Iraq EITI issues latest Annual Report

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

Iraq Extractive Industry Transparency Initiative Issues its latest Annual Report

Iraq Extractive Industry Transparency Initiative (IEITI) issued a few days ago its latest annual report, it is about 2017 and it is the ninth since formation of IEITI. Ernst & Young (EY) was contracted to prepare the report; EY prepared IEITI annual reports for 2011, 2012 and 2016.

The report was issued as per the deadline set by EITI, and was issued a few months after EITI reinstates Iraq status as a compliant country; the suspension took effect in October 2017. Hence and as expected, the report was aimed at addressing issues that led to the suspension and also testifies the concerted efforts by Iraqi authorities, particularly IEITI to attaining that objective.

The annual report was released, for the first time, rather simultaneously in Arabic and English; both texts were posted on IEITI website. The report is long (154 pages) comprises seven section, executive summary, introduction by IEITI’ CEO and four annexes.

In preparing this review I used the English version with crosschecking the Arabic when necessary.

As I did in my reviews of all previous reports, I went thoroughly through the report and made many remarks on its methodology, findings, data, narratives as well as substantive and format maters.

To begin with, most narratives of the current report is repetition, mostly copy & paste, of 2016 report and its “Annex” that was released early 2018 except, of course, the data relating to 2017. The remarks on the current report are detailed and many; they are thematically grouped in the following categories:*

  • One: Weak quality control of data and information;
  • Two: Confused and inconsistent methodology;
  • Three: Data reconciliation;
  • Four: Data discrepancies;
  • Five: Annual comparison;
  • Six: Information and data that need re-checking and correction;
  • Seven: KRG data and information;
  • Eight: The mining sector.

Considering the finding of the review, it becomes necessary to address these findings, check the accuracy and relevance of data and information, revise the entire report and produce a new version.

* Summary of the review was written in Arabic and was circulated within my network of contacts.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

Constitutional Amendments Relating to Petroleum Issues

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

Constitutional Amendments Relating to Petroleum Issues

The “October Uprising” is sustained, vertically and horizontally, causing on one side regrettable loss of human lives, inflicting serious damage and destruction to public, business and private properties among other things, and on the other advancing, forcefully, many legitimate important demands, some of which are accepted by the authorities and political blocks; the constitutional amendments is one of them.

Many actions were quickly taken regarding this particular demand.  To begin with, the protesters themselves designate specific “Tent for Re-Writing the Constitution” located at the central gathering place, i.e., Tahrir Square, and invited experts, legal specialists, academics and others to submit their proposals to and participate in the ongoing debate at the “Tent”.

The House of Representatives (the Parliament) formed special temporary entity, Constitutional Amendments Committee-CAC, which has to finalise its mandate within four months. Again, CAC at the commencement of its duty called for contribution from outside sources and devised different ways and means for that purpose. Similarly, the Office of the Presidency (of the Republic), formed a parallel committee (the Presidency Committee for the Constitutional Amendments- PCCA) for the same purpose; both committees are of official formal nature, causing confusions and doubt on the real intention of the establishment.

Responding to the protesters demand, the proposals by the United Nations Mission in Iraq, UNAMI, include amendment of the Constitution and its readiness to provide technical support in this regard. This was seen, by many commentators, as a step towards “internationalization” of the matter and calls for external interventions; a replica off 2005. On the political platform, a dozen of “political blocks” that has influential position in the prevailing system since 2003 issued a statement supportive to amending the constitution. Finally, other entities, writers and professionals expressed the same urgent demand to re-write the current constitute or even have a completely a new one.

In the light of the above, this article is a modest contribution in this endeavour.

Based on my continuous follow-up and evaluation of actual practices and formal positions that have adopted or relied upon different interpretation of constitutional articles, I am emphatically convinced it is necessary, inevitable and urgent to amend those constitutional articles. This is particularly vital for articles that are related, directly and indirectly, to oil, gas and energy issues, especially those related to upstream petroleum sub-sector, i.e., exploration, development and production, and export of oil.

This is a summary of a more detailed and lengthy report written in Arabic and posted directly, among others, to a significant number of high-level officials at the three branches of government.

At the outset and before proceeding with the contents of this contribution, it is vital to make a few important notes:

First, I used, in preparing this contribution, the text of the constitution published in the Iraqi Official Gazette (Alwaqaee Aliraqiya) No. 4012 on 28/12/2005.

But this text, according to new and apparently many credible assertions, is different from the text that was distributed to and voted on by the Iraqi people in 2005. The published text comprises 144 articles while the circulated text for voting contains 139 articles; the added articles were and still are highly controversial ones.

This raises serious fundamental concerns and problems relating to the legitimacy and constitutionality of the added articles and even the entire text of the officially recognized constitution; what was published in the Official Gazette is, procedurally, the valid constitution, while the text voted by the people is, or should be the mandatory/real constitution!! 15 years of what appears to be a fraudulent and deception should end and end soon, according to good number of observers!

Second, the constitutional amendments are govern by articles 126 and 142, and both give any “region” a veto right, with different qualifications, to reject any amendments even if they are accepted and endorsed by the majority of Iraqi voters; what sort of democracy and federation is this1?.

Moreover, based on previous parliamentary deliberations there is a controversy regarding the validity of article 142 causing serious division among the members of CAC; that prompts CAC, a few days ago, to seek opinion from the Supreme Federal Court to resolve and decide on the matter.

I believe the Court, based on the principle of substantially changing circumstances and availability of compelling new material evidence, would make a decision that facilitates and supports the necessary constitutional amendments; the Court cannot risk to be seen acting against the mounting demand for amending a flawed sovereign law.

Third, I certainly see that there are many articles in the Constitution that must be amended or deleted and new articles could be added, in addition to those relating to petroleum issues. In this regard, it might be necessary to distinguish between “political realism” that is premised on “politics is the art of the possible” (promoted by the political establishment) and the “reality of the intifada” that aims to “make the not-possible possible” (promoted by the “uprising” and substantiated by the swift actions to vote, in the parliament, on laws that are proposed, but shelved, many years ago and measures to combat corruption and kleptocracy): to overcome the mistakes and practices of a decade and a half long with a constitution that becomes imperative to modify or even to replace it.

In this regard, thematic contributions, with specific and consistent proposals, are vital and more effective in the current efforts to amend the Constitution. Hence, professionals, experts and associations, among others, should have their say in the ongoing debate and consultations according to their expertise and area of specialisation; if we do not act now, when will we!!

Fourth; despite the structural importance of the petroleum sector in the Iraqi, imbalance, economy, which is well known to everyone, the term ” petroleum policy” is not mentioned in the constitution, while a long list of many other “policies” have been mentioned and highlighted.

What is even more surprising, and suspicious as well, that petroleum sector was not included in the “exclusive powers of the federal authorities”; this certainly constitutes a very serious flaw, by intention or omission, when preparing and approving the constitution and, thus, must be addressed.

Therefore, due to practical considerations and evidence-based analysis , this contribution aims at presenting some specific proposals exclusively designed to amending articles relating, directly and indirectly, to petroleum  issues (oil and gas), keeping in mind the role of these issues and there, unquestionable, repercussions on the sustainable development of the Iraqi economy.

The following methodology was followed in addressing each constitutional article that I found relevant to the subject matter and thus included in this mission:

First: Specify the article under evaluation in terms of: article number, sub-article(s) and the actual text: in whole or in part;

Second: adopt “text analysis approach” considering the three related factors: purpose of the legislator, the practices and conduct of the implementer (executive) and the sovereignty of the text.

