* Abyei is the major bone of north-south contention
* Oil sharing should continue post July 9 secession
* Debt relief essential for Khartoum
By Opheera McDoom
KHARTOUM, March 23 (Reuters) - Sudan&${esc.hash}39;s Abyei region will fester as a cancerous international dispute between north and south and needs to be resolved ahead of the south&${esc.hash}39;s independence in July, Norway&${esc.hash}39;s deputy foreign minister said on Wednesday.
Oslo, Washington and London form a troika of key guarantors for the 2005 north-south peace deal which ended Africa&${esc.hash}39;s longest civil war and Norway plays a key advisory role in Sudan&${esc.hash}39;s oil sector.
South Sudan in January voted to secede from the north -- the end game of the accord.
"A local conflict fuelled by outside forces will have a very negative impact on everything that is going well so (Abyei) will be a cancer in the middle that the parties will suffer from," Espen Barth Eide told Reuters during a visit to Khartoum.
"It&${esc.hash}39;s extremely concerning if the unsettled borders are still not agreed before July 9 -- our primary position is that they have to be settled," he said.
Otherwise, it would become an international dispute requiring a commission with international mediation, souring relations between the future neighbours.
Central and oil-producing Abyei is claimed by both north and south in a deadlocked dispute which Eide said was likely to be resolved as part of a wider package including agreeing on issues such as citizenship and sharing oil revenues.
Eide said Norway was advising the south to use existing oil infrastructure in the north rather than insisting on building new pipelines and refineries post secession. Some 75 percent of Sudan&${esc.hash}39;s 500,000 bpd of crude lies in the south.
"It is not viable to build another pipeline...it can be done but the cost far exceeds any benefit in the commercial sense," he said, adding there was not that much oil and it was low quality so any stoppage could clog the system for months.
He also said the loss of income for the south -- which derives 98 percent of its budget from oil revenues -- as it built the necessary crude infrastructure would be devastating and warned Western donors would not take up the slack.
NO TIME TO WASTE
"South Sudan needs to be built now, not in five years," he said.
The ideal situation would be a gradual reduction in the percentage share of revenues between north and south -- currently around 50:50 -- while overall production increased so as to reduce the shock to both economies, Eide said.
"The north will not be able to absorb an immediate mass reduction (of revenues) but we don&${esc.hash}39;t think the south is ready to absorb a massive increase also...it would probably be misspent if a lot of money appeared in Juba with no clear plan," Eide said, referring to the southern seat of government.
He said Norway was advocating the relief of Sudan&${esc.hash}39;s debilitating external debt, which totals almost ${esc.dollar}40 billion, if it fully implemented the north-south peace deal.
Norway was organising a conference on macro-economic reform in Khartoum with U.S., British and Arab participation before July 9, he added.
In economic crisis, Khartoum is intent on securing debt relief to ensure access to concessional loans for development as foreign exchange shortages and inflation bite in the oil-dependent economy.
Eide said after meeting northern officials they realised economic reforms were necessary to move forward, especially given unrest in the Middle East, and he hoped the conference would provide them with positive ideas.
"They have to live in the real world. They will not be eternally oil rich and they will not receive a lot of donations for nothing so they have to create an economy that works and that requires budgetary discipline and strict regulation, accounting and oversight," he said.
Sudanese President Omar Hassan al-Bashir this year promised a first anti-corruption commission but has yet to form the body.
(Reporting by Opheera McDoom; Editing by Sophie Hares)
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