile According to OVL, Khartoum only made 11
GNPOC project. Petroleum Operating Co. (GNPOC) stemmed of the 18 promised payments, with the last com-
from long-running financial disputes with the ing near the end of 2010. Since then, it has not
WHY: Sudanese authorities. Those disagreements, in turned in the remaining seven payments, which
Khartoum has not upheld turn, are rooted in the project’s history. were supposed to total $98.94mn – that is, the
its pledge to compensate $99mn sum mentioned above.
the company for its oil Downhill path Additionally, it said in late 2016 that it would
production or for its past The Indian company holds a 25% stake in not grant GNPOC’s request for an extension of
construction work on a GNPOC, which is developing Blocks 2A and the contract for Block 2B. As a result, the acreage
pipeline to Port Sudan. 4N in the Muglad Basin in southern Sudan. It under the consortium’s control shrank.
entered the consortium in 2003, eight years At first, the Indian firm hoped that making
WHAT NEXT: before South Sudan gained independence from its case through diplomatic pressure would suf-
Sudan may experience Khartoum. At the time, GNPOC controlled fice, so it asked New Delhi to press its case with
another round of fuel three sites known as Blocks 1, 2 and 4. In 2011, Khartoum. After this tactic failed, though, it filed
shortages if GNPOC’s though, the licence area was split between Sudan an arbitration case against Sudanese authorities.
members quit. and South Sudan. And in 2019, it started talking publicly about
As a result of that split, most of the oil-bearing the possibility of withdrawing from GNPOC. It
areas ended up in the South Sudanese portion, reportedly informed officials in Khartoum of its
which consists of Blocks 1A, 1B and 4S. The position shortly after the country’s previous gov-
other sections, consisting of Blocks 2A, 2B and ernment, headed by Ali Bashir, stepped down.
4N, remained in Sudan’s hands.
OVL and the other partners in the group Impact on local fuel sector
have been at odds with Sudanese authorities ever Now it appears that OVL has definitely decided
since. Officials in Khartoum had anticipated that in favour of withdrawal. The company has not
members of GNPOC would continue to extract officially confirmed reports to this effect, but its
oil from the Sudanese portion of the blocks and representatives – including some high-ranking
to transport their production to market via the managers – have told the Indian press that this
pipeline they had already built to Port Sudan. move is in the works.
They changed course, though, after determin- If so, the exit appears to be justified – and not
ing that Sudan’s share of production from Blocks just because the Sudanese government is not meet-
2A, 2B and 4N would not keep local refineries ing its financial commitments. GNPOC is also a
running at capacity. Specifically, they asked OVL relatively minor asset. As of mid-September, the
and the other investors in the project to sell their consortium was only producing about 28,000 bar-
shares of oil production to Khartoum. rels per day (bpd) of oil from Block 2A. It was also
This request drew a positive response, at least extracting no oil whatsoever from Block 4, which
initially. However, GNPOC’s shareholders say has yet to move past the exploration phase.
they have never been paid for their oil. Accord- Under current market conditions, this small
ing to the sources inside the Indian company, amount of oil hardly seems to be worth the
OVL’s share of overdue payments for this crude trouble. Certainly, OVL’s partners appear to
now amounts to nearly $431mn. have reached the same conclusion; Indian news
agencies reported last week that the other for-
Overdue payments eign shareholders in GNPOC – China National
Additionally, the sources say, Khartoum owes Petroleum Corp. (CNPC), the operator, with
OVL another $99mn. This sum, they explained 40%, and Petronas (Malaysia), with 30% – were
last week, represents the Indian firm’s outstand- also quitting the project. (Presumably state-
ing share of the cost of building the 741-km sec- owned Sudapet will hold on to its 5% stake.)
tion of a pipeline from Khartoum to Port Sudan. This is not good news for Sudan. The country
Sudanese authorities had originally pledged has already experienced multiple rounds of fuel
to provide OVL with a total of $254mn as com- shortages this year, and it is likely to experience
pensation for 90% of project costs and rental fees. further supply disruptions if its refineries lose a
They said in 2005 that they would make up that source of feedstock. ™

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