This, by necessity, is the most important, most detailed and longest part in the entire exercise since it deals, basically, with issues relating to basic questions: what, which, why and how.

Third: based on such text-analysis, evidence based and relevant material facts, specific textual proposals are suggested, these can be through amendment or cancellation or substitution or addition of a new article(s).

The results of this work are:

  1. There are nine articles that are directly related to and indirectly impacting petroleum issues; these articles are: 80; 110; 111; 112; 114; 115; 121; 126; 141;
  2. The analysis and evaluation of the above articles resulted in fourteen different proposals.

Details of the analysis, the premises for each proposal and the text of each suggestion are included in a research report written in Arabic, which is circulated widely and reposted on many websites and accessible through many, including, the following:

https://www.akhbaar.org/home/2019/11/265005.html

http://www.tellskuf.com/index.php/mq/86059-nn2411.html

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

Constitutional Amendments Relating to Petroleum Issues

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

Constitutional Amendments Relating to Petroleum Issues

The “October Uprising” is sustained, vertically and horizontally, causing on one side regrettable loss of human lives, inflicting serious damage and destruction to public, business and private properties among other things, and on the other advancing, forcefully, many legitimate important demands, some of which are accepted by the authorities and political blocks; the constitutional amendments is one of them.

Many actions were quickly taken regarding this particular demand.  To begin with, the protesters themselves designate specific “Tent for Re-Writing the Constitution” located at the central gathering place, i.e., Tahrir Square, and invited experts, legal specialists, academics and others to submit their proposals to and participate in the ongoing debate at the “Tent”.

The House of Representatives (the Parliament) formed special temporary entity, Constitutional Amendments Committee-CAC, which has to finalise its mandate within four months. Again, CAC at the commencement of its duty called for contribution from outside sources and devised different ways and means for that purpose. Similarly, the Office of the Presidency (of the Republic), formed a parallel committee (the Presidency Committee for the Constitutional Amendments- PCCA) for the same purpose; both committees are of official formal nature, causing confusions and doubt on the real intention of the establishment.

Responding to the protesters demand, the proposals by the United Nations Mission in Iraq, UNAMI, include amendment of the Constitution and its readiness to provide technical support in this regard. This was seen, by many commentators, as a step towards “internationalization” of the matter and calls for external interventions; a replica off 2005. On the political platform, a dozen of “political blocks” that has influential position in the prevailing system since 2003 issued a statement supportive to amending the constitution. Finally, other entities, writers and professionals expressed the same urgent demand to re-write the current constitute or even have a completely a new one.

In the light of the above, this article is a modest contribution in this endeavour.

Based on my continuous follow-up and evaluation of actual practices and formal positions that have adopted or relied upon different interpretation of constitutional articles, I am emphatically convinced it is necessary, inevitable and urgent to amend those constitutional articles. This is particularly vital for articles that are related, directly and indirectly, to oil, gas and energy issues, especially those related to upstream petroleum sub-sector, i.e., exploration, development and production, and export of oil.

This is a summary of a more detailed and lengthy report written in Arabic and posted directly, among others, to a significant number of high-level officials at the three branches of government.

At the outset and before proceeding with the contents of this contribution, it is vital to make a few important notes:

First, I used, in preparing this contribution, the text of the constitution published in the Iraqi Official Gazette (Alwaqaee Aliraqiya) No. 4012 on 28/12/2005.

But this text, according to new and apparently many credible assertions, is different from the text that was distributed to and voted on by the Iraqi people in 2005. The published text comprises 144 articles while the circulated text for voting contains 139 articles; the added articles were and still are highly controversial ones.

This raises serious fundamental concerns and problems relating to the legitimacy and constitutionality of the added articles and even the entire text of the officially recognized constitution; what was published in the Official Gazette is, procedurally, the valid constitution, while the text voted by the people is, or should be the mandatory/real constitution!! 15 years of what appears to be a fraudulent and deception should end and end soon, according to good number of observers!

Second, the constitutional amendments are govern by articles 126 and 142, and both give any “region” a veto right, with different qualifications, to reject any amendments even if they are accepted and endorsed by the majority of Iraqi voters; what sort of democracy and federation is this1?.

Moreover, based on previous parliamentary deliberations there is a controversy regarding the validity of article 142 causing serious division among the members of CAC; that prompts CAC, a few days ago, to seek opinion from the Supreme Federal Court to resolve and decide on the matter.

I believe the Court, based on the principle of substantially changing circumstances and availability of compelling new material evidence, would make a decision that facilitates and supports the necessary constitutional amendments; the Court cannot risk to be seen acting against the mounting demand for amending a flawed sovereign law.

Third, I certainly see that there are many articles in the Constitution that must be amended or deleted and new articles could be added, in addition to those relating to petroleum issues. In this regard, it might be necessary to distinguish between “political realism” that is premised on “politics is the art of the possible” (promoted by the political establishment) and the “reality of the intifada” that aims to “make the not-possible possible” (promoted by the “uprising” and substantiated by the swift actions to vote, in the parliament, on laws that are proposed, but shelved, many years ago and measures to combat corruption and kleptocracy): to overcome the mistakes and practices of a decade and a half long with a constitution that becomes imperative to modify or even to replace it.

In this regard, thematic contributions, with specific and consistent proposals, are vital and more effective in the current efforts to amend the Constitution. Hence, professionals, experts and associations, among others, should have their say in the ongoing debate and consultations according to their expertise and area of specialisation; if we do not act now, when will we!!

Fourth; despite the structural importance of the petroleum sector in the Iraqi, imbalance, economy, which is well known to everyone, the term ” petroleum policy” is not mentioned in the constitution, while a long list of many other “policies” have been mentioned and highlighted.

What is even more surprising, and suspicious as well, that petroleum sector was not included in the “exclusive powers of the federal authorities”; this certainly constitutes a very serious flaw, by intention or omission, when preparing and approving the constitution and, thus, must be addressed.

Therefore, due to practical considerations and evidence-based analysis , this contribution aims at presenting some specific proposals exclusively designed to amending articles relating, directly and indirectly, to petroleum  issues (oil and gas), keeping in mind the role of these issues and there, unquestionable, repercussions on the sustainable development of the Iraqi economy.

The following methodology was followed in addressing each constitutional article that I found relevant to the subject matter and thus included in this mission:

First: Specify the article under evaluation in terms of: article number, sub-article(s) and the actual text: in whole or in part;

Second: adopt “text analysis approach” considering the three related factors: purpose of the legislator, the practices and conduct of the implementer (executive) and the sovereignty of the text.

This, by necessity, is the most important, most detailed and longest part in the entire exercise since it deals, basically, with issues relating to basic questions: what, which, why and how.

Third: based on such text-analysis, evidence based and relevant material facts, specific textual proposals are suggested, these can be through amendment or cancellation or substitution or addition of a new article(s).

The results of this work are:

  1. There are nine articles that are directly related to and indirectly impacting petroleum issues; these articles are: 80; 110; 111; 112; 114; 115; 121; 126; 141;
  2. The analysis and evaluation of the above articles resulted in fourteen different proposals.

