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INTERVIEW: South Sudan hopes to clear TFA oil payments to Sudan by 2021

London — The coronavirus pandemic has hit the world's youngest nation badly, just as it was beginning to slowly rebuild it its war-ravaged oil sector.

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Awow Daniel Chuang, the undersecretary at South Sudan's ministry of petroleum, told S&P Global Platts the effects of the pandemic had been manifold, with production already curbed due to logistical and technical issues.

Chuang, however, said his country's relations with Sudan had improved, and it hopes to complete payments to its neighbor under the transitional financial arrangement (TFA) by 2021, after which it will be in a position to "renegotiate better terms."

Land-locked South Sudan relies on Sudan to export its crude in a pipeline via Khartoum to the Red Sea.

INTERVIEW: Coronavirus adds to South Sudan's oil industry's woes

South Sudan is currently producing around 170,000 b/d, almost 20,000 b/d less than what it was pumping earlier in the year.

But Chuang said the ministry still has lofty hopes to raise that to 250,000 b/d by 2021 when more of the country's shuttered oil fields reopen.

South Sudan is also a member of the OPEC+ coalition, which is currently in the midst of a 7.6 million b/d production cut deal.

Chuang said being part of this alliance is beneficial for the country but admitted that OPEC+ needs to be more empathetic to the needs of smaller producers.

South Sudan had committed to cut output to 100,000 b/d for May, June and July, while for August onward, it agreed to produce 106,000 b/d from its reference level of 130,000 b/d.

In an interview with Platts, Chuang expanded on the challenges the African oil producer is facing, its relations with Sudan and the producer's role in the OPEC+ alliance.

The transcript below has been edited for clarity and length.

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PLATTS: How has South Sudan coped with the recent oil price rout?

CHUANG: South Sudan has been badly affected by the low oil prices, made even worse by the fees we have to pay Sudan. Besides the cost of production, we also have to pay the transit fees.

Our strategy is to look at areas where costs can be reduced. We are creating a good logistics network to help reduce production costs, while also trying to increase local content.

Some functions now being done by foreigners must be performed by locals. This will also help reduce costs and help improve the economy, benefiting not only the oil sector, but also other sectors.

PLATTS: How are relations with your neighbor Sudan?

CHUANG: We are currently on very good terms with Sudan. We pay Sudan fees, or tariffs, as set out in the agreement.

This process has progressed very well to date, with no major issues. But we did have some problems with the previous administration. Things have improved since the change of government and there is generally a better understanding, and an improved relationship.

There are four fees that South Sudan pays Sudan for every barrel produced. A transportation fee, a processing fee, a transit fee and the non-commercial tariff (TFA). The first three fees are commercial. These fees have a major impact on the economy of South Sudan and the oil industry. Often, people talk about South Sudan having a lot of oil money but forget how much we pay Sudan.

PLATTS: At what stage is South Sudan in for paying down debts to Sudan?

CHUANG: We have almost finished paying the TFA. In 2021, we should be making our final payment. We should be recognized for that as we are resilient -- South Sudanese people are survivors.

We are committed to paying our debt and Sudan can testify to that. [Sudan's] Khartoum refinery is running our crude oil, as well as their power plant in Kosti. 10,000 b/d goes to the Khartoum refinery, with 18,000 b/d heading for the power plant.

PLATTS: Are you planning to negotiate better tariffs with Sudan?

CHUANG: Our plan is to clear the TFA first, then we will address tariff renegotiations. It is in our interest to negotiate better terms because the circumstances under which this agreement was initially made have changed.

Another factor is that Sudan is benefiting from our crude oil, and not only receiving money, but also oil to run their facilities. So, right now they need us more than South Sudan needs them. In the future, we should be in a position to renegotiate better terms.

PLATTS: What future is there for South Sudan and OPEC+?

CHUANG: The future of OPEC+ will depend on the way it manages oil prices, because sometimes people have different opinions about the production cuts that are being suggested to ensure a good oil market price.

When we are asked to cut production, it could threaten the natural development of these countries. So, it is very important how OPEC+ understands the needs of member countries that rely heavily on these resources.

Many of the other member countries are very big, with well-developed infrastructure and different economic sectors. But when countries like South Sudan, which have less-developed oil sectors, are forced to cut production, this affects income and threatens the development and economic future of these countries.

It is our hope that OPEC+ will deal with these situations very seriously so these countries can manage the development that is needed, especially those that rely heavily on oil. This will determine the future of OPEC+; if they understand the needs of these developing countries.

Asking a country producing 10 million b/d or 8 million b/d to cut production is very different to asking another country that is producing 100,000 b/d to cut production. It is unfair if you ask both countries to cut production by the same percentage.

It doesn't make any sense, as at the end of the day the difference between the two countries' oil production is huge, and the cuts have a far greater effect on the one producing less oil.