Identifier
Created
Classification
Origin
09BAGHDAD651
2009-03-12 14:54:00
CONFIDENTIAL
Embassy Baghdad
Cable title:  

IRAQ CONSIDERS STEPS TO BOOST OIL OUTPUT; EARLY

Tags:  ECON EPET PGOV IZ 
pdf how-to read a cable
VZCZCXRO7684
OO RUEHBC RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0651/01 0711454
ZNY CCCCC ZZH
O 121454Z MAR 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2129
INFO RUCNRAQ/IRAQ COLLECTIVE IMMEDIATE
C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000651 

SIPDIS

E.O. 12958: DECL: 03/12/2019
TAGS: ECON EPET PGOV IZ
SUBJECT: IRAQ CONSIDERS STEPS TO BOOST OIL OUTPUT; EARLY
DEAL ON KURDISH EXPORTS LOOKS LESS LIKELY

REF: A. BAGHDAD 339

B. BAGHDAD 388

Classified By: A/EMIN Michael Dodman for reasons 1.4 b+d

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000651

SIPDIS

E.O. 12958: DECL: 03/12/2019
TAGS: ECON EPET PGOV IZ
SUBJECT: IRAQ CONSIDERS STEPS TO BOOST OIL OUTPUT; EARLY
DEAL ON KURDISH EXPORTS LOOKS LESS LIKELY

REF: A. BAGHDAD 339

B. BAGHDAD 388

Classified By: A/EMIN Michael Dodman for reasons 1.4 b+d


1. (C) Summary: The GOI is considering a number of steps to
improve management of the oil sector and streamline
contracting procedures, all with a view to boosting near-term
output. The steps, including creation of an Oil and Gas
Council led by the PM that would reduce the Oil Ministry's
role, were the outcome of a symposium called earlier this
month by DPM Barham Salih; all were endorsed in PM Maliki's
closing speech at the symposium. The GOI intends to prepare
a package of recommendations within two weeks for cabinet
approval. The PM also wants to open direct talks with a
number of international oil companies as a means of
accelerating IOC activity in Iraq. The Oil Ministry's bid
rounds for contracts with IOCs will continue. Separately,
Oil Minister Shahristani has put a halt to cooperative
efforts between his ministry and the Kurdistan Region,
further delaying an agreement on pricing that would permit
the immediate export of additional crude oil. End summary.

--------------
DPM Salih's symposium generates ideas
to reform oil sector management
--------------


2. (SBU) Deputy PM Barham Salih hosted a symposium on oil in
Baghdad February 27 - March 1. Participants included senior
GOI officials and several dozen invited experts, both Iraqi
expats with long history in the oil sector and international
experts. Oil Minister Shahristani and a large MoO delegation
were active participants. PM Maliki attended the opening and
closing. The conference was arranged at the PM's request to
generate recommendations for steps the GOI could take to
increase oil output and exports in the near term. As
summarized in the PM's final speech, the symposium concluded
that serious problems exist with the current operation and
management of the oil sector, and that immediate steps need
to be taken to introduce technical and organizational
solutions that will boost output, including accelerating the
introduction of international oil firms (IOCs) in Iraq.
(Note: DPM Salih did not invite representatives of the

diplomatic corps to attend the symposium, given its technical
character. However, he did request the participation of a
few USG-funded oil experts. One expert from the USAID-funded
Tatweer program and one expert from the MNF-I Energy Fusion
Cell attended, along with one embassy econoff. The embassy
also provided translation support.)


3. (C) In a meeting on March 11, the head of the PM's
Advisory Council, Thamir Ghadhban (a former Minister of Oil
who was present throughout the symposium),summarized the
steps that are underway to implement the symposium's
conclusions. A committee, headed by the PM, is drafting a
list of formal recommendations for the cabinet to consider.
Thamir expects this process will be complete within two weeks
(note: many of the conference conclusions, and the proposed
remedies, were identified by another committee, chaired by
Thamir, that issued its report in January). Among the steps
Thamir considers likely to be put forward:

-- creation of a Supreme Oil and Gas Council that would
oversee development of the sector. The PM would chair the
Council, which would include several other ministers.
Thamir expects that the Council can be created solely on the
basis of a cabinet decision. (Note: this is not the
"Federal Oil and Gas Council" that would be created on the
basis of the stalled hydrocarbons legislation. That Council
Qbasis of the stalled hydrocarbons legislation. That Council
would also include representatives of the Kurdistan Regional
Government (KRG) and the major provinces that produce oil.
The proposed Supreme Council would not include regional
representatives, and thus would not be a forum for resolving
KRG-GOI differences.)

