D/S KIMMITT AND MINISTER SHAHRISTANI REVIEW

C O N F I D E N T I A L BAGHDAD 003653

SIPDIS

TREASURY FOR DEPUTY SECRETARY KIMMITT

E.O. 12958: DECL: 11/17/2018
TAGS: PREL ECON EFIN ENRG IZ
SUBJECT: D/S KIMMITT AND MINISTER SHAHRISTANI REVIEW
PROGRESS AT THE MINISTRY OF OIL

Classified By: EMIN - Marc Wall Reason E.O. 12958 1.5 (b,d)


1. (SBU) Summary: On November 1, 2008, Treasury Deputy
Secretary Robert Kimmitt, accompanied by Deputy Assistant
Secretary Andrew Baukol and Treasury Attache Ged Smith, met
with Hussain al-Shahristani, Iraq's Minister of Oil at his
office in the International Zone. A wide range of topics were
discussed, including Letters of Credit, recent bidding for
twenty-year technical service contracts, and Ministry of Oil
progress in executing its capital budget. End Summary.

Opening letters of credit to private banks
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2. (SBU) D/S Kimmitt raised the issue of letters of credit
(L/Cs),noting that private banks would likely be able to
process them more efficiently and reduce the number of L/Cs
returned to the Ministry unexecuted. As the Ministry of
Oil's (MoO) capital program was critically dependent on
imported goods, Kimmitt solicited Shahristani's comments on
the idea to allow private banks to underwrite L/Cs based on a
sliding scale in proportion to their capital. Kimmitt
suggested that the L/C issuance process in Iraq needed
efficiency gains that foreign investors could bring, but that
investors would come to Iraq only if they could have a larger
share of the market. Shahristani was enthusiastic regarding
such a proposition, noting that foreign banks could open
branches in Iraq on their own or through a joint venture. He
wondered, however, whether Iraqi collateral held by private
banks to secure L/Cs would be subject to attachment risk.

Minister upbeat on technical service contracts
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3. (SBU) D/S Kimmitt asked Shahristani about the bidding
process conducted in London for technical service contracts.
Kimmitt noted that he had participated in an investment
conference that day, and that future Iraqi investment
conferences would benefit from progress on the contracts and
hydrocarbons legislation, as well as on provincial elections
and the Status of Forces Agreement. Shahristani was
enthusiastic about his London outreach, saying that 35 major
companies, coming from around the globe (including the U.S.
and Britain),had participated. He claimed that there was
satisfaction with the data packages and the model contract
MoO lawyers had drafted. Shahristani said that there would be
a second round by year-end where agreements would be struck
for additional fields, and this process would continue once a
quarter in 2009 until all 78 discovered fields had been
offered. (Note: Independent feedback from participants was
that cost of participating in the bid round was excessive and
the quality of the
data sub-standard.)

Minister satisfied with capital expenditure program
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4. (SBU) D/S Kimmitt inquired about Shahristani's progress
in the 2008 capital spending program. Shahristani responded
that he had committed over 80 percent of his capital program
for 2008, and that he anticipated that he would fully expend
his resources by year-end. He acknowledged that his figures
include unexecuted L/Cs and does not take into account
carry-over funds from 2007. (Note: Finance Ministry and
Planning Ministry data suggest much lower rates of budget
execution.) Kimmitt asked about the 2.0 million barrel per
day export level that Shahristani had agreed on in the IMF
negotiations in Jordan the previous week. Kimmitt noted that
this seemed to be at odds with representations that more
crude would be supplied to the domestic market. Shahristani
responded that there would be only a marginal need for more
crude for domestic use. Specifically, he noted that almost
all the turbines purchased could burn heavy fuel oil,
something Iraq has in surplus. In addition, the recently
signed Shell contract
would provide flared gas to power new electrical plants in

2009. Finally, MoO engineers have fixed damaged pipelines
from Bayji to Baghdad, which will allow gas to be delivered
to power plants in Baghdad.

CROCKER