IRAQ DPM BARHAM SALIH ON OIL, ICI, AND BUDGET

C O N F I D E N T I A L SECTION 01 OF 03 BAGHDAD 000756

SIPDIS

E.O. 12958: DECL: 03/18/2024
TAGS: EFIN ECON PGOV EPET ETRD IZ
SUBJECT: IRAQ DPM BARHAM SALIH ON OIL, ICI, AND BUDGET

REF: A. A. BAGHDAD 357

B. B. BAGHDAD 636

C. C. BAGHDAD 651

D. D. BAGHDAD 751

Classified By: Economic Minister Counselor Marc Wall for reasons 1.4(b)
and (d)


1. (C) Summary: Deputy Prime Minister Barham Salih expressed
satisfaction with the results of the late February oil
symposium and said that he expects swift cabinet approval of
recommendations to streamline management of the oil sector.
While Oil Minister Shahristani has agreed to the
recommendations, Salih cautioned that Prime Minister Maliki
still has to deal with some politics on this issue. DPM
Salih said that the International Compact with Iraq (ICI)
should hold its Ministerial in Baghdad, but a May meeting
does not appear to be feasible. Although he is not concerned
about the ICI structure, DPM Salih is "worried about the
politics" of the ICI. DPM Salih noted that selection of a
chairman for the investment commission has been held hostage
to politics. He indicated that the GoI is ready for the
Dialogue on Economic Cooperation (DEC). On budget issues,
DPM Salih said that the Sons of Iraq (SoI)has enough funds in
the budget, but is concerned that funding for the Tribal
Support Councils was cut. DPM Salih said that he will
discuss the financing for GE generators with Central Bank of
Iraq (CBI) Governor Sinan al-Shibibi and ask the CBI to
purchase Iraqi Treasury bills that will finance the deal.
End summary.

DPM Salih: Maximize Oil Production in Shortest Time
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2. (C) DPM Barham Salih on March 16 told EMIN that "almost
everyone" at the oil symposium held in late February had
agreed that the current oil policy is a "complete failure,"
and that the national objective now is to maximize oil
production within the shortest period of time. DPM Salih
noted that Oil Minister Shahristani agreed to and signed the
symposium's recommendations document, although he indicated,
without elaboration, that some recommendations had been
"toned down." The symposium concluded that Iraq cannot rely
on just Iraqi expertise and that the current management of
the oil sector prevents Iraq from fully exploiting its oil
resources. Salih added that the GoI must review its current
stance against entering into production sharing agreements
with foreign oil companies. He said that a process for
direct contracting with foreign oil companies would be
established, and that this would run in parallel with the
existing bid rounds being run by the Oil Ministry.


3. (C) Members of Parliament's Oil and Gas Committee are,
according to Salih, very positive on the symposium's
recommendations as well. Salih commented that even the Prime
Minister agrees that current oil policy is a "terrible
disaster" and wants to work with DPM Salih to attract foreign
investment. DPM Salih said he will be reaching out to
foreign oil companies, and that the recommendations document
now provides him with political cover to proceed. He
cautioned that the PM still has to deal with some politics on
this issue. (Comment: In a separate meeting on March 16, PM
Advisor Thamir Ghadhban told us that the document containing
the symposium's recommendations was almost final and would be
taken up by the Council of Ministers (CoM) on either March 17
or March 24. (Note: This was not finalized on March 17. End
Note.) Ghadhban declined to provide us with a copy of the
planned recommendations prior to CoM deliberations. Further,
in another meeting on March 16, the Deputy Chairman of the
National Investment Commission (NIC) told us he had just
QNational Investment Commission (NIC) told us he had just
returned from the Oil Ministry (MoO)and was pleasantly
surprised to learn that, for the first time, the MoO was
seeking NIC assistance in attracting foreign investors to
invest in refinery and other oil sector projects. End
Comment.)


4. (C) Looking at other means to increase oil exports in the
medium term, Salih said the Kurdistan Region has the
potential to produce 200,000 barrels per day and the GoI
needs to look at the big picture and get beyond the "petty
disputes" over Kurdistan oil contracts. Discussing practical
measures is necessary right now, and the government "needs to
do the politics" to resolve this problem.

