MOPDC MINISTER BABAN ON MATCHING, BUDGET

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002712

SIPDIS

E.O. 12958: DECL: 08/21/2018
TAGS: ECON EFIN EPET PGOV IZ
SUBJECT: MOPDC MINISTER BABAN ON MATCHING, BUDGET
EXECUTION, HYDROCARBONS

Classified By: A/DCM Charles P. Ries for reasons 1.4(b) and (d)


1. (C) Summary: At an August 18 meeting with Ambassador Ries
and Ambassador Wall (CETI),Minister of Planning and
Development Cooperation (MoPDC) Ali Baban said that DPM
Barham Salih was circulating a draft letter related to the
"commitment to obligate funds" for GOI ministerial approval.
Baban outlined his own plan to devolve spending authority to
line ministers and provincial governors so that they will be
able to go directly to the Ministry of Finance without an
MoPDC chop -- expediting the budget execution process. On
hydrocarbons, Baban noted that at an early August Council of
Ministers meeting, Minister of Oil Shahristani presented a
plan for service contract-based proposals that "were very
conservative and would not support the major increase in
production that the country needed to finance its development
needs," said Baban. Baban added noted that PM Maliki, at
this meeting, had opined that GoI should "ignore" the issue
of Hydrocarbons legislation for now, since the antagonism
with the Kurdish region would impede passage of the law in
any case. End summary.

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No Objection to "Dollar for dollar" Matching letter
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2. (C) Baban told Amb. Ries and Amb. Wall that earlier that
afternoon DPM Salih had presented a draft of a letter that he
proposed to send to Ambassador Crocker related to the
"commitment to obligate funds" to match on a dollar for
dollar basis US assistance funding, as required by section
1402 of the 2008 GWOT supplemental. Baban said there was
considerable confusion in the Council of Ministers Economic
Committee meeting as to what the GoI was committing itself.
Ambassador Ries explained that the purpose is to clarify that
the GoI was committed to financing the greater share of its
own development, and to at least match U.S. contributions in
key functions. Baban replied that the Economic Committee did
not object to the letter as presented by the DPM, although
key ministers (Ministry of Finance's (MoF) Jabr, Ministry of
Oil's (MoO) Shahristani and Ministry of Energy's Kareem
Walid) were traveling. Present in the meeting were Minister
of Trade Sudani, Board of Supreme Audit head Abdul Basit, the
PM's Economic Adviser Ghadban, and himself. EMIN told Baban
that he had briefed MoF Jabr on the letter the previous day,
and that Jabr had agreed to support it.

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MoPDC: Getting out of Budget Execution Line of Fire
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3. (C) Baban told us that he planned to remove the MoPDC as a
hurdle in the budget execution process. "Within a few days"
the Government would adopt a new package that would provide
more authority to Ministers to release funds for capital
projects without approval by the MoPDC. Ministers and
Governors will be able to go directly to the Ministry of
Finance without a MoPDC chop. The MoPDC would remain in the
budget formulation process and would be increasing its
attention to checks and audits afterwards. Baban said that
the change, which he said would be highly significant in the
effort to increase the rate of budget execution, would "open
the door a little bit to chaos and corruption" -- but it was
a calculated risk. He noted that budget execution in 2008
was considerably ahead of 2007 already, with capital budget
implementation at 40 percent through the end of July. In
addition, work is well advanced on the 2009 budget proposal.
Baban said that the size of the 2009 budget would depend on
the price of oil at the end of the year, as it would be
"pegged to revenues."


4. (C) Baban mentioned that he had objected to the
distribution of the 2008 supplemental budget and in fact had
been one of the "Gang of Three" Ministers that had refused to
sign the budget proposal (by the Council of Ministers (CoM))
to the Council of Representatives. He felt the budget had
far too much operating expenditures and not enough capital.
He predicted the same debate will be joined for the 2009
regular budget.

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Shahristani's TSA proposals do not receive CoM backing
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5. (C) In a chatty mood, Baban also told us about the early
August CoM meeting which considered MoO Shahristani's plans
for oil and gas development. He said that a majority of
ministers - including Baban and MoF Jabr - had considered
Shahristani's proposals not ambitious enough, "very limited."
Baban said that Shahristani's service contract-based
proposals were very conservative and would not support the
major increase in production that the country needed to

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finance its development needs. Shahristani "didn't even
mention" the hydrocarbons framework law (HCL),said Baban,
while the Prime Minister offered his advice the GoI should
"ignore" the HCL for now since the antagonism with the
Kurdish region would impede passage of the law in any case.
PM Maliki advocated proceeding, as Shahristani's service
contract approach would do, on the basis of the Saddam era
legislative framework. In the end, however, Maliki postponed
hydrocarbon decisions to a subsequent meeting.


6. (C) As to his own views, Baban admitted he now favored
offering production sharing agreements (PSA's) to
international oil companies. Iraq needs the higher
technology that oil companies can bring to accelerate oil
production. What kind of contract used should depend on the
characteristics of the field, he said. If the field is known
and simple, service contracts may be appropriate. But for
complex fields and new exploration, PSA's may be better. He
admitted this was a decided change from his attitude on PSA's
in 2007 (when he had excoriated them) and stemmed from his
conviction that the MoO was moving far too slowly.
Shahristani, he said, "admires the Iranian contract model."


7. (C) Comment: Baban's changes in views, about the added
value of MoPDC in budget execution and the value of PSA's,
were striking. Last year the former communist was an avid
central planner and control advocate, as well as a resource
nationalist. Over the past six months, however, he has been
reorienting the MoPDC to serve as the principal coordinating
institution for donor cooperation. Whether his more liberal
views are related to this aspiration is as yet not clear.

BUTENIS