Details of the analysis, the premises for each proposal and the text of each suggestion are included in a research report written in Arabic, which is circulated widely and reposted on many websites and accessible through many, including, the following:

https://www.akhbaar.org/home/2019/11/265005.html

http://www.tellskuf.com/index.php/mq/86059-nn2411.html

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

Jiyad: EITI Restores Iraq’s Compliance Status

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

EITI Restores Iraq’s Compliance Status, with Conditions Attached

The board of the Extractive Industries Transparency Initiative (EITI) decided on 16 October 2019 to reinstates Iraq status as a “compliant” country in conformity with the EITI “Standard” and roles of procedure; this is a welcoming and encouraging development.

The decisions was premised on an extensive thorough and transparent “validation” report done by the international secretariat of EITI, which assessed all what Iraq had taken through series of measures and actions designed specifically to address what had caused the Board to suspend Iraq status with EITI in October 2017.* 

Iraq and, particularly, the Ministry of Oil should be congratulated for reinstating the country’s status with EITI; and, while I fully share the sense of achievement as expressed by the MoO announcement on 20 October 2019, I emphatically call upon the Ministry to do what is needed to sustain and enhance this achievement.

Hence, if this case has any meaning and implications for the future of transparency in Iraq generally and in the extractive industry particularly, a set of reminders are mentioned first followed by a set of suggestions for moving forward.

Important Cautions and Reminders

In order not to lose sight and to avoid the false sense of complacency that is, once again, emanates from “mission accomplished” conviction, it is vital to highlights that EITI Board decision was in fact with qualification and conditional. The Iraqi authorities, the Ministry, the civil society organization among others should be aware of and be informed of the following.

First, according to the final “Scorecard”, Iraq’s overall score was “Meaningful progress”, which means “significant aspects of the requirements have been implemented and the broader objective of the requirements is being fulfilled.”

In other words the “Meaningful progress” is in fact the minimum threshold for maintaining the compliance status. The implications are Iraq should, at the minimum, maintain the “Meaningful progress” and should enhance it significantly towards “Satisfactory progress”. Actually, looking at the Scorecard it is really easy and doable to move from “Meaningful progress” to “Satisfactory progress” or even “Beyond”. But any retreat lower than the “Meaningful progress” could cause, once again, another suspension;

Second, EITI Board decision endorses the “Validation Committee” view that Iraq should take necessary corrective measures and actions. Twelve corrections were specifically mentioned and they are related to “Requirements” 1.2; 1.4; 1.5; 2.6.a; 4.1; 4.5; 4.8; 4.9; 6.1; 7.1; 7.3 and 7.4. Again, these gaps and related corrective measures are primarily directed to those requirements that Iraq scored Meaningful progress aiming at elevating the progress to higher levels i.e., Satisfactory or Beyond. Practically, EITI Board is helping Iraqi authorities by specifying where and how to take corrective actions and thus provide a roadmap for what to do next.

Third, the timeframe for taking these corrective actions and their verification is not open-ended; EITI Board decided that progress in addressing the above mentioned corrective actions will be subject to the next “Validation” due to commence on 16 April 2021. This implies that Iraqi EITI (IEITI) and related authorities has eighteen months to finalize what has to be done on each of these corrective actions to insure Iraq remains a compliant country; the failure to do so would risk a repetition of suspension;

Fourth, the above corrective actions should be understood as they are over and above and additional to other requirements that has scored satisfactory progress. In other words there is no tradeoff between “Meaningful progress” and “Satisfactory progress”; what should be there is progression from “Meaningful progress” to “Satisfactory progress” of “Beyond” for all EITI requirements listed in the scorecard and pursuant to latest EITI Standard adopted in Paris, June 2019.

Planning the Way Forward

The IEITI, chaired by the Minister of Oil, is responsible for and should take all necessary actions and measures through agreed-upon plan regarding the following:

First, IEITI should read carefully the documents prepared and presented by EITI that led to EITI Board decision on 16 October 2019. The purpose is specifically to prepare a checklist on what has to be done, how, when, by whom and implement the planned actions well before 16 April 2021;

Second, make specific suggestions regarding how to improve the quality and coverage of the IEITI Annual Report; the IEITI Work-Plan; the IEITI Activity Report and any other publications by IEITI. All such documents should, preferably, be subject to external quality control before releasing them to the public since the experience of the last ten years indicates that these reports, particularly the annual reports are full of inaccuracies, flaws, copy & paste, wrong data among others;

Third, how to make MSG more proactive, productive and have effective role in particularly the following: drafting the ToRs for the Independent Administrator; preparation process of the annual report through more participatory approach; the coverage of the annual report pursuant to the latest EITI Standard; insure grater and growing impacts and encourage wider societal engagement and connectivity among other;

Fourth, IEITI should be an example of transparency by publishing on its website all what is related to its activities including records of MSG meetings, MSG members attendance verified by their signatures; issues debated and how decisions are taken, etc;

Fifth, insure full and timely data disclosure on every aspects of the extractive industry in the country, particularly by the Ministry and its State Companies operating in the upstream petroleum sector including both volumes and fiscal indicators; such data disclosure should be posted monthly and accessible through IEITI website;

Sixth, grant priority to the development of the human and systemic national efforts of the IEITI National Secretariat and their involvement in particularly the preparation of the annual reports, in the development of the needed database, in providing technical and professional supporting activities, in organizing workshops and activities among others;

Seventh, IEITI suffers from declining external financial support and funding that bound to impact the level and frequency of its activities. That was due largely to the removal of Iraq from the priority screen of NRGI; the suspension of Iraq by EITI in October 2017 and by the significant reduction of the World Bank funding. Luckily, Iraq had concluded recently (or in fact renewed) it is cooperation agreement with Norway’s NORAD’s Oil for Development program and, thus, IEITI is strongly advised to capitalize on this agreement and utilize different opportunities it offers;

Eighth, the entire above are feasible, doable and useful; IEITI should start promptly working on them. It might be relevant for IEITI to convene a well prepared “professional, action oriented workshop” for specialist and expert with proven track record to address the above aiming at drafting the workable and functional roadmap.

 

* I have covered, monitored and written extensively on IEITI since its inception; for background information and analysis on IEITI and that phase onwards, interested readers find more on my contributions, in Arabic and English, that are accessible through the following links:

http://www.iraq-businessnews.com/category/oil-gas/ahmed-mousa-jiyad/

http://www.akhbaar.org/home/search/?sq=Ahmed%20Mousa%20jiyad

http://www.alnoor.se/author.asp?id=7149

 

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

Jiyad: EITI Restores Iraq’s Compliance Status

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

EITI Restores Iraq’s Compliance Status, with Conditions Attached

The board of the Extractive Industries Transparency Initiative (EITI) decided on 16 October 2019 to reinstated Iraq status as a “compliant” country in conformity with the EITI “Standard” and roles of procedure; this is a welcome and encouraging development.

The decisions was premised on an extensive thorough and transparent “validation” report done by the international secretariat of EITI, which assessed all what Iraq had taken through series of measures and actions designed specifically to address what had caused the Board to suspend Iraq status with EITI in October 2017.* 

Iraq and, particularly, the Ministry of Oil should be congratulated for reinstating the country’s status with EITI; and, while I fully share the sense of achievement as expressed by the MoO announcement on 20 October 2019, I emphatically call upon the Ministry to do what is needed to sustain and enhance this achievement.

Hence, if this case has any meaning and implications for the future of transparency in Iraq generally and in the extractive industry particularly, a set of reminders are mentioned first followed by a set of suggestions for moving forward.

Important Cautions and Reminders

In order not to lose sight and to avoid the false sense of complacency that is, once again, emanates from “mission accomplished” conviction, it is vital to highlights that EITI Board decision was in fact with qualification and conditional. The Iraqi authorities, the Ministry, the civil society organization among others should be aware of and be informed of the following.