ICI: Hold it in Baghdad
--------------


5. (C) The International Compact with Iraq (ICI) should hold
its annual Ministerial in Baghdad, but the notional timeframe
of May 2009 is now "too tight," said DPM Salih. Although he
agreed that the ICI benchmarks should be reviewed, DPM Salih
expressed no concern about the ICI structure. Instead, he
said he is "worried about the politics" of the ICI: some in

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the GoI believe that the ICI, along with other international
agreements, is an infringement on Iraq's sovereignty;
according to Salih, the PM himself was not entirely happy
with the ICI. DPM Salih claimed that moving the ICI process
forward would require "really heavy lifting." Salih said
that he will "have to get the PM on board," and will inform
the EMIN after discussing the ICI with PM Maliki.


6. (C) DPM Salih said that the recent drop in oil prices will
reinforce Iraq's need for donor assistance and help his
efforts to win full GOI support for the ICI. He added that
holding the meeting in Baghdad is symbolically and
politically important, which would help the ICI gain momentum
and suggested that visiting foreign ministers could fly in
and out of Baghdad on the same day for the Ministerial. DPM
Salih said that he will discuss the ICI with UNAMI SRSG
Staffan De Mistura soon.

Investment: NIC and the DEC
--------------


7. (C) On finding a chairman for the National Investment
Commission (NIC),DPM Salih said that the PM on three
occasions agreed to a candidate, but in each case "politics"
had intervened. He said that Sami al-Araji, Deputy Minister
of Industry and Minerals, is still in the running, but that
it is still up in the air. (Note: We have since heard that
on March 18 the Prime Minister decided to nominate Araji for
the position. He will take up the post on an acting basis
once formally nominated by the Council of Ministers. He will
also need Council of Representatives approval for the
position. See reftel A. End Note.)


8. (C) DPM Salih reinforced his interest in holding a
bilateral Dialogue on Economic Cooperation (DEC) in Baghdad
as soon as possible. He said that the GoI is ready, and
needs only four to five weeks advance notice to prepare. He
reiterated his hope that a business forum be held in
association with the DEC. EMIN noted that once key U.S.
officials are confirmed, the USG can discuss the DEC in
detail.


9. (C) When EMIN inquired about the status of GOI efforts to
ratify the OPIC Incentive Agreement and the Trade and
Investment Framework Agreement (TIFA) both signed in 2005,
DPM Salih said that he would look into these and provide a
response.

Budget: Sons of Iraq and GE financing
--------------


10. (C) When asked about the USD 100 million reportedly
allocated in the 2009 budget for the Sons of Iraq (SoI),DPM
Salih said that he was concerned not about funding for the
SoI, but about the Council of Representatives' decision to
remove funding for the Tribal Support Councils. If you cut
the financing of the councils, DPM Salih said, you strike at
the SoI. (Comment: Many outside the Da'wa Party consider
Tribal Support Councils to be a Maliki stratagem for
increasing his influence in the provinces. End Comment.)
DPM Salih commented that there is enough room in the budget
for SoI. (Comment: Emboffs have heard separately that the
Council of Ministers on March 17 authorized the transfer of
sufficient funds to the Ministry of Interior to pay for SoI
salaries. See septel. End Comment.)


11. (C) On financing for the contracts signed late last year
to purchase new generators from GE and Siemens, DPM Salih
said that he will meet with CBI Governor Sinan al-Shibibi to
discuss this issue. He said that the CBI has to accept
purchasing Iraqi Treasury bills that will finance the deal.
He stressed that the CBI "must buy" these Treasury bills
because the CBI Governor "needs to understand" that
purchasing them is an investment in Iraq's infrastructure.
Qpurchasing them is an investment in Iraq's infrastructure.
(Comment: The Minister of Finance has also proposed an
alternate plan to fund these contracts through a transfer of
capital funds from other ministries and provinces to the
Ministry of Electricity. This would not reduce the overall
capital budget, but be merely a reallocation of funds. See
reftel D. End Comment.)

WTO: Status of New Customs Legislation
--------------


12. (C) EMIN noted the importance of moving forward with
Iraq's WTO accession and expressed concern about the
compatibility of proposed new customs legislation with WTO
standards (reftel B). Salih said that either the Ministry
of Finance or the Ministry of Trade is currently working on
the new customs legislation, but that his office has not seen
it yet.

SFA: JCC Meeting in Late March

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13. (C) On the Strategic Framework Agreement, DPM Salih said
that he is preparing to write an editorial on the
significance of the SFA. He added that the prosperity of
Iraq depends on the bilateral relationship. DPM Salih said
he wants to hold the next meeting of the Joint Coordinating
Committee on Economics and Energy at the end of March, and
hopes for substantial results.
BUTENIS