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

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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.)
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