KRG OIL REP SAYS DOORS ARE OPEN TO FOREIGN INVESTMENT

C O N F I D E N T I A L SECTION 01 OF 02 KIRKUK 000094

SIPDIS

SIPDIS

BAGHDAD FOR ECON, POL NCT, FCS, USAID,
IRMO FOR BATES AND CAPLES

E.O. 12958: DECL: 4/21/2016
TAGS: ECON EPET PGOV ENRG PREL IZ NO
SUBJECT: KRG OIL REP SAYS DOORS ARE OPEN TO FOREIGN INVESTMENT

REF: (A) KIRKUK 82; (B) KIRKUK 86

KIRKUK 00000094 001.2 OF 002


CLASSIFIED BY: JBIGUS, PRT LEADER, REO Kirkuk, DoS.
REASON: 1.4 (b),(d)




1. (C) Summary: KRG Erbil Oil & Gas Establishment General
Director Serwan Aziz said that the Iraqi National Government and
the Kurdistan Regional Government in Erbil were handling new oil
contracts in accordance with the new constitution, as if it were
already in place. Aziz also said that when the two KRG
governments merged, they would create a single regional Ministry
of Oil in Erbil. Because the central government "had never
undertaken mineral exploration in the Kurdistan Region," Aziz
concluded the KRG could develop mineral resources without
involvement by the central government. End Summary.

Establishing an Oil Ministry in the KRG
--------------


2. (SBU) KRG Erbil Oil & Gas Establishment (OGE) General
Director Serwan Aziz met April 6 with USAID Representative and
IPAO to discuss oil and mineral development in the Kurdistan
Region. Aziz said that the merged KRG government would include
a new KDP-headed Ministry of Oil in Erbil.


3. (SBU) Aziz said that, until the KRG created an oil ministry,
OGE would manage petroleum and mineral development. Aziz said
the Norwegian government helped set up OGE by providing
training, management counseling, and capacity building. They
were now negotiating an expanded relationship to include
technical assistance.

The Constitution is a Done Deal
--------------


4. (SBU) Aziz said the Kurdistan National Assembly's creation of
OGE enabled the KRG to develop its own resources in accordance
with the Iraqi constitution. Aziz interpreted Article 110 of
the constitution as giving the national Ministry of Oil
administration rights only over wells already producing oil at
the time of Iraq's liberation. Further, it said that the KRG
administered any newly explored wells. The national and
regional governments would "consult" in each case, however.


5. (C) Aziz said that the constitutional framework was easier to
apply to the development of mineral resources. To date, the
central government had not undertaken any mineral exploration.
Therefore, he concluded the KRG could develop mineral resources
without interference from or the need to coordinate with the
central government. When pressed for specifics, he declined to
elaborate, though he did say they had already completed surveys
in some areas.

The Baghdad - KRG Oil Relationship
--------------


6. (SBU) Aziz said coordination between the central and regional
governments took place through a committee, which met to discuss
pending Production Sharing Agreements (PSA's). He said that, as
a member of the committee, the Ministry of Oil in Baghdad
provided counsel on strategic issues related to PSA's, including
OPEC policies and oil exportation, but lacked standing on
project details. Aziz said there was no official liaison office
between the federal and regional governments. (Comment: This
statement may be true in an official sense; in reality, however,
Iraq's President Talibani is deeply engaged in both Kurdish and
national discussions involving a wide range of issues. End
Comment)

Debate over Size, Scope of New Refineries
--------------


7. (C) Aziz said that the national Ministry of Oil had agreed to
build four small refineries in the Kurdistan Region, however,
the KRG was not satisfied with the scope of the projects. Each
refinery (two units each in Erbil and Sulaymaniyah provinces)
would only produce 20,000 bbl/d. Further, they will not have
units to separate the sulfur from the crude oil and gas. Aziz
said OGE was in negotiation with a company called Universal Oil
Products (UOP) for refinery development. Aziz said the region
needed a much larger refinery and a better plan was to build a
250,000 bbl/d refinery in Dahuk.

PSA's And Foreign Investment
--------------


8. (SBU) Aziz said OGE preferred using PSA's as the basis for
partnering with foreign companies because the KRG was capital

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challenged, and furthermore, PSA's helped control corruption in
his view. He said that based on geological surveys OGE had
conducted, the area had been divided into several sectors for
development. A separate PSA would be negotiated for each
section.


9. (SBU) Aziz said that currently no Iraqi companies had the
skilled workforce and experience to succeed in the international
oil industry. He said OGE employed over 80 geologists and
petroleum scientists, enough to survey and assess the resource
capabilities of the region. The next stage of development,
however, had to come from foreign investors and companies.

Comment:
--------------


10. (SBU) The KRGs in Erbil and Sulaymaniyah do not seem to be
coordinating their plans for development of the Kurdistan Region
with each other or, arguably, with Baghdad, though both are
pushing for large refineries and massive foreign investment. End
Comment.
BIGUS