First, according to the final “Scorecard”, Iraq’s overall score was “Meaningful progress”, which means “significant aspects of the requirements have been implemented and the broader objective of the requirements is being fulfilled.”

In other words the “Meaningful progress” is in fact the minimum threshold for maintaining the compliance status. The implications are Iraq should, at the minimum, maintain the “Meaningful progress” and should enhance it significantly towards “Satisfactory progress”. Actually, looking at the Scorecard it is really easy and doable to move from “Meaningful progress” to “Satisfactory progress” or even “Beyond”. But any retreat lower than the “Meaningful progress” could cause, once again, another suspension;

Second, EITI Board decision endorses the “Validation Committee” view that Iraq should take necessary corrective measures and actions. Twelve corrections were specifically mentioned and they are related to “Requirements” 1.2; 1.4; 1.5; 2.6.a; 4.1; 4.5; 4.8; 4.9; 6.1; 7.1; 7.3 and 7.4. Again, these gaps and related corrective measures are primarily directed to those requirements that Iraq scored Meaningful progress aiming at elevating the progress to higher levels i.e., Satisfactory or Beyond. Practically, EITI Board is helping Iraqi authorities by specifying where and how to take corrective actions and thus provide a roadmap for what to do next.

Third, the timeframe for taking these corrective actions and their verification is not open-ended; EITI Board decided that progress in addressing the above mentioned corrective actions will be subject to the next “Validation” due to commence on 16 April 2021. This implies that Iraqi EITI (IEITI) and related authorities has eighteen months to finalize what has to be done on each of these corrective actions to insure Iraq remains a compliant country; the failure to do so would risk a repetition of suspension;

Fourth, the above corrective actions should be understood as they are over and above and additional to other requirements that has scored satisfactory progress. In other words there is no tradeoff between “Meaningful progress” and “Satisfactory progress”; what should be there is progression from “Meaningful progress” to “Satisfactory progress” of “Beyond” for all EITI requirements listed in the scorecard and pursuant to latest EITI Standard adopted in Paris, June 2019.

Planning the Way Forward

The IEITI, chaired by the Minister of Oil, is responsible for and should take all necessary actions and measures through agreed-upon plan regarding the following:

First, IEITI should read carefully the documents prepared and presented by EITI that led to EITI Board decision on 16 October 2019. The purpose is specifically to prepare a checklist on what has to be done, how, when, by whom and implement the planned actions well before 16 April 2021;

Second, make specific suggestions regarding how to improve the quality and coverage of the IEITI Annual Report; the IEITI Work-Plan; the IEITI Activity Report and any other publications by IEITI. All such documents should, preferably, be subject to external quality control before releasing them to the public since the experience of the last ten years indicates that these reports, particularly the annual reports are full of inaccuracies, flaws, copy & paste, wrong data among others;

Third, how to make MSG more proactive, productive and have effective role in particularly the following: drafting the ToRs for the Independent Administrator; preparation process of the annual report through more participatory approach; the coverage of the annual report pursuant to the latest EITI Standard; insure grater and growing impacts and encourage wider societal engagement and connectivity among other;

Fourth, IEITI should be an example of transparency by publishing on its website all what is related to its activities including records of MSG meetings, MSG members attendance verified by their signatures; issues debated and how decisions are taken, etc;

Fifth, insure full and timely data disclosure on every aspects of the extractive industry in the country, particularly by the Ministry and its State Companies operating in the upstream petroleum sector including both volumes and fiscal indicators; such data disclosure should be posted monthly and accessible through IEITI website;

Sixth, grant priority to the development of the human and systemic national efforts of the IEITI National Secretariat and their involvement in particularly the preparation of the annual reports, in the development of the needed database, in providing technical and professional supporting activities, in organizing workshops and activities among others;

Seventh, IEITI suffers from declining external financial support and funding that bound to impact the level and frequency of its activities. That was due largely to the removal of Iraq from the priority screen of NRGI; the suspension of Iraq by EITI in October 2017 and by the significant reduction of the World Bank funding. Luckily, Iraq had concluded recently (or in fact renewed) it is cooperation agreement with Norway’s NORAD’s Oil for Development program and, thus, IEITI is strongly advised to capitalize on this agreement and utilize different opportunities it offers;

Eighth, the entire above are feasible, doable and useful; IEITI should start promptly working on them. It might be relevant for IEITI to convene a well prepared “professional, action oriented workshop” for specialist and expert with proven track record to address the above aiming at drafting the workable and functional roadmap.

 

* I have covered, monitored and written extensively on IEITI since its inception; for background information and analysis on IEITI and that phase onwards, interested readers find more on my contributions, in Arabic and English, that are accessible through the following links:

https://www.iraq-businessnews.com/category/oil-gas/ahmed-mousa-jiyad/

http://www.akhbaar.org/home/search/?sq=Ahmed%20Mousa%20jiyad

http://www.alnoor.se/author.asp?id=7149

 

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

Transparency in Iraqi Upstream Petroleum Sector

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

Transparency in the Arab Countries’ Upstream Petroleum Sector- Iraq as case study*

While upstream petroleum sector is either dominant or has significant importance in many Arab economies of MENA region, the transparency of the sector is alarmingly lacking; this is manifested by their “formal” association with Extractive Industry Transparency Initiative (EITI), which is extremely limited and their Resource Governance Index (RGI) and Corruption Perception Index (CPI) that are too poor.

This presentation comprises three parts;

The first part addresses, briefly, the essence of transparency and what it entails:

  • Full disclosure & availability of and accessibility to related Data & Information;
  • Openness, answerability, accountability;
  • Multiplicity of involved, reporting or concerned entities;
  • Objective, Independent & Verifiable Indicators;
  • Transparency is not rhetorical claim; it is evidence-based;
  • Reconciliation of data: Materiality, Identifiably, Measurability;
  • Constitutional Premises (ownership) Right and Rights Based Development- RBD

Also, this part provides a selection of most known international entities specialized in the matter; these are EITI, Natural Resource Governance Institute (NRGI), Transparency International (TI), Publish What You Pay (PWYP) and the Fund for Peace. Each of these entities has its distinct methodology, working procedures and publications. In addition to them, this part refers to the IMF’ Fiscal Transparency Code.

 

The second part exhibits charts on the standing of the Arab countries based on the latest available data and information from three international entities: EITI, NRGI-RGI and TI-CPI.

As on September 2019 only Mauritania has “meaningful progress” standing with EITI; Iraq was “suspended” since October 2017 due to “inadequate progress” and Yamen was “suspended” on February 2015 due to “political instability”, then in October 2017, Yemen was “delisted” and, thus, could be invited to reapply to the EITI once conditions were again favourable for implementation.

Obviously, the above manifests extremely poor standing (in number of countries and their status) with EITI.

The NRGI’ RGI measures the quality of resource governance in countries that together produce 82 percent of the world’s oil, 78 percent of its gas and a significant proportion of minerals, including 72 percent of all copper. RGI is the product of 89 country assessments (eight countries were assessed in two sectors), compiled by 150 researchers, using almost 10,000 supporting documents to answer 149 questions.

NRGI’s RGI for 2017 (oil and gas only) covers 89 countries and provides their “Score” on a scale of 100 and “Rank” of 89. RGI 2017 classifies the standing of countries according to their scores into: Good (>74); Satisfactory (60:74); Weak (45:59); Poor (30:44) and Failing (<30).

