OIL MINISTER SHAHRISTANI TARGET OF CRITICISM

S E C R E T SECTION 01 OF 02 BAGHDAD 000148 SIPDIS DOE FOR PERSON/C. DAY E.O. 12958: DECL: 01/09/2019 TAGS: ENRG EPET PGOV PREL PINR IR IZ SUBJECT: OIL MINISTER SHAHRISTANI TARGET OF CRITICISM REF: A. BAGHDAD 84 ¶B. BAGHDAD 45 Classified By: EMIN Ambassador Marc Wall, reasons 1.4(b,d) ¶1. (S) Summary: In a January 15 meeting with Department of Energy (DOE) Embassy representatives, a senior Ministry of Oil (MoO) official said that on January 12 Deputy Prime Minister Barham Saleh's special investigative committee (ref B) presented its initial findings to Saleh and other senior GOI officials, including Oil Minister Hussain Al-Shahristani. The report indirectly criticized Shahristani's leadership and Ministry policy. During the same January 12 meeting, Prime Ministerial Advisor Thamir Ghadban reportedly said that, according to Iraqi law, in addition to approval from the Council of Ministers (COM),the Council of Representatives (COR) had to approve the China National Petroleum Corporation (CNPC) contract, Shell Heads of Agreement, and any contracts resulting from the first bid round. Thereafter in a January 13 meeting with Ministry staff who were on Saleh's committee, Shahristani chastised the staff for criticizing him and Ministry policy in the special report. Also in the January 13 meeting, Shahristani asked members of the committee what the fall-out might be from cancelling the first bid round. Additionally, the senior official said that Grand Ayatollah Sayyid Ali Husaini Al-Sistani recently refused to meet with Shahristani. End summary. Special Report on Oil Production -------------- ¶2. (S) In a January 15 meeting with the Embassy's DOE Energy Attache, Energy Officer, and Energy Advisor, a senior MoO official said that the special committee that Deputy PM Barham Saleh formed at the request of Prime Minister Maliki to investigate Iraq's falling oil production delivered its initial report to Saleh on January 12. The report criticized the Ministry's senior leadership and policies and found that MoO policies and procedures need to be clearer in areas such as field management, drilling, water injection, the bidding process, and other operating practices. The report urged that more authority be delegated to MoO's Directors General and operating companies in order to provide them with the flexibility they need to increase oil production. ¶3. (S) The report concluded that the Ministry should start a "crash program" in the next two months, which could potentially increase crude oil production by 400,000 - 500,000 barrels over the next two years. However, the senior MoO official mentioned that the committee had expressed concerns over how short term production gains might affect the terms and conditions of the first bid round contracts for which companies are currently preparing bids. (Comment: Embassy energy experts are skeptical that an increase of this magnitude is possible in two years. End comment.) ¶4. (S) Former Minister of Oil Bahr Al Uloom signed the report, but Thamir Ghadban declined to sign despite agreeing with the findings. Minister of Planning Ali Ghalib Baban criticized the Ministry of Oil during the January 12 meeting, but, surprisingly, Minister of Finance Bayan Jabr supported Shahristani. A senior GOI official subsequently told us that Shahristani had offered to tender his resignation if Maliki felt he was not doing a good job. ¶5. (S) Also in the January 12 meeting with Saleh, Thamir reportedly said that there was no legal authority for the China National Petroleum Corporation deal, Shell Heads of Agreement, or first bid round because the COR had not approved these actions. (Note: Embassy is seeking to meet with both Thamir Ghadban and DPM Saleh in the coming days to, Qwith both Thamir Ghadban and DPM Saleh in the coming days to, inter alia, discuss the oil sector report and we will seek to clarify these legal questions.) Shahristani Chastises Staff -------------- ¶6. (S) The senior MoO Official said that on January 13, Shahristani gathered the Ministry's staff who were on the committee and reprimanded them for criticizing his leadership and Ministry policy in the report. Shahristani argued that the report was one-sided and painted a negative picture in order to provide his enemies with ammunition to push him out of the Ministry. During the meeting, Deputy Minister of Oil Abd Qutub said the report added nothing new regarding technical issues. Ironically, in a January 19 meeting, another high-ranking MoO official told Embassy officials that Shahristani had been the instigator of Saleh's committee. According to the offical, Shahristani had told the Prime BAGHDAD 00000148 002 OF 002 Minister that, if Maliki did not believe the Ministry of Oil was doing everything possible to maintain oil production, then he should form a committee to investigate. ¶7. (S) Also in the January 13 meeting, Shahristani solicited thoughts on how much fallout could be expected if the Ministry withdrew the invitations to international oil companies (IOCs) in the first bid round. Committee members emphasized the importance of moving forward and that significant fallout that could result from cancelling the bid round - especially after having cancelled negotiations for short-term technical service contracts (TSCs) for major IOCs. Separately, Shahristani has recently begun criticizing the Shell gas Heads of Agreement, according to the senior MoO official. (Comment: Shahristani spoke strongly in support of the Shell gas deal as recently as January 4 in a meeting with Embassy officials (ref A). End comment.) ¶8. (S) Note: The June 2008 short-term TSCs were cancelled around September 2008 and the bid round for long-term contracts on eight oil and gas fields was launched in London on October 13 (commonly called the first bid round). Shahristani has scheduled a meeting with interested IOCs on February 12-14 in Istanbul to discuss the first bid round's contract terms and procedures. Bids are due from companies in March. End note. Grand Ayatollah Refuses Meeting -------------- ¶9. (S) The senior official said that Shahristani recently traveled to Najaf to meet with Grand Ayatollah Sistani, but Sistani refused to see him. Reportedly, Shahristani was in tears when telling MoO staff about the incident. (Comment: Sistani's refusal to meet Shahristani is especially significant since Sistani has provided a large part of Shahristani's political backing. End comment.) CROCKER