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South Sudan offers to resume oil production

South Sudan on Monday offered to increase the transit fees it would pay to Sudan to use its pipelines as part of a deal that could restart its oil industry and provide much needed money to both governments, an official said.

The deal was proposed by South Sudan's negotiators at ongoing talks in Ethiopia's capital between the two nations. The proposal focused on peace and security measures but South Sudan also offered to provide Khartoum with $3.245 billion to help it meet part of the financial gap created by South Sudan's secession last year.

South Sudan's chief negotiator, Pagan Amum, said the agreement "if accepted by the Republic of Sudan, would not only rejuvenate Sudan's economy, but also end hostilities, resume bilateral trade, and ensure a permanent peace between South Sudan and Sudan."

After South Sudan peacefully broke away from Sudan last year, the south inherited about 75 percent of the formerly unified oil production. But the south's oil must be pumped through Sudan's pipelines, and South Sudan in January shut down its oil industry after accusing Sudan of stealing its oil. Khartoum said it was taking the oil in lieu of unpaid fees.

South Sudan's negotiators on Monday offered to resume shipments through Sudan's PetroDar and Greater Nile Petroleum Operating Company pipelines for transit fees of $7.26 ad $9.10 per barrel respectively. South Sudan says it is also willing to forgive nearly $500 million in lost revenue it says Khartoum took from its exports earlier this year.

South Sudan's 2011-12 budget was $10.1 billion, but its 2012-13 budget dropped to $6.4 billion because of the loss of oil revenue.

Sudan's reaction to the offer was muted. A government official in Ethiopia, Mutrif Sedig, said the two sides had not yet arrived at those issues in their talks.

The Ethiopia talks are being held to try and resolve a host of issues left over from the 2005 Comprehensive Peace Agreement, which ended a civil war between the two nations.

The U.N. Security Council has ordered the two sides to reach agreement by Aug. 2 on such outstanding items as oil revenue sharing, the demarcation of their shared border and the status of the contested region of Abyei, which is claimed by both sides.

As part of the 2005 agreement, Abyei was to hold a referendum in January 2011 to decide whether it stays with Khartoum or joins the newly independent South. But both countries disagreed on voter eligibility, and clashed militarily over the area, forcing some 100,000 residents to flee.

On Monday South Sudan has called for a new referendum for Abyei to be held before the end of this year. The referendum would be jointly run by the United Nations and African Union and allow anyone living in Abyei for "three continuous years immediately prior to January 9, 2005" to be allowed to vote.

The U.N. Security Council ordered the two sides to hammer out agreements following clashes in April that pushed the two sides to the brink of war. The May U.N. resolution threatens sanctions against both sides if they did not immediately resume talks and reach a final deal within three months.

The loss of its oil and the shutdown of southern production have dealt a heavy blow to Sudan's economy. Sudan President Omar al-Bashir was recently forced to end popular subsidies on fuel. The resulting rise in food and fuel prices have spurred small but growing protests on the streets of many of Sudan's major cities and put pressure on the ruling National Congress Party.

Sudan has accused South Sudan of shutting down its oil in an attempt to destabilize Khartoum.

Hostilities between the two nations remain. Last week South Sudan accused Sudan of bombing a South Sudanese village near the north-south border. Khartoum said it was targeting Darfuri rebels operating in South Sudan. South Sudan has submitted a formal complaint to the U.N. Security Council, but both sides said they would continue negotiating.

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Associated Press reporter Kirubel Tadesse in Addis Ababa, Ethiopia contributed to this report.