| 2008: Iraqi Minister on Increasing Oil Output, Contracts With Foreign Companies |
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May 20, 2008 Asked about the effect of recent hikes in oil prices on the oil situation in Iraq, Al-Shahrastani says the oil industry in the world in general and in Iraq is at its best. He says oil revenues in the first quarter of 2008 amounted to $15.5 billion, which is almost double the sum planned for in the 2008 budget, and there is a surplus in state revenues, and thus the State is anxious to draw up a complementary budget for the second half of 2008 and release more funds for the reconstruction plan and for the import of additional foodstuff. Asked if there is an increase in Iraqi oil exports, Al- Shahrastani says yes, oil exports increased from a maximum of 1.5 million bpd in 2007 to an average of 1.9 million to 2 million bpd, while the 2008 budget provides for the export of only 1.7 million bpd. He says Iraq will continue to increase production and exports in the remaining months of 2008. Asked if Iraq is now technically prepared to develop its oil industry, Al-Shahrastani says the fact that Iraq has succeeded in raising production and export levels in the past five years indicates it has the competence and determination to do so, adding: But is what we produce at present commensurate with what Iraq is capable of producing, taking into consideration Iraq's huge oil reserves which exceed 115 billion barrels? He says the answer is that Iraq needs to cooperate with oil companies, import the most modern technologies, train Iraqi cadres in those technologies, and obtain advanced equipment. He says Iraq is now inviting foreign companies through competitive and transparent public deals that achieve for Iraq the highest financial yield, employ Iraqi labour, and train unskilled manpower for the oil industry. He says there will be "a qualitative leap in 2008 to develop cooperation with oil companies to increase oil production and exports." Told that some oil experts ask that each governorate should have an oil refinery whose output is commensurate with the governorate's needs for oil derivatives, Al-Shahrastani says small refineries whose capacity is 10,000 or 30,000 bpd in each governorate are not economic and do not produce gasoline at the required standard and quality and suffer from many technical and economic problems. He says Iraq is turning towards building modern big refineries which do not only meet local consumption needs but also export oil products at higher prices than crude oil. He says there are plans to build a refinery with a capacity of 300,000 bpd in the governorate of Dhi Qar at a cost exceeding $5 billion, and a refinery with a capacity of 150,000 bpd in Karbala and in Kirkuk. He says at the same time they are going ahead with plans to provide products in the shortest period possible to the governorates, and a refinery is being built in Al-Diwaniyah while the Al-Najaf refinery has been expanded and it will be further expanded. Asked when work will begin on the big oilfields in Al-Nasiryah and Karbala, Al-Shahrastani says the oilfields should not be mixed with the refineries, for they are two different issues. He says a contract has been signed for the studies and designs for the Al- Nasiriyah refinery and the same goes for the Karbala refinery which is being built in two stages: the first stage involves building a small refinery quickly to meet needs and it is hoped to complete this stage in less than 18 months and it will have a capacity of 40,000 bpd. He says there is now a big stockpile of oil products in Iraq, and it has been decided to allow the sale of liquid gas without ration cards and without a limit in Al-Sadr City in particular, to alleviate the people's suffering, and this will be subsequently done in other areas. He says refineries are now producing more than in the past, and imports of oil derivatives have decreased. Told there are those who say capacity of Al-Najaf refinery is not more than 10,000 bpd, while others speak of lack of material in the refinery and say the gasoline produced there goes to the Al-Dawrah refinery for further treatment, Al-Shahrastani says that is exactly the result when each governorate wants its own refinery. He says the refineries with a 10,000 bpd capacity were imported by Iraq for "exceptional circumstances and have a limited technology." He says a second unit will be opened at the Al-Najaf refinery with a capacity of 10,000 bpd, and a third unit will be added, and new units are being ordered to improve the quality of gasoline. He says the solution is to build the new Karbala refinery with a capacity of 150,000 bpd which will meet not only the needs of the central Euphrates but of other Iraqi areas as well. He notes it takes four to five years to build such a refinery. Asked why work on building refineries was not begun immediately after the fall of the previous regime, Al-Shahrastani says the question should be addressed to those in power at the time. He adds to be fair it should be said that the country's circumstances at the time were not