(Aug 26): A unit of Malaysian oil and gas giant Petroliam Nasional Bhd (Petronas) sued South Sudan for allegedly blocking a sale of its assets for US$1.25 billion (RM5.43 billion) and instead taking over that business.

Earlier this month, state-run Nile Petroleum Corp assumed control of Petronas’ oilfields and assets — effectively repossessing the Malaysian company’s investment — and announced it would seek a new partner to ensure operations continue.

“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 said in response to queries, declining to comment further due to the ongoing arbitration proceedings at the World Bank agency.

Officials at South Sudan’s petroleum ministry didn’t respond to several requests for comment.

Petronas announced an exit on Aug 8 after about three decades in the country, a period stretching back to before South Sudan declared independence in 2011. It held talks with the UK-based oil and gas company Savannah Energy plc to purchase its assets.

The Malaysian company abandoned its investment due to mounting costs brought about by a broken pipeline that ships two-thirds of South Sudan’s crude through neighbouring Sudan, which has been at war for more than a year. The conflict has resulted in damage to one of two pipelines after a lack of diesel to thin out the crude caused the conduit to rupture.

In a letter to Petronas executives on Aug 5, Chol Deng Thon Abel, an undersecretary of state at the petroleum ministry, alleged the company broke the nation’s laws by failing to carry out an environmental audit and pay damages. The letter seen by Bloomberg also accused Petronas of giving South Sudan an ultimatum to nominate an entity to purchase its assets.

Petronas denied any such demand and said the government’s conduct was “arbitrary, unreasonable and unlawful”, Azahari Shuid, a senior general manager at the Malaysian firm, said in response to the government’s letter.

Petronas first began extracting crude in the region in 1997 as part of a consortium led by the Swedish company Lundin Oil AB. Sweden has since indicted former chief executive officer Alexandre Schneiter and chairman Ian Lundin for complicity in grave war crimes committed by Sudan’s regime in what is now South Sudan.

Lobbyists including Human Rights Watch and the European Coalition on Oil in Sudan say large-scale oil exploitation by foreign companies have intensified abuses and exacerbated South Sudan’s long-running conflict.

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