S. Sudan oil shutdown continues after talks fail

ADDIS ABABA (Reuters) - The presidents of Sudan and South Sudan failed Friday to resolve an oil dispute that has led to the shutdown of the South's crude output and threatened both countries' economies.

The row centers on how much landlocked South Sudan, which became independent last year, should pay to send its oil exports through Sudan to a Red Sea port.

Sudanese President Omar al-Bashir, using a walking stick, and South Sudan's President Salva Kiir met on the sidelines of a meeting of East African officials in Ethiopia.

The two discussed a deal that "would have frozen the situation and reverses the unilateral actions that had been taken by both," a source close to the talks told Reuters on condition of anonymity.

However, the source said the talks broke down when Kiir pulled out.

Ethiopian Prime Minister Meles Zenawi, who chaired the East African meeting, said the two had agreed to sign a deal even though they had reservations on numerous points, according to the source.

"Then Salva said, 'I regret to say that my delegation is still discussing the deal and I can't sign'," the source said.

South Sudan seceded in July under a 2005 peace deal that ended decades of civil war with Khartoum. It took with it about 75 percent of roughly 500,000 barrels per day of oil production.

Both countries depend heavily on oil and have put forward widely differing figures for a possible transit fee. Sudan has publicly proposed $36 per barrel, while South Sudan has listed figures under $1 per barrel.

The dispute heated up this month when Sudan said it was confiscating some oil exports from South Sudan to make up for what it called unpaid fees. In response, South Sudan said on January 20 it was shutting down its output.

WELLS SHUT DOWN

South Sudan's oil minister Stephen Dhieu Dau said Friday that his country was continuing to shut down its oil output in protest at Sudan seizing part of its oil shipments.

"Now 50 percent of the wells are off," he told reporters during a visit to the Palouge oil field in Upper Nile state. However, he did not say whether he was referring to the whole country or Upper Nile fields only.

In a sign of continuing acrimony, Dau also said Khartoum may have been diverting some oil from the fields which lay on the southern side of the border to feed its refinery in Khartoum. There was no immediate response to the accusation from Sudan.

An official at Petrodar, a consortium of mainly Chinese and Malaysian firms that produces much of South Sudan's oil output, said the company had shut down around 250 of its wells, and expected to finish the shutdown in three days.

"The progress is going very smoothly and safely. The program is expected to finish in three more days," Hago Bakheed Mahmoud, field operation manager for Petrodar, told reporters.

Petrodar was still pumping between 145,000 and 150,000 barrels per day and could resume its operations within three to four days if it was given instructions to do so, he added.

TALKS COLLAPSE

The negotiations that could lead to a reversal of the shutdown "have reached an impasse," South Sudan's chief negotiator Pagan Amum told reporters in Addis Ababa.

"The mood was not good because imagine you're sitting with someone that's stealing your property," he said, adding the South's output would cease by Saturday and that only cleaning and flushing the facilities would remain after that.

Sudan's negotiators did not immediately comment.

Ethiopian leader Meles said the two sides hadn't agreed on a deal yet, but oil would stay on the agenda in Addis Ababa, where the leaders of Somalia, Kenya and Ethiopia also met.

"It was agreed that the two parties will continue their negotiations during the summit. We have not come to conclusion as yet," he told reporters.

Meles said an African Union mediating panel had proposed a "reversal of unilateral measures" taken by both sides, but did not spell out what that meant. "Many of those issues are agreed, but there are some sticking points," he said.

According to oil industry sources, Sudan has already sold at least one cargo of crude seized from South Sudan at millions of dollars discount, and is offering more.

Sudan's civil war was fought for most years from 1955 to 2005 over issues of ethnicity, religion, ideology and oil. An estimated 2 million people died in the conflict.

Southerners voted overwhelmingly to secede in a referendum held last year in January.

(Reporting by Aaron Maasho and Yara Bayoumy; Additional reporting by Hereward Holland in Palouge; Writing by Alexander Dziadosz; Editing by David Stamp)