South Sudan ups debt relief, oil fee offer for Sudan

Women walk carrying food that they received at the WFP food distribution site in Pibor, South Sudan, June 25, 2012.

ADDIS ABABA/JUBA (Reuters) - South Sudan is offering Sudan complete debt forgiveness and a $3.2 billion compensation package to plug its rival's gaping budget deficit in an attempt to move forward stalled talks, a senior official said on Monday.

The African neighbors came close to war when border fighting escalated in April, the worst violence since South Sudan declared its independence a year ago under a 2005 agreement that ended decades of civil war.

Talks between the neighbors have been locked in a stalemate over a range of disputed issues including fees for Juba's oil exports and the demarcation of the joint border.

Pagan Amum, South Sudan's chief negotiator, said Juba tabled its "last offer" on Sunday ahead of an August 2 U.N. Security Council deadline that threatens sanctions against the two countries unless they resolve all issues by then.

The proposal includes an offer to wipe out debts worth more than $4.9 billion, as well raising its compensation package to $3.2 billion, up from a $2.6 billion offer it made earlier this year.

It also includes an improved offer of $9.1 and $7.26 per barrel in oil transit fees for Sudan's two pipelines, still well short of Khartoum's last demand of $36 per barrel for both pipelines.

"This is our last offer. We are left with nine days (before the U.N. deadline). It's time for the parties to conclude an agreement," Amum told reporters in Ethiopian capital Addis Ababa where talks sponsored by the African Union are taking place.

There was no immediate comment from Sudan, which has disputed debt figures cited by South Sudan. Khartoum has said it will not discuss any agreement on oil exports or other financial issues until both sides reach a deal on border security.

Sudan accuses South Sudan of supporting rebels in two southern border states and the Western Darfur region, a claim that some diplomats find credible despite denials from Juba.

South Sudan itself accuses Sudan of bombing its territory. Sudan routinely denies these claims but Reuters reporters have witnessed several air strikes.

In January, South Sudan shut off its entire oil output after Khartoum started taking oil for what it called unpaid export fees. Both economies badly need the oil.

Oil provides about 98 percent of South Sudan's income and is vital to the impoverished country as it tries to develop infrastructure and institutions devastated by a war that killed an estimated 2 million people.

(Additional reporting by Hereward Holland in Juba; Editing by Ulf Laessing and Pravin Char)