Petronas Takes Legal Action Against South Sudan Over Oil Assets

In a dramatic turn of events, Malaysian oil and gas titan Petroliam Nasional Bhd., commonly known as Petronas, has initiated legal proceedings against South Sudan. This case has emerged due to an alleged blockade by South Sudan on Petronas’ attempt to sell its assets for a substantial US$1.25 billion. In a surprising move earlier this month, South Sudan’s state-run Nile Petroleum Corp. seized control of Petronas’ oil fields and assets, effectively overriding the Malaysian firm’s stake and expressing intentions to seek new partnerships to ensure continued operations.

“Petronas International Corp. has initiated arbitration proceedings at the International Centre for Settlement of Investment Disputes on the divestment of its operations in the Republic of South Sudan,” the company stated in response to inquiries, while remaining tight-lipped on further details due to the ongoing arbitration proceedings at this World Bank agency. Notably, South Sudan’s petroleum ministry has remained silent, declining to provide comments despite several requests.

The intricacies of this legal drama trace back to Petronas’ announcement on August 8 of its exit plans after maintaining a presence in the region for approximately three decades, a period predating South Sudan’s declaration of independence in 2011. During this tumultuous time, Petronas entered discussions with UK-based Savannah Energy Plc regarding the potential purchase of its assets.

Petronas’ decision to abandon its investment was significantly influenced by the financial strain caused by a faulty pipeline, which is crucial for transporting two-thirds of South Sudan’s crude oil via neighboring Sudan, a country embroiled in a prolonged conflict for over a year. The conflict has inflicted severe wear on one of two pipelines, exacerbated by a shortage of diesel needed to thin out the crude, which ultimately caused the pipeline to rupture.

The situation escalated with a pointed letter dated August 5 from Chol Deng Thon Abel, an undersecretary of state at the petroleum ministry, accusing Petronas of violating national laws by not fulfilling an environmental audit and failing to pay required damages. Abel also alleged that Petronas issued an ultimatum to the South Sudanese government to nominate an entity to take over its assets. Petronas has staunchly denied these claims, denouncing the government’s actions as “arbitrary, unreasonable and unlawful,” according to Azahari Shuid, a senior general manager at the company.

Petronas’ involvement in the region began in 1997 as part of a consortium led by the Swedish company Lundin Oil AB. Since then, Sweden’s judicial system has indicted Lundin’s former CEO Alexandre Schneiter and chairman Ian Lundin for alleged complicity in grave war crimes executed by Sudan’s regime in what is now South Sudan. Advocacy groups like Human Rights Watch and the European Coalition on Oil in Sudan have long argued that the large-scale exploitation of oil by such foreign companies has exacerbated violence and prolonged the conflict in South Sudan.

As the arbitration proceeds, this case could have far-reaching implications for international oil and gas investments in volatile regions, further spotlighting the complex interplay between economic ventures and geopolitical stability.