Sudan says to release ships seized from South Sudan

ADDIS ABABA (Reuters) - Sudan will free ships carrying cargos of crude it seized from South Sudan to ease tensions between the former civil war foes and help the two states agree on a deal over oil revenue, Sayed El-Khatib, deputy head of negotiating team said on Saturday.

"President Bashir is ready to make this gesture. Sudan is going to release the vessels detained in Port Sudan," he told a media conference in the Ethiopian capital.

South Sudan became independent in July under a 2005 peace agreement with Khartoum that ended decades of conflict but both sides have failed to agree how to untangle their oil industries.

The new landlocked nation needs to use a northern pipeline and the port of Port Sudan to export its crude but has failed to reach an agreement with Khartoum over a transit fee, prompting Sudan to start seizing oil as compensation.

South Sudan said on Monday it had started shutting down oil production and accused Sudan of seizing $815 million worth of crude.

South Sudan's top negotiator said on Friday his country would complete the shutdown by Saturday, after Sudanese President Omar al-Bashir and South Sudan's President Salva Kiir met on the sidelines of a meeting of East African officials in Ethiopia.

Sudan said it was freeing the ships to help end the deadlock.

"By doing this step, we expect the cover agreement to be signed, the shutdown to be halted, and the terms of the cover agreement to be respected," said El-Khatib.

"Before the end of today, we could be able to sign the cover agreement. We, at least, are ready to sign."

Officials said in November South Sudan was producing about 350,000 barrels of oil per day.

China is the biggest buyer of oil from the two countries, some 12.99 million barrels last year. That amounted to five percent of last year's crude imports by China, which is also the top investor in South Sudan's oilfields.

(Writing by James Macharia; Editing by Toby Chopra)