Identifier
Created
Classification
Origin
08BAGHDAD3305
2008-10-14 06:50:00
CONFIDENTIAL
Embassy Baghdad
Cable title:  

IRAQI DPM SALIH ON OIL PRODUCTION AND OIL MINISTER

Tags:  EPET ENRG EINV PGOV PREL KU IZ 
pdf how-to read a cable
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RR RUEHBC RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3305 2880650
ZNY CCCCC ZZH
R 140650Z OCT 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 9930
INFO RUCNRAQ/IRAQ COLLECTIVE
RHEBAAA/USDOE WASHDC
C O N F I D E N T I A L BAGHDAD 003305 

SIPDIS

E.O. 12958: DECL: 10/14/2018
TAGS: EPET ENRG EINV PGOV PREL KU IZ
SUBJECT: IRAQI DPM SALIH ON OIL PRODUCTION AND OIL MINISTER

Classified By: EMIN Ambassador Marc Wall, reasons 1.4(b,d)

C O N F I D E N T I A L BAGHDAD 003305

SIPDIS

E.O. 12958: DECL: 10/14/2018
TAGS: EPET ENRG EINV PGOV PREL KU IZ
SUBJECT: IRAQI DPM SALIH ON OIL PRODUCTION AND OIL MINISTER

Classified By: EMIN Ambassador Marc Wall, reasons 1.4(b,d)


1. (C) Summary: In a meeting with EMIN, Deputy Prime
Minister Barham Salih complained bitterly about the
performance of Minister of Oil Shahristani. Salih is worried
by signs that output from the southern oil fields is
declining, although he does not anticipate short-term cash
flow problems. He said he is encouraging central government
and KRG officials to work together to bring output from KRG
fields to market. End summary.


2. (C) At the close of an October 10 meeting with EMIN on
other topics, DPM Barham Salih turned to the issue of oil
production and launched into a strong critique of Minister of
Oil Shahristani's performance. Salih began by expressing
concern about data indicating that oil production from the
southern fields has declined in recent months (Note: GOI
data indicate that average daily production in the south this
month is running at 1.79 million bbls/day, down from a recent
high of 1.92 in August, but still above a low of 1.77 in
April). Salih said he is very troubled not so much by the
implications for GOI cash flow, which he believes there are
adequate reserves to manage, but more because of the
longer-term impact on development: the country needs to
boost its oil revenues to permit expanded investment in
schools and other basic and essential services. Salih said
he had sent a memo to the prime minister expressing concern
about the declining production, and that despite the fact
that he had worded the memo "very gently," it drew a sharp
reaction from Shahristani.


3. (C) Salih said he understands that the fundamental
problem is maintenance of the fields, as well as the impact
of improper water injection management in the reservoirs.
However he believes this is primarily a failure of
management. He claimed some $8 billion had been allocated
for the oil sector (time period not identified); Shahristani
had in the past promised that oil output by the end of 2008
would be 3 million bbls/day. Today it is 2.4 million
bbls/day (based on GOI data). The reason is the failure of
the Oil Ministry to adequately plan for necessary
maintenance. He complained that recent changes in the
Southern Oil Company were a "serious problem." The Oil
Ministry is simply "not up to the task of thinking big and
planning ahead" Salih complained. It ought to be clear to
them that foreign expertise is needed to increase output.
Shahristani "wasted time" with the short-term technical
service agreements earlier this year; he has refused to have
a rational debate about the merits of service agreements
versus production sharing agreements; he takes a
nationalistic approach to the issue, and paints a supposed
"loss" for the international oil companies (i.e., the GOI
decision not to pursue the production sharing agreements that
the oil companies would prefer) as a "win" for Iraq - despite
the fact that the country is still producing much less oil
than planned. Finally, Salih said that PM Maliki now
realizes that the Ministry of Oil is not operating as
effectively as he had thought, and is "finally alarmed" by
the situation.


4. (C) Salih admitted that the Kurdistan Regional
Government's decision to move forward quickly with production
sharing agreements with foreign firms had had a negative
impact on the situation, heightening the nationalistic
sentiment that Shahristani is addressing. On the other hand,
at least two of the fields in the KRG (Tawke and Taqtaq) were
nearly ready to begin moving 100,000 bbls/day to market. He
is urging the KRG and central authorities to put aside
politics and find a way to permit this new output to enter
into the Iraqi network. EMIN noted that USG policy is that
the sale and export of oil from KRG fields ought to be
subject to the same terms as other Iraqi oil.


5. (C) Comment: Salih is only one of many critics
Shahristani has among the Iraqi leadership. We have no
confirmation of Salih's implication that PM Maliki now shares
the concern that Shahristani's management of the Oil Ministry
is sufficiently harmful to warrant some sort of action. In
terms of the KRG deals, Shahristani has confirmed that he is
open to negotiating on linking the Tawke field to Iraq's
existing oil export pipelines (septel). But there remain
serious hurdles to this goal. The PSAs promise approximately
50% of the oil to the oil companies. That is well above the
17% of revenue that the KRG receives from oil exports, and
which Shahristani will insist be the arrangement if the KRG
oil is exported through the national network.
CROCKER