FORMER OIL MINISTER GHADBAN ON OIL SECTOR'S FUTURE

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000476

SIPDIS

SIPDIS

E.O. 12958: DECL: 02/14/2016
TAGS: ECON EFIN EINV ENRG EPET PGOV PINR PREL IZ
SUBJECT: FORMER OIL MINISTER GHADBAN ON OIL SECTOR'S FUTURE
IN IRAQ

REF: A. BAGHDAD 405

B. BAGHDAD 444

Classified By: Classified by DCM David Satterfield for reasons 1.4 (B)
and (D).


1. (C) SUMMARY: Transitional National Assembly (TNA) member
and former Minister of Oil Thamar Ghadban said on February 12
that he and others in the GOI have concerns over potential
corruption and improper activities at the Ministry of Oil by
Fadhila party members since they took over the Ministry in
January. Widely talked about as a possible Minister of Oil
in the next government, Ghadban said he has a plan for the
reorganization of the Iraqi oil sector. He asserted that new
oil sector legislation -- mandating industry reorganization
and authorization of foreign direct investment in the oil
industry -- could be passed in the first six months of the
new government. END SUMMARY

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POLITICS AT MINISTRY OF OIL
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2. (C) During a February 12 discussion with Emboffs, TNA
member and former Minister of Oil Thamar Ghadban said that he
and others in the GOI are quite concerned about maintaining
the Ministry of Oil (MOO) as a non-politicized ministry in
the next government. Ghadban, a moderate Shi'a who left Ayad
Allawi's party (the Iraqi National List) and is now in the
"kitchen cabinet" of SCIRI's Prime Minister-nominee 'Adil
'Abd al-Mahdi, said that the Fadhila Party's political
takeover of the MOO after former Minister Ibrahim Bahr
al-'Ulum left in January is quite disturbing (ref A). The
arrival of Acting Minister of Oil Hashim al-Hashimi (Fadhila
Party member and Minister of Tourism and Archeology),Ghadban
explained, has generated much resistance from the long-term
senior MOO employees.


3. (C) Ghadban said that many of the Directors General (DGs)
have threatened to resign due to actions by the new minister
and his new senior advisor, ministry outsider Kadhim
al-Yakubi (also a Fadhila member). Yakubi, in Ghadban's
view, does not have the desired expertise or knowledge to run
the ministry (ref B). Ghadban added that he is quite
concerned, for example, over money being siphoned from State
Oil Marketing Organization (SOMO) contracts to the Fadhila
Party via kickback schemes on the sales of crude oil and
refined products. Ghadban called this "a very poor
situation" that would not change until the new government is
in control, and then only if the MOO is not again placed in
Fadhila hands. If the present situation continues into the
next government, he asserted, he will continue to raise his
concerns. Ghadban said he believes that the Minister of Oil
should be above politics and should serve all of Iraq.

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FUTURE OF THE OIL SECTOR -- GHADBAN'S PERSPECTIVE
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4. (C) According to Ghadban, the oil sector in Iraq needs
strong, forward-looking leadership. In addition, he said,
the MOO must be reorganized, a new oil policy must be
implemented, and the Iraqi National Oil Company (INOC) must
be resurrected. Ghadban suggested that INOC should be a
holding company with four regional operating companies -- one
for Kurdistan and one each for the north, central and
southern regions. The companies, he explained, would be
responsible for exploration and production of oil in their
respective regions. He added that these companies also
should be empowered to create subsidiary companies, initiate
production-sharing and service agreements with the private
sector, and be responsible for refining and distribution in
their regions. These companies would be the major engines of
the oil sector in Iraq, he continued, and their operations
would produce revenue to be shared among the regions and the
central government. The regional revenue shares would be
negotiated by the legislature, most likely in the range of
10-15 percent, but could be higher if determined by the
Parliament.


5. (C) Under Ghadban's plan, the regional areas of
operation for the Iraqi regional oil companies would be
determined through negotiations; however, the exact boundary
of the Kurdistan Oil Company should be aligned with the
negotiated borders of Kurdistan. He said that he favors
foreign direct investment (FDI) in the downstream refining,
marketing, and natural gas sectors, as well as in the
upstream production sector. He predicted that, with
sufficient FDI, Iraq could be self-sufficient in oil products

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production and distribution within five to six years.


6. (C) Ghadban said that SOMO should remain the marketing
agent for Iraqi oil but should come under a board of
directors selected from the Ministry of Finance, the Central
Bank of Iraq, the regional oil companies, the Council of
Representatives, and technical experts. Emboffs suggested
that, as the GOI looks at ways to promote foreign investment
in Iraq's oil sector, it should consider ratifying the
Convention on Recognition and Enforcement of Foreign Arbitral
Awards (the New York Convention) to govern disputes. Ghadban
responded that he thought Iraq already accepted the principle
of international arbitration in its agreements but that it is
unclear whether Iraqi law actually recognizes international
dispute settlement.

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FAST ACTION ON PETROLEUM LAW?
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7. (C) Ghadban estimated that the newly elected legislature
would pass a national oil policy and a new petroleum law
during the first six months of the new government. He said
that he has a copy of the new petroleum law in draft, but he
was unwilling to share it as he had not shown it to 'Abd
al-Mahdi. (NOTE: This conversation took place minutes
before the United Iraqi Coalition nominated Ibrahim Ja'fari
rather than 'Abd al-Mahdi for PM. END NOTE.) Ghadban did
say that his draft law includes: the reorganization of MOO
into INOC and regional companies; language for model
contracts; authorization for FDI; and a division of
responsibilities for the oil sector in Iraq. He said that
FDI probably could be initiated in the second half of 2007 if
the right person were selected as the Oil Minister. However,
if the MOO goes to Fadhila, he warned, FDI could be delayed
several years.

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BIOGRAPHIC NOTES
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8. (C) Thamar Ghadban, a moderate Shi'a, was born in 1945 in
Babil, Iraq. He earned both a Bachelor's in Geology and a
Master's in Petroleum Reservoir Engineering from the
University College in London. He was a long-term employee of
the Ministry of Oil, beginning work there in 1973. He served
during the initial CPA period as the Minister of Oil from
April to September 2003 and again in the Iraqi Interim
Government from June 2004 to May 2005. He was elected in
January 2005 to the TNA on the list of Ayad Allawi. He was
a member of the Constitutional Drafting Committee and the
Economic Committee. He is a highly regarded oil expert in
Iraq and in the international oil industry, and he is known
as one of the most effective technocrats in the oil sector.
He has written extensively on the oil reservoirs in Iraq, and
he advocates a steady approach to economic reform in the oil
sector, including market pricing for oil products and FDI.
As Minister of Oil, he closely associated the need for oil
infrastructure protection with successful oil production and
product distribution.

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COMMENT
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9. (C) COMMENT: Ghadban's plan for the future of the Iraqi
oil industry is almost identical to the plan presented by
Minister of Planning and Development Cooperation Bahram Salih
last week. Ref B noted Salih's musing on February 13 that he
might nominate Ghadban immediately to be Minister of Oil.
The possibility that Salih, as one of Jalal Talabani's top
aides, and Ghadban, as one of 'Abd al-Mahdi's, apparently
have coordinated a forward-looking development plan for
Iraq's oil industry might be an encouraging long-term
development. It remains to be seen however, whether either
of these men will have a place in the next government from
which to implement their plans. END COMMENT.
KHALILZAD