All the 12 Arab countries covered by RGI scored less than 60 out of 100. Countries with Weak score are Tunisia, Kuwait and Oman. Those scored poorly are Qatar, UAE, Bahrain, Egypt, Iraq, Saudi Arabia, Algeria and Yamen. Finally, Libya scored failing.

TI’ CPI 2018 draws on 13 surveys and expert assessments to measure public sector corruption in 180 countries and territories, giving each a Score from zero (highly corrupt) to 100 (very clean) and their Ranks accordingly.

Syria, Yemen, Sudan, Iraq and Lebanon each scored less than 30; Egypt, Algeria, Kuwait, Tunisia, Morocco, Jordan and Saudi Arabia scored over 30 up to 50; Oman, Qatar and UAE scored over 50 to 70.

Since both RGI and PCI are composite indexes, there is strong correlation between Scores and Ranks: low scores are associated with high rank numbers; high rank number means at the bottom of the list.

In conclusion all the standing of Arab countries is alarmingly very poor and disappointing with EITI, NRGI and TI.

 

The third part of the presentation focuses on Iraq as a case study on transparency through its association and experience with EITI.

Briefly, Government of Iraq (GoI) launched (2007/8) the International Compact with Iraq (ICI) in cooperation with the UN and the WB. ICI specifically calls to, “Establish and implement mechanisms to ensure transparency of petroleum sector flows”.

The government publicly announced its commitment to work with all stakeholder groups at the 4th EITI Global Conference in Doha, Qatar, in February 2009, and then made formal commitment to EITI at the Iraq EITI (IEITI) launching conference on 10-11 January 2010; a month later the country was accepted, by EITI Board, as a Candidate.

The first validation report, prepared by EITI’ International Secretariat- IS staff, endorsed by Adam Smith International- ASI, prompted EITI Board to announce, on 12 December 2012, Iraq as “Compliant” country under EITI rules and process. On 3 April 2013, IEITI organized big event in Baghdad celebrating this achievement by Iraq.

A team from EITI-IS visited Iraq during 1-9 April 2017 and held numerous meetings in Baghdad and, also, in Dubai (UAE); IS Report presents the findings and initial assessment of the data gathering and stakeholder consultations and followed EITI usual and unified “Validation Procedures” and applied the “Validation Guide” in assessing Iraq’s progress with the EITI Standard.

Iraq was found to have inadequate progress in implementing the EITI Standard in October 2017. The country status as “compliant member” was suspended and, according to EITI rules, was given a grace period to rectify the shortcomings to achieve at least “Meaningful” progress on all identified requirements.

Why and what went wrong

The presentation highlights and discussed questions relating to why and what had led to such suspension under the following headlines:

  • “Mission accomplished” and sense of complacency; frequency of MSG meetings and attendance curve
  • Wrong understanding of what “compliant” status really means;
  • Focus on “release on time” not on the quality and contents of the IEITI Annual Reports;
  • IEITI Annual report mostly Copy & Paste; most Parts are prepared by MoO/ MIM officials and full of flaws and inaccuracies;
  • Structure & composition of the MSG: dominated by Government representatives, IOCs not active, CSO lack understanding of Extractive Industry and language;
  • Big Secretariat, weak national capacity contribution and complete reliance on the Administrator;
  • Opposing domestic views: useless/invisible; event-base; abused by authorities and two extreme views (Rosy vs. UN full control!):
  • Surprising passivism on Corruption!!!!!!;
  • IEITI itself is a Black Box
  • Limited impacts that led to diminishing international support and lack of funding e.g., NORAD; NRGI: from “priority country” to “Limited engagement” to only in “RGI”;

What are next and the way forward

In this part, the presentation reviewed responses and actions taken by the Iraqi authorities since the suspension: From the initial “muteness” and “passivism” October -2 November 2018,….., to 4 Nov 2018 alerting article; Committees & changes,  …; February 2019 Baghdad Conference; EITI-IS second validation; EITI Global Conference, Paris- June 2019.

In case of re-instating Iraq “Compliant” status, IEITI still has to take specific necessary measures and actions for real impacts instead of making rhetorical statements; such measures and actions were proposed, justified and discussed during the presentation. The PowerPoint slides are attached herewith.

* Presentation delivered before the 12th Middle East and North Africa Oil & Gas Conference, organized by Target Exploration www.targetexploration.com, Imperial College, London, UK. 18 September 2019. I am very grateful to Target Exploration for sponsoring my participation.

Click here to download the PowerPoint slides presented at the conference.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

Monetization Strategies for Development of Border Oil Fields

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

Monetization Strategies for Joint Development of Border Fields in MENA Region

Many hydrocarbons fields and exploration blocks, with billons barrels of petroleum, straddle sovereign borders (both onshore and offshore) in the Middle East and North Africa- MENA region, present significant development opportunities as well as potentially risk and source of conflict.

So far, they have been mostly source of conflicts, contentious and acrimonious relationship; it’s about time to pursue the other mutually beneficial approach whenever possible and feasible.

The number, prospects and potential of border fields in MENA Region indicate to billions barrels of oil equivalent -BOEs of proven hydrocarbon (oil, gas and condensates) reserves, with more to add through further exploration and technological advancement, generating  billions of cash flows with attractive returns on investment.

Brief examples and as of today’s data and information are the following:

  • Iraq has (24) border oilfields with Iran, Kuwait and Syria;
  • Iran has (23) border fields/blocks with Iraq, Saudi Arabia, Kuwait, Qatar, UAE, Oman and Turkmenistan;
  • Arabian Gulf Region is crowded with too many structures, including Saudi Arabia-Kuwait Neutral Zone (Al-Khafji & Al-Wafra);
  • The Mediterranean: Lebanon vs. Occupied Palestine (Israel); Cyprus vs. Turkey; Egypt vs…..!!
  • Red Sea: Egypt vs, Sudan (Halayib and Shalateen)
  • Other MENA countries…….

Empirical evidence and analytical premises suggest that sovereign border hydrocarbons fields or exploration blocks could be developed either through “competitive” or “collaborative” strategies; the first follows “rule of capture” or “use it before losing it”, while the second adopts “feasibility & optimization”;  the first is harmful to the field, its structure and reservoir(s) while the second adheres to efficiency considerations, prudent natural resource management and international best practices; the first is premised on “sovereign exclusivity” while the second is formulated on “Bi/trilateral inclusivity”; the first is “conflict-prone”  while the second serves “mutuality of interests”; the first is “short-term focused” while the second has “phasic orientation” and finally, from investment vs. net revenue perspectives, the first is “own-risk” while the second is “burden and benefit-sharing”.

What should be highlighted is that collaborative development of a border field could be done through two broad (comprising various versions) distinct modalities with different investment, revenue structures and legal modalities: unitization (mostly trilaterally structured) or joint venture (mostly bilaterally structured).

For this purpose the presentation proposes TELG Approach for monetizing these resources, which basically integrates four fundamental broad spheres of professional knowledge-base and analysis and the needed institutional, managerial and governance setups applicable to the collaborative mode of border fields development in both modalities- unitization and joint venture.

TELG Approach is helpful for unitization requirements of both onshore and offshore across-sovereign borders as well as across contracted areas within each country.

After discussing the essence of cross-border fields exploitation as “Hotelling game”, basic contesting strategies, phases of unitization agreements and elaborate on TELG approach and its requirements, the presentations provides examples on the “ambiguity” of legal provisions on unitization in the Iraqi service contracts, the July 2019 Iraq-Kuwait contract with ERCE and a list of modalities governing UK-Norway unitization of fields.