-- re-creation of the Iraq National Oil Company (INOC). As
envisioned by Thamir, INOC would remove the many individual
state-owned operating companies from under MoO, further
reducing the Minister's role. GOI lawyers are now
investigating whether this step requires an act of parliament
(the INOC law is one of four pieces of legislation that make
up the hydrocarbons package),or can be achieved by a cabinet
decision that simply rescinds the 1987 decree issued by the
Saddam-era Revolutionary Council that moved all of INOC's
operations under the MoO. (Comment: the combined effect of
these two steps would be to turn the MoO into a regulatory
body, with a clear reduction in the power of the Oil
Minister.)

-- increasing authorities. The committee is looking at
several recommendations to give the operating companies

BAGHDAD 00000651 002 OF 002


increased authority to conclude contracts, hire and manage
staff, and bring in more quickly international oil service
companies. The idea is to remove bureaucratic delays that
exist within the MoO.

-- direct approach to IOCs. Thamir said the PM wants to
directly approach a select number of international oil
companies with an offer to bring them into Iraq quickly.
Thamir said that this concept still required considerable
work, with no consensus yet on which firms might be
approached. But the hope is that such a process, separate
from the on-going bid round, could bring IOCs into Iraq
within four months.


4. (C) Thamir confirmed that the GOI remains committed to the
MoO's current bidding rounds for service contracts. In a
separate conversation with EMIN, Oil Minister Shahristani
this week confirmed that work on the first and second bid
rounds remains on track, and that the MoO is working to amend
the model contract to address IOC concerns. Shahristani is
pleased that the symposium endorsed the bid rounds. He made
no reference to the other moves proposed above.

--------------
No hope for quick progress on KRG
--------------


5. (C) By design the symposium avoided the politically
charged issues of cooperation with the KRG on hydrocarbons.
This includes the long-term issue of management of
hydrocarbon resources in the KR, as embodied in the stalled
hydrocarbons legislation, and the more immediate issue of an
agreement on pricing that will permit the export of oil from
producing fields in the KR. But on March 4, just days after
the symposium, Oil Minister Shahristani ordered the MoO's
Northern Oil Company (NOC) to cease all cooperation with the
KRG on oil projects. The immediate issue was a long-running
dispute over equipment at the Khurmala Dome, part of the
large Kirkuk field that the NOC is working but that lies
within the KR; the immediate impact will be to stop work
underway to connect the Khurmala Dome with a KRG-licensed
refinery outside of Erbil. But the move also makes it
increasingly unlikely that an agreement will be reached
between the MoO and KRG that would permit the export of crude
from the Tawke field, which is ready to begin export of
50,000 bpd through a pipeline that is ready to be connected
to the Iraq-Turkey export route, and a potential 30,000 bpd
from the Taq Taq field, which within weeks will be ready to
start moving crude via tanker truck for entry into the export
pipeline.


6. (C) Senior MoO officials assess that there is no
likelihood Shahristani will reverse his hardline stance on
cooperation with the KRG absent an agreement between top KRG
and GOI leadership. In light of the many difficult issues
that divide the KRG and GOI, observers are increasingly
looking ahead to personnel shifts as the best way to overcome
obstacles to oil sector cooperation and to find a practical
solution to the question of exporting the available KR
production. Power sharing talks between the two main Kurdish
parties may result in Barham Salih being named the next KRG
Prime Minister and the next KRG elections (tentatively
scheduled for May) may lead to the departure of KRG Minister
of Natural Resources Ashti Hawram. But given tense relations
between Salih and Shahristani, this alone may not be
sufficient. While PM Maliki has given no sign that he is
willing to remove Shahristani from his position (despite his
concerns about management of the MoO, Shahristani remains an
important political ally of the PM),Shahristani himself has
Qimportant political ally of the PM),Shahristani himself has
recently told ministry staff and USG officials that he
intends to leave government after the December 2009 national
elections.
BUTENIS