AMBASSADOR DISCUSSES HYDROCARBON LAW, FUEL ISSUES

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000301

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/29/2017
TAGS: ECON EPET IZ KJUS KCOR PGOV EINV PBTS
SUBJECT: AMBASSADOR DISCUSSES HYDROCARBON LAW, FUEL ISSUES
WITH DEPUTY PRIME MINISTER AND MINISTER OF OIL

Classified By: AMBASSADOR ZALMAY KHALILZAD, REASONS 1.5 (B) (D)


1. (C REL GBR) Summary. Ambassador Khalilzad met January 28
with Deputy Prime Minister (DPM) Barham Salih, Oil Minister
Shahristani and the PM's oil adviser Thamir Ghadhban to
discuss how to resolve final differences in the draft
Hydrocarbon (HC) Law, as well as fuel supply issues and the
IMF's request that the Government of Iraq comply with its
commitment to increase fuel prices under the Stand-By
Arrangement (SBA). The Ambassador plans to travel to Erbil
this week to work with senior Kurdistan Regional Government
(KRG) officials to reach an agreement that can be presented
to the Council of Ministers (CoM) shortly. End Summary.


2. (C REL GBR) DPM Salih organized the meeting to try to
close any remaining gaps on the HC Law and work out
compromise approaches the Ambassador could use in meetings
with Massoud and Nechirvan Barzani. With Ghadhban leading the
discussion, Salih provided another version of a revised
"Kurdish" draft (which post is having translated and will
send to NEA). The principal unresolved issue is whether the
Federal Oil and Gas Committee (FCOG) has the right to
"object" or "not concur" in regionally initiated contracts
for new fields. The KRG is proposing to add further clauses
about the need for the FCOG to "consult" regional authorities
in the event of an amendment to a contract, whether the FCOG
has the right to pre-determine which variant of the model
contracts a region must follow in negotiating contracts, the
treatment of disputed territories under Article 140 of the
Constitution, and most nettlesome, whether a Kurdish
signature authority on the distribution of revenues should be
provided for in the law. There are a handful of other more
minor points at issue, but essentially the problem areas are
the authority of the FCOG and Kurdish desire to control one
of the six key functions that govern the HC regime ) the
positions of the Minister of Oil, head of INOC, chair of the
FCOG as well as chair of the Central Bank of Iraq, the
Finance Ministry and the Prime Ministership.


3. (C REL GBR) The tone of the discussion revealed continuing
tensions between Shahristani and Barham Salih, but despite
the persistence of some key issues over each iteration of the
draft, the gaps are being closed. When the Ambassador asked
Shahristani directly what would happen if the KRG did not
agree to compromise proposals, Shahristani replied that
negotiations would have to continue. Barham Salih thought
that a compromise could be reached in the next few days and
still submitted to the Council of Ministers within the next
couple of weeks. Ghadhban was skeptical whether the CoM could
approve the draft before the Council of Representative
adjourned, but promised to continue working on the text as a
priority. Ghadhban met January 29 with PM Maliki to brief
him on the state of play of the HC Law. After Shahristani
left the January 28 meeting, Barham Salih expressed some
serious frustration with Shahristani,s attitude, arguing
that sectarian politicians were not committed to the national
good as much as they should be. Despite rumors that
Shahristani is in trouble at the Ministry, the DPM did not
think that Maliki had the resolve to take Shahristani on
directly.

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Other Issues
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Fuel Supplies


4. (C REL GBR) Prior to the discussion of the HC draft,
Shahristani addressed the issue of problems with refined
product fuel supply. He said the issue with imports from
Kuwait came down to his resistance to using a supplier, the
Rahal Company, which had ) according to Iraqi intelligence
) close ties with radical Sunni (Salafist) groups. This
firm was stealing refined product it imported, selling it on
the black market and financing the insurgency with the
proceeds. He acknowledged that Shi'a groups like Fadhila
were also involved in theft of fuel transported by the
Kuwaiti firm but said he would not deal with a company that
funded terrorists.


5. (C REL GBR) Shahristani solicited Coalition Forces'
support in suppressing what he said were al-Qaeda elements
that had mortared the Latifiyah (Kharkh) depot, causing a
fire on January 27 that damaged the loading facilities,
meaning that the ca. 2 million liters of fuel per day the
depot had been supplying to Baghdad were not available.
(Baghdad,s normal daily requirement is around 5 million
liters.) Barham Salih replied that the Bayji Refinery would
be a key in the Baghdad Security Plan for providing fuel and
electricity to Baghdad. He had just been given a revised
electricity plan by the Electricity Minister which promised

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significantly increased supplies of electricity to Baghdad in
the coming weeks. Shahristani said that the problems in
Bayji were driven by corruption and competition between two
rival tribes who had intimidated several hundred MinOil
employees into leaving the area. He said that the Iraqi Army
units in Bayji had been compromised by Sunni insurgent
forces, but now the commander was being replaced and he had
appointed a new Director General for Bayji ) Ali Obeydi )
who was very highly regarded (sources in MinOil have
confirmed Obeydi's reputation for competence and experience).
At Barham Salih's suggestion, a meeting at the PM's office
on Bayji with Coalition Forces representation was organized
for January 29.

IMF


6. (C REL GBR) Shahristani explained he would be leaving
January 31 for Paris for meetings with the IMF on fuel price
increases under the SBA. He said a meeting of the CoM the
previous week had decided against price increases in the run
up to the Baghdad Security Plan, and he would propose
implementing the price increases in April. He asked for U.S.
support for this plan.


7. (C REL GBR) Comment: A compromise on the HC Law indeed
does seem to be within reach, but it has been seemingly so
for the last couple of weeks. PM Maliki's public commitment
to sending a draft forward should help bring the national
government side on board if the KRG shows some movement.
Based on Barham Salih's approach to the discussion above, it
appears the Kurds are also interested in closing the deal on
the framework for a new oil and gas regime that distributes
revenues equitably among Iraq's population. End Comment.
KHALILZAD