The presentation ends with call upon Arab related entities such as OAPEC, ESCWA and the Economic and Social Council of the Arab League among others to take necessary and serious measures to address unitization, and request Arab petroleum professionals to produce international best-practice guide and formulate basic model for unitization agreement in efforts to help in efficient exploitation of such natural resources in a prudent and effective way and finally provide Illustrative Hypothetical Case for Unitization Negotiation Game.

This presentation was delivered before the 12th Middle East and North Africa Oil & Gas Conference, organized by Target Exploration at Imperial College, London, UK. 19 September 2019; I am very grateful to Target Exploration for sponsoring my participation.

Click here to download the PowerPoint slides presented at the conference.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

Oil Ministry’s “Odious Contract’ Trap” with ExxonMobil

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

The Ministry of Oil and the “Odious Contract’ Trap” with ExxonMobil’ Consortium

Talks have intensified recently about the continuation of negotiations between the Ministry of Oil (MoO) and ExxonMobil/CNPC consortium that might lead to the signing of a contract for the “South Iraq Integrated Project (SIIP)” at an estimated cost of $53 billion and a duration of 30 years, but no official confirmation or indications on the fundamental contractual provisions that were agreed on and those still pending.

In the light of the available information, material evidence, actual examples, international geopolitical considerations and comparative analysis, a detailed evidence-based research and Report* was done on the project and related negotiation.

The report on SIIP’ possible contract comprises:

  • A necessary introduction and caveat;
  • Political and geopolitical implications of ExxonMobil behavior and its apparent link to the “deep state” based on many evidences that actually and factually had negative consequences on oil projects, for example, in Russia and in Iraq.

In Russia, ExxonMobil caused a delay of almost four years in the development of the Pobeda oil discovery in the Kara Sea when ExxonMobil withdrew, in late 2014, from its deal with Rosneft due to imposing US sanctions on Russia.

Iraq had three bad experiences with this company in recent years. The first, when ExxonMobil negotiated secretly and concluded, against declared government policy, deals with KRG in 2011 soon after the company secured West Qurna 1 contract through first bid round with the federal ministry.

That move led to excluding ExxonMobil from leading Common Seawater Supply Project (CSSP), reduce its Participating Interest in WQ1 and blacklisting it from any upstream project.

The second and third bad experience occurred this year when the company evacuated, unilaterally and without government consent, all its foreign staff from WQ1. All these three incidents caused tremendous damage to Iraqi economic interest.

  • Potential strategic risks, of an enormous scale, on SIIP that could be generate from the growing deterioration of the American-China relations as evidenced from the blacklisting of two major state oil companies, i.e. Zhuhai Zhenrong Corp and Sinopec. US escalating tension against Iran adds further geopolitical risks;
  • Analyses of what would be SIIP contract was premised on what was reported by national and international sources that are originally based on information given by unnamed Iraqi officials. That was due to the absence of clarity and lack of transparency of the ministry regarding essential contractual terms and conditions.

Based on the analyses and findings of the report, I am compelled to clearly alert and strongly, frankly and loudly warn both the Prime Minister and the Minister of Oil of the danger of pushing Iraq into a “trap of an odious contract” and by specifying ten of its most grave risks and disadvantages:

  1. ExxonMobil, as the consortium leader, is granted a monopoly position that allows the company directly controlling all vital oil projects in southern Iraq, and thus the entire national economy, for thirty years;
  2. It poses a multiplicity of major threats to national security and economic interest due to what can be called contractually-connected high strategic and geopolitical risks, since SIIP comprises many critical and vital projects such as Common Seawater Supply project-CSSP (for water injection), pipelines, storage tank-farms, export facilities, gas processing units and two oilfields;
  3. It contravenes the fundamental premises of the Iraqi Constitution because the contract requires “mortgaging/ reserving/ booking” two oilfields, with a combined plateau production of 500kbd, exclusively for the two foreign oil companies, i.e. ExxonMobil and CNPC, for the entire term of the contract- 30 years;
  4. It offers “Profit-Sharing Contract”, which, in reality, represents the monetary side of a “Production Sharing Contracts”, which, is impermissible by the Constitution;
  5. The announced astronomical cost (of $30bilion) increased already by $11billion in less than ten weeks while negotiating!;
  6. It offers all rent (windfall) resulting from oil price increases exclusively to the two foreign companies, nothing for Iraq!;
  7. It prevents SOMO (the only State Oil Marketing Company) from performing its role in marketing crude oil from the “mortgaged” two oilfields; this contravenes established policy, undermines annual state budget laws and weakens almost 50 years of SOMO’s function;
  8. It reduces the “national efforts” in the development of oilfields, thus, contradicting declared Ministry policy, weakens Iraq’s flexibility to comply with OPEC decisions through “swing fields”;
  9. Inconsistent with the regulations for tendering and contracting government projects;
  10. It lacks both transparency and competitiveness.

Therefore, I suggested to the Ministry of Oil not to continue on wasting time and causing further delays: it should officially declare that it is not in Iraq’s economic interest and national security to award SIIP to ExxonMobil-CNPC (and for this matter to any one consortium) and end, immediately, all and any related negotiations.

In the event that the Ministry of Oil and/or the Government insist on going ahead with this Odious Contract with ExxonMobil-CNPC, it becomes inevitable to refer the matter to the Federal Supreme Court to invalidate the contract on the bases of incompatibility with the Constitution; for eradicating the highest interest of the Iraqi people, including future generations (principle of inter-generational equity)  and for returning Iraq to what looks like abhorrent concessions of the, colonial, past.

*A brief of the original Arabic text of the entire report was circulated widely within many networks and was published by and posted on many websites, and accessible on the following links:

الحذر يا وزارة النفط من “فخ العقد البغيض” مع شركة اكسون موبل

https://www.akhbaar.org/home/2019/8/261291.html

http://www.tellskuf.com/index.php/mq/83987-as174.html

http://www.sahat-altahreer.com/?p=49115

Click here to download the full article in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

SOMO Reveals More Important Data

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

SOMO Reveals More Important Data on its Marketing Activities

In my latest article I suggested that the State Oil Marketing Organization (SOMO) disclose details on its regular (term contract) marketing activities in addition to the spot sales.

SOMO posted, promptly, data on its regular oil sales for last May and June. As was the case with the previous discloser, this one is also unprecedented and, moreover, very useful as it sheds more lights on SOMO’s marketing activities.

The disclosed data came through four pdf. tables; each month has two tables- one for crude Basrah Light, while the other is for Basrah Heavy. Each table provides the following data: name of the Vessel/tanker, Quantity of loaded crude (in barrels); Bill/Lading Date; Destination (mostly countries) and names of the international oil buyers (IOBs).

Based on the disclosed data, SOMO exported, during the two months, more than 207 million barrels, 74.3% of which is Basrah Light and 25.7% Basrah Heavy. The comparison for the last ten years shows that Asian and European destinations enhanced their share from Basrah oil at the expense of the Americas. Some 168 tanker trips/shipments were loaded with oil to these regional destinations.

But the four tables provide no oil prices and no generated revenues for any shipments and there are a few missing, but important, items that need attention and could be easily addressed by SOMO.

This article is based on the tabulation and compilation of data from these four tables and other published sources. It will first address crude type and their market-crude destinations by highlighting a dramatic change occurred during the last ten years. Then it discusses the importance of the main importing countries, in each region, during the period. Also, the article emphasizes the importance of such disclosure for transparency in the petroleum sector and finally it ends with a few concluding remarks and suggestions.