normal, and the civil administration was running matters in "an arbitrary and confused manner," and even when the Governing Council was formed the country had no real administration. He says no sooner his predecessors began to put matters in order when major terrorist attacks occurred and the bombing of the Samarra shrine created sectarian tension, and not only refineries but also hospitals, housing units, airports, and roads were not built. Another video report says the Oil Ministry's performance has improved with the improvement in the security situation. Oil Ministry Undersecretary Ahmad Abd-al-Amir al-Shamma says imports of oil derivatives have decreased steadily in recent years. Another official says stringent measures will be taken against those who do not abide by official prices set for oil derivatives. He says there are "good quantities" of oil products in both the north and south, and urgent plans have been drawn up to transfer those quantities to Baghdad to build "a good stockpile of those products." Several citizens all testify to the improvement in the availability of petroleum products. Asked about the international oil companies that reportedly want to invest in Iraq's oil industry, Al-Shahristani says the extraction, refineries, and distribution sectors of the oil industry need investment and development. He says they have begun to ask the companies that want to operate in Iraq's oil extraction sector and the production of crude to qualify, and 120 international oil companies have applied to qualify to operate in Iraq. He says there are clear economic, technical, legal, and training criteria for qualifying, adding that a company's ability to train Iraqi personnel is a criterion because they do not want an investor who brings manpower from other states, and one of the conditions of qualification is that all labour should be Iraqi. He says 35 of those companies have qualified, and now those companies will be invited to submit tenders to develop oilfields whose production can be increased, and work on them will begin this summer. He says the tender that ensures for Iraq the best financial yield and meets the criteria will be chosen. Told some people and some studies say that foreign investment in the oil sector could have a negative effect on the Iraqi state and society and argue that the state should be the investor, Al- Shahrastani says the media does not talk about the importance of investment and cooperation with foreign companies, but talks about the kind of contracts concluded with those companies. He says the objection is directed at contracts for partnership in production, where a percentage of the Iraqi oil produced is allocated to the foreign company. He says foreign companies will not be allowed to share in Iraqi oil, and one of the main reasons the oil ministry and federal government objected to some contracts concluded without the ministry's approval in the Kurdistan province is that they are contracts for partnership in production. He says there are models of other contracts that retain complete national control and Iraqi ownership. Al-Shahrastani says Iraq and any oil-rich state in the world needs the expertise of the major oil companies, equipment, training for their personnel, and the most modern oil technology. He notes that some of the big oilfields in the south and also the Kirkuk oilfield have aged although hardly 20 per cent of the total oil in them has been extracted, while modern technologies can increase the percentage of oil extracted from such fields, and those technologies are not available in Iraq. Al-Shahrastani notes that if Iraq increases its extraction of oil from existing oilfields by 1 per cent that will result in its reserves yielding 1 billion additional barrels, and 1 billion barrels at current prices means additional revenue of $100 billion. Told the prime minister of the Kurdistan province, Nerchivan Barzani, recently said he's prepared to turn over the oil contracts concluded to the central government and asked if committees have been formed to decide on those contracts, Al-Shahrastani says Barzani came to Baghdad two weeks ago with a delegation of experts and they discussed the oil bill that was approved by the Iraqi Cabinet in 2007, and it was agreed to go back to the draft of that bill. He says the Kurdish delegation called for a review of the draft while the oil ministry argued that if the door to a review is opened and discussion is renewed, then the door will be open to introducing many other amendments. Told that statements by some Kurdistan province officials indicate they are going ahead with the conclusion and implementation of those contracts and asked about the ministry's stand, Al- Shahrastani says the draft of the bill is clear, and contains an article about contracts concluded prior to February 2007 stating that such contracts should be referred to a committee of experts to ascertain whether they conform with the oil bill, and if not they should be amended so as to conform, and then they will be approved by the committee. He says any contracts concluded after February 2007 are