UPDATE: OIL MINISTER ON HYDROCARBON FRAMEWORK LAW

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003139 SIPDIS SIPDIS STATE FOR NEA/I AND EEB FOR GALLOGLY USDOE FOR ALAN NEGBURG E.O. 12958: DECL: 09/18/2017 TAGS: EPET ECON ENRGPREL IZ KU SUBJECT: UPDATE: OIL MINISTER ON HYDROCARBON FRAMEWORK LAW Classified By: Classified by: ECONOMIC MINISTER CHARLES P. RIES FOR REA SONS 1.4 (b) and (d) SUMMARY 1. (C) Iraq's Oil Minister Husayn al-Shahristani says the votes are there in the Council of Representatives to pass the February 23 version of the Hydrocarbon Framework Law if the Kurds are pressed to follow through. Agreement on a revenue sharing formula would be more difficult, however. Al-Shahristani has short and long term plans for exporting natural gas to Syria, which may give the GoI more leverage in getting the Syrians to control their porous border. Finally, the Minister said he continues to work on securing fuel supplies from Kuwait and that kerosene stocks for the winter heating season are acceptable in the north and in the south, deliveries for the Baghdad area are now coming in. END SUMMARY. ¶2. (C) Minister for Economic Affairs (EMIN) met with Iraqi Minister of Oil Husayn al- Shahristani at the residence of the Prime Minister on September 14. EMIN requested updates on the hydrocarbon framework legislation (HFL); Iraq's plans for natural gas development; and on the status of fuel imports from Kuwait. ¶3. (C) On the status of the HFL, Shahristani said a September 13 article by James Glanz in the New York Times (which suggested that the political consensus needed to pass the legislation was faltering) was misinformed. In fact, he said all parties had agreed to move forward on the basis of the February 2007 draft legislation which "in substance are strong" although he conceded their legal formatting might be weak. Shahristani then described his efforts to count parliamentary votes. The head of the Kurdish coalition in the Council of Representatives (CoR) told Shahristani personally that his members would support passage of the February draft. Vice President Tariq al-Hashimi and some of his bloc of the Sunni Tawafuq party now indicate would also support the passage of the law, but the Oil Minister said it was unclear if this would represent a majority of Tawafuq. Most of the members of the Shi'a United Iraqi Alliance would support the law, while the Sadrists would not. Allawi's supporters in Iraqiya were split. All in all, Shahristani said he saw a comfortable majority that would support the law, if the Kurds follow through. This final caveat came with two points. First, Shahristani said the Kurds may delay by pointing out (correctly) that the four appendices to the draft had not been formally approved by the Cabinet. Shahristani noted that the appendices had, however, been approved by the Cabinet's "energy committee," so this argument should be easily dealt with. Second, Shahristani said the U.S. Embassy in Baghdad had previously played a significant role in pushing the Kurds to engage and compromise on the HFL, but he asserted that less of that is seen now and so the Kurds are interpreting that as a loss of U.S. interest. EMIN noted that we had made several recent public statements about KRG acreage awards that should confirm to the Kurds our continuing interest in the national law to clear up "legal uncertanty", most recently when Hunt Oil had signed its contract with the KRG. ¶4. (C) Shahristani told EMIN that the Kurdish first deputy speaker of the CoR was resistant to bringing forward the draft law without an explicit agreement from Mastord Burzani. Another stumbling block could be protests by oil unionists in the Basrah area (which Shahristani said were being funded by "British Trotskyites" and by Persian Gulf neighbors and oil expert competitors like Kuwait and the United Arab Emirates, who did not want to see any agreement or political reconciliation). But a confident Shahristani said these efforts would be ineffectual, and that if everything he reported holds together, the government would be ready to move forward immediately. Shahristani said he'd speak to President Talabani to ask his assistance with the Kurdish bloc, and if this was combined with U.S. pressure on the Kurds then the law could be passed in a matter of weeks. ¶5. (C) When asked, Shahristani admitted the revenue sharing law connected to the HFL package could be more difficult. The basic draft was accepted by all, but the unresolved point remained the percentage the federal government would get off the top (i.e. before allocation to the regions and governorates) for national or "stretegic" investments. A cabinet majority had emerged at 10 percent, but this had never been voted on. The KRG wants a limit of 5 percent, he admitted, while others would like more than 10 percent. If the consensus at 10 percent could be regained at the Cabinet table, said Shahristani, "then we can finish the deal." BAGHDAD 00003139 002 OF 002 ¶6. (C) Moving onto natural gas development plans, Shahristani noted that most of Iraq's flared gas is found in the south; he said this was the focus of the of the Gas Master Plan which he had described at the Dubai Petroleum Conference last week. Violence in the central part of Iraq currently makes fields there too dangerous to exploit. In the West, the Akkas field is in a position to supply gas to Syria. Iraq had agreed in principle to supply Syria with 50 million standard cubic feet per day (mmscf/d) from Akkas in the short term, via a short 50 km pipeline to Syrian gas oil seperation facility just over the border. This would hold down costs of initial field development. Shhristani also noted net supply up the Syrians with gas would give the GoI some leverage for help in securing the porous border, since "we can just turn off the tap" if the GoI is sumsequently unhappy with SARG performance. ¶7. (C) In addition, Shahristani said with the right investments, Akkas output could be easily and quickly boosted to 500, 10 times current levels. The full-field development could meet with western Anbar power generation needs, supply Syria and from there to Turkey and Europe via a swap with the Arab Gas Pipeline. Shahristani said he was intending to tender field development to a western firm via service contract by early next year, with or without passage of the HFL. In any case, Shahristani said, a strong energy relationship with Europe "is a top priority for us." ¶8. (C) Finally, on fuel supplies from Kuwait, Shahristani said he had met earlier in the week at the OPEC meeting in Vienna with the Acting Kuwaiti oil minister. He complained to the Kuwaiti that Iraq had paid Kuwait what it had been owed and more in an effort to get fuel moving again. The Kuwaiti expressed surprise, and promised to look into the matter. Shahristani said he'd be sending the Kuwaiti a letter next week to remind him of the state of play. EMIN said that the U.S. Embassy in Kuwait remained fully engaged on the matter. ¶9. (C) Shahristanti said that money from Kuwaiti salafists was flowing to insurgents in Anbar. KPC has imposed new conditions for fuel deliveries, such as requiring fuel-carrying trucks across from Kuwait into Iraq within three days of loading -- something Shahristani has no control over. Ambassador Ries noted that ARCENT Kuwait had agreed to ensure the border is opened to minority diesel shipments and that it could guarantee the crossing of 45 trucks per day. ¶10. (C) On kerosene supplies for the winter heating season, Shahristani said that areas south of Baghdad are in good shape, as are areas in the North (but he said in Kurdistan, the KRG was responsible for ensuring supplies). For areas around Baghdad, the Iranians are finally delivering to al-Kut. They won't deliver to Baghdad because of Security problems. 200 million liters were needed to supply Baghdad, 2 million liters a day were coming in now. BUTENIS