Click here to download the full article in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

SOMO Discloses Data on its Spot Sales

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

SOMO Discloses Data on its Spot Sales[1]

In an unprecedented move, SOMO and the Ministry of Oil-MoO disclosed recently detailed data on quantities and revenues of crude oil sold directly through “electronic auction” or “spot trading” to named international oil buyers-IOBs; this occurs after more than 20 months of my constant personal follow-up and communications on the issue.

The disclosure shows that during the period between the start of June 2017 and end of May 2019 total spot sales reached more than 76.4 million barrels-mbs, generating total revenues of more than $4.5 billion, including additional/extra revenues (due to premium over official selling price-OSP) of more than $59.6 million.

Undoubtedly, the background and details of this disclosure testify the importance of this development and render it as valuable precedent that must be commended and maintained, but with improved formalized modality.

Data analysis indicates, on the one hand, the increasing importance of this type of spot trading in generating “additional revenues”; but on the other hand, such temptations of additional short-term gains could lead to negative impact on SOMO’s strategic and marketing positioning in the medium and long terms, which could cause significant erosion in future oil exports and revenues.

Therefore, in the light of the analysis, it was suggested to the concerned authorities to seriously explore the feasibility of establishing an electronic platform for spot sales, within SOMO (SOMO-Spot), which works exclusively in spot sales of the Iraqi crude oil under terms, conditions and mechanisms that adhere strictly to three principles: competitiveness, transparency (of structural-operational governance) and efficiency.

Due to the importance of the topic, this article includes a brief background of the issue; reviews details of the data provided by SOMO; provides some analytical notes and finally proposes a special platform for the sale of Iraqi oil under competitive transparent spot trading modality.

Highlighting and Follow-up Spot Sales Issue- a brief history

I have dealt with this subject in detail using statistics and official data and I had direct contacts with SOMO on the matter. Also I shared my writings (in Arabic and English) within my extended professional network, which comprises a very large number (over 2000) of senior government officials, current and former ministers and parliamentarians, specialists, academics, research centers, civil society organizations, media, oil companies among others. Moreover, my contributions have been, and are usually, posted on many websites, others’ networks and social media channels inside and outside of Iraq.

I raised the issue for the first time at the beginning of September 2017[2]. Then I received a request from the Ministry of Oil to make a presentation on the subject (in addition to my other two papers that were already accepted by the Conference Committee) before the “Iraqi Investment Conference” scheduled, then, to be held in Baghdad on  22-23 October of that year.[3] The conference was not held as it was abruptly canceled under the directives of former Oil Minister, Jabbar Luaibi, without giving reasons (according to official correspondence I received from the Conference’ Preparatory Committee dated 26 October 2017).

The cancellation of the above-mentioned conference seemed to have prompted SOMO to act; they immediately sent official letter inviting me to Baghdad to discuss, with its leadership and senior specialists, what I wrote on the subject. But, for several reasons, I was unable to go and, alternatively, I proposed holding the meeting through Skype facilities. That was done on 12 December 2017, and the session lasted for three hours with spot trading was at the center of the discussed topics, and my emphases on the necessity of providing more details on this new activity by SOMO.[4]

Instead of providing more data and details on spot sales, the Ministry suddenly terminated the publication of the only data, i.e. total revenues from spot sales, in its monthly production and consumption report, from January 2018 onwards (again during Jabbar Luaibi period!!).

That termination and non-action by SOMO prompted me to raise the matter again. That was done through my article of 21 March 2019, which it called on the Ministry and SOMO to provide explanation about these spot sales and their related revenues.[5]

Immediately afterwards, on 23 March, I received a detailed formal letter signed by SOMO’ DG. But that letter did not provide material evidence and did not provide enough or convincing answers to the questions rose in my article. I, on the same day, prepared and posted detailed letter to SOMO’s DG stating exactly what information SOMO was supposed to do for clarifying the status of those sales.

It is worth mentioning in this juncture that the Ministry posted on its website on 25 March a selected “part” of the letter that was sent to me (referred to above) by SOMO.[6]

It took SOMO three months to prepare detailed data on the subject and both SOMO and the Ministry finally yielded by posting the data on their websites on June 23.

SOMO data and what it comprises

The data was prepared by SOMO’s Commercial Financial Commission– CFC and were presented through four tables without any explanatory notes or clarifications.

Table 1 provides details of each crude oil shipments sold through auctions at Dubai Mercantile Exchange-DME during 2017; these details include: the month, buyer/company name, shipment number, date of sale and date of loading, type/brand of crude oil, quantity, price premium (dollars a barrel), the additional realized revenues, actual selling price per barrel and total revenue.

The quantity of crude oil sold amounted to 1.959 million barrels-mbs with total revenues of about $999 million, including additional revenue of about $13.4 million.

Table 2 provides details of crude oil shipments sold through the DME in 2018: the sold crude was more than 7.5 mbs with total revenues of about $465 million including additional revenue of more than $2 million.

Table 3 titled “quantities and deliveries of crude oil shipments that were sold at a price premium and additional revenue during 2017/2018” shows that sold crude reached about 16 mbs with total revenues of about $920 million including additional revenue of more than $7.9 million.

Finally, Table 4 shows “quantities and deliveries of crude oil shipments sold at a price premium and additional revenue during 2019”; by the end of April.

Crude oil reached more than 20 mbs with total revenues of about $1.251 billion comprising additional revenue of over $20.5 million.

In its May report, SOMO presented a table on “quantities and deliveries of crude oil shipments sold at a price premium and additional revenue during May 2019.” The amount of crude oil sold in May was about 13.3 mbs with total revenues of more than $913 million including additional revenue of about $16 million.

Analysis and Assessment of SOMO’s Disclosure

This section highlights the positive aspects of this disclosure, identifies what could reduce or question its credibility that should be addressed and warns against possible danger of shortsightedness that favors short-term financial gains at the expense of the strategic marketing positioning of SOMO and its share in the competitive international oil market in the medium and long terms.

First: an important precedent that establishes necessary requirements and commitments.

Through my continuous monitoring and documenting the activities of and developments in the oil sector and SOMO for more than three decades, I assert this disclosure is very important precedent that deserves appreciation and support. Moreover, this disclosure is instrumental that could help in the following:

  • It constitutes the material basis and minimum threshold for quality, detail and comprehensiveness of data relating to activities of SOMO (and the Ministry of Oil) that must be provided in the future on a monthly basis;
  • The necessity of expanding this disclosure to include not only the spot sales of crude oil, but also the regular monthly sales of crude oil pursuant to the annually concluded “Term Contracts” between SOMO with it clients of international oil buyers-IOBs;
  • This level of disclosure enhances transparency in monitoring of oil export revenues and greatly facilitates verification and data reconciliation to ensure the reliability and accuracy of such data;
  • SOMO data can be considered as example and model to be followed by other national companies affiliated with the Ministry to achieve advanced levels of transparency and oil sector governance. It is worth mentioning here that EITI Standard 2019 adopted at the World Conference of EITI held in Paris last month requires a lot of such detailed information and data disclosure.

Second: The Follow-up and Communication Bear Fruit

When I raised the matter publically (as mentioned above) we did not know the exact volumes and details of spot sale operations. Now and after about two years of follow-up and direct contacts with SOMO,  everyone knows (or can know) that the total of these sales have, between the start of June 2017 and the end of May 2019, exceeded 76.4 mbs, generating total revenues of more than $4.5 billion, including $ 59.6 million of additional revenues- due to price premium.