invalid because it is not known if they are subject to the draft's mechanisms such as free and open competition, transparency, qualifying the companies, Iraq achieving the highest financial benefit, and national control. He notes that the Constitution states that the oil belongs to the entire Iraqi people, and therefore how can any one side dispose of it and conclude contracts whereby the other sides do not know what percentage of oil was granted to the companies, and even if it is known how can they be sure it is the highest percentage the Iraqis could obtain when there has been no open competition. Asked why the oil bill has been delayed in parliament, Al- Shahrastani says when the Cabinet approved the bill all the political blocs were represented in the government, but subsequently some blocs withdrew from the government and adopted a political stand and called for amendments to the bill, and that led to the delay. Told there are neighbouring states and especially Gulf states that press for not adopting the oil bill so that Iraq "will not be an important figure" in the field of exporting oil, Al-Shahrastani says that there is other talk that the United States and others are pushing towards the enactment of the law so as to control Iraqi oil. He reassures Iraqis that this government cannot allow any foreign state, regional or external, whether it has forces in Iraq or not, to interfere in this serious Iraqi affair, and they know that and "they respect themselves and do not initiate a discussion in this matter with me or other officials." He says the 35 companies that qualified belong to 16 nationalities and include American, Russian, Chinese, Indian, and Japanese, and political matters were not taken into consideration at all, only the company's technical competence, financial standing, and training programme were considered. Al-Shahrastani says the oil ministry has decided to go ahead with developing the oilfields while observing "all the conditions and requirements of the new oil and gas bill," so that once the bill is passed all their work will have been in accordance with the law. He adds if the "enactment of the law is delayed for various political reasons, we are not prepared to wait while the Iraqi people continue to have the present living standard." He says they have decided to go ahead and they have drawn up a plan to increase oil production to 4.5 million bpd within the next five years, and to more than 6 million bpd within the next 10 years, "and we will not stop and wait for anyone." Told that some gas stations sell at prices higher than the official prices, and that there has been talk that gasoline will be sold to taxis at different prices than to private cars, Al- Shahrastani says it is illegal to sell at prices higher than the official prices, and urges citizens to refuse to pay more than the official price, which is 450 dinars per litre. He says it is gangs who extort the additional money from citizens with the force of arms, and the state is determined to prevent such extortion. He says the ministry will retain the existing price in 2008. Regarding talk about different gasoline prices for taxis and private cars Al- Shahrastani says that is "propaganda for political purposes." He says some newspapers seek sensationalism and usually have political motives. Al-Shahrastani says in the past when there were terrorist attacks on oil tankers and drivers his ministry drew up a programme to ensure that the product reaches its destination and appointed reliable persons to accompany the tankers, but wide scale corruption and terrorism are not eliminated by 40 or 50 employees who escort hundreds of oil tankers daily, yet the entire security situation has now improved. Asked if reports that fuel oil prices will increase are true, Al- Shahrastani says fuel oil prices have not changed in the past two years and there is no intention to increase current prices. He notes that Iraq exports black oil at more than 400,000 dinars per ton, while it is sold to citizens at 100,000 dinars per ton. Asked about "the joint oilfields with the Iranian side or the Kuwaiti side" and reports that the oil ministry addressed a memorandum of condemnation to the foreign ministry in that regard, Al-Shahrastani says there is "continuing and serious dialogue with Iran and Kuwait. We have agreed in principle with them to sign an agreement known as the unification of oilfields agreement. Thus if there is an oilfield that is in the two countries we choose a third party that is qualified and to which both sides agree to assess the size of the oilfield and the quantity of its reserves, and on the basis of border maps that are agreed upon that third party will decide what proportion of the oilfield lies in the territory of each country and the share of each side in the oilfield, and the two countries exploit it together, because its joint investment will enable the two sides to exploit the oilfield better economically." He says agreement has been reached with Kuwait and Iran on that, and they now are waiting for the Foreign Ministry to demarcate the border with Iran. |