This means that had the issue was not raised and followed-up, SOMO and the Ministry probably do not disclose these large quantities and huge returns resulting from these spot sales;

This case also shows that individual, professional and objective follow-up, based on official/formal statistics and reliable sources, can encourage (or force) official authorities (in this case SOMO and the Ministry of Oil) to respond and communicate with oil experts and specialists from outside the oil sector.

At the same time, it is vital to ensure the sustainability and continuity of this disclosure and expand it to include all the activities of the oil sector, taking into account the specificity of the sub-sectors of petroleum and various departments of the Ministry.

Third: Transparency Concerns Regarding Direct Spot Trading

Despite the importance of this disclosure and the need for its continuity, it is vital to take note of its apparent weaknesses and shortcomings that should be addressed.

  1. SOMO data refers to two types of tables: the first relates to the details of crude oil sold electronically through the DME during 2017 and 2018; the second did not include any information of how the sales were done and the name of the platform/stock exchange auction from December 2017 until the end of May 2019. This lack of information shed doubt on and questions the credibility of the ministry’s announcement (referred to above), which stated that all sales were done “by electronic auction on the DME, Platts..”, while SOMO tables make no reference at all to Platts or to any other platform for online auction. Unless SOMO identifies the name of the auction platform, it could lead to the belief that SOMO has actually carried out these operations directly with the concerned IOBs in a non-competitive way. This suspicion of irregularity is enhanced by the fact that “the date of sale” for each and every deal was not mentioned. All the above are symptoms of irregularity, inside-trading and thus constitute a lack of transparency in the process, which raises doubts about its credibility and thus opens the door for suspecting the possibility of corruption;
  2. When comparing the components of these two types of tables, the only difference between them is that the first type includes a column entitled “Date of sale/date of loading” for each shipment of crude oil sold on the DME, while the second type includes “loading date” only. This is an additional and important flaw in the transparency of the immediate direct deal mechanism;
  3. The DME provides information regarding each auction in terms of the date and time of auction; the duration of bidding during the auction; the number of companies that paid the participation fees; the number of companies that actually took part in the auction; the number of offers made during the auction and finally the highest price premium among others. As for the spot deals done by SOMO outside DME, SOMO did not provide any of the above information!!!

Fourth: Cautionary Remarks against the Ambiguity and Temptations of the “Additional Revenues”

SOMO’s earning, of extra revenues (due to premium over OSP) through spot deals, of over $59.6 million during the period between the beginning of June 2017 and the end of May 2019 is good addition to state treasury.

However, caution should be exercised as adopting this financial indicator (i.e. additional revenue) and promoting it as indication of efficiency and achievement may provide cover-up for irregular (or even illegal) practices that may lead to suspicion of corruption, especially when such spot trading was conducted with weak, or even without, supportive material evidence. Hence, the integrity, competitiveness and transparency of the process could be seriously tarnished. Simply stated, additional revenues could occur, hypothetically as well as in reality, parallel with giving bribe through splitting the premium.

Additional revenues also indicate giving preference to short-term financial gains over and against strategic positioning at medium and long term interests that may cause or pose costly strategic losses.

The fear from preference for short term gains can be exhibited by the following comparisons.

The following analysis is premised on the comparison between the quantities of crude oil sold through spot deals and total crude oil exports in the same months in which spot deals were done.

  • Total crude oil sold under spot trading since the beginning of June 2017 to the end of May 2019 was more than 76.4 mbs, which constitutes about 3.9% of the total oil exports in the same months in which spot deals were done (or loaded on tankers). However, if we look at the annual pattern, the above ratio increased constantly and significantly from 2.6% in 2017 to 3.4% in 2018 to 6.4% in 2019;
  • Looking at the monthly comparisons we find that this percentage has risen (but at fluctuating fashion) from 3.6% in January 2018 to 12% in May 2019. But what draws attention (in addition to this increase of more than three folds) is that the increase or decrease in spot deals was in some months does not corresponds (in direction and volume) with the increase or decrease in total oil exports in many months. For example, spot sales in November 2018 increased by 3.342 mbs over previous deals in April 2018, while the increase in total oil exports for those months was only 1.117 mbs. In another example, while total volume of oil sales decreased, the volume of spot deals increased. Total sales in April 2018 decreased by 6.853mbs from previous month, while spot sales increased by more than 1 mbs during the same months. The third example is on the decline in both the total and spot sales, but the decline in the latter was much lower than in the former; total sales decreased by 11.723 mbs in February 2019 compared to the previous month, while the corresponding decrease in spot sales was only 522 thousand barrels.
  • Spot deals of the Kirkuk oil blend presents a very worrying example. During the period between the beginning of December 2018 and end May 2019, 12 shipments were sold by spot trading covering a total of 5.25 mbs, or about 33% of the total exports of Kirkuk oil during the same period. But on a monthly basis we find that this percentage has increased continuously from about 24.8% to more than double that, or 54.5% between January and May of this year. This is a trend whose consequences may be underestimated or overlooked as a result of increasing sales of spot deals in a direct and non-competitive manner as explained above. It may be useful to recall what former SOMO DG and one of the proponents of spot trading (i.e., Dr. Falah Al Ameri) reportedly said, “We lost our market in Europe, it weakened, especially Kirkuk grade”[7]. But, does selling this high percentage of Kirkuk oil in this way deepen the loss of the European market for Iraqi oil or recover it?

These and other examples demonstrate that the “additional revenue temptations” of spot deals make such deal preferable at the expense of meeting the needs of the IOBs, which are the traditional customers to buy Iraqi oil. The advantage given by SOMO’s spot sales could negatively impact the reputation and credibility of SOMO and the confidence in its commitment in honouring the obligations of the “Annual Term Contracts” that are concluded between those IOBs and SOMO.

Proposals for Discussion and Considerations

In order to capture the fiscal advantages of spot sale in a more regulated and coordinated manner and to avoid the possible negative impacts of this trading on the annual term-contract modality that has been adopted by SOMO for decades, I suggest the followings:

  • Detailed thorough professional study or a background/discussion paper should be done to evaluate SOMO’ experience in crude oil spot trading since the commencement of this new activity in April 2017 to date. The purpose is to determine the positive and negative aspects, the operational and procedural requirements that were adopted and diagnose lessons learned and explore possible scenarios to achieve good results for Iraq;
  • SOMO, the Ministry and other representatives at SOMO Ministerial Committee should determine specific percentage of oil exports that could be earmarked for spot trading. This percentage, based on the type of crude oil, could be determined annually (in parallel to the practice of the annual term-contracts established by SOMO for several years) and monthly (in parallel with the practice of the monthly Ministerial Committee decisions implemented by SOMO for several years by now). These allocations for spot trading should be fully, timely and publically announced, particularly on SOMO website, at specific time intervals;
  • Assessing the feasibility of setting up SOMO’s own spot trading electronic platform, e.g., SOMO Spot Trading-SST, that offers Iraqi crudes exclusively- currently including Basra light, Basra heavy, Kirkuk blend and Qayara oil. The proposed platform, i.e., SST could also deal with petroleum products such as condensate, naphtha, NGL, LPG and other products in addition to oil produced in Kurdistan (in case of agreement between the federal government and the provincial government in implementation of the annual budget laws). New oil grades can be added in the future (such as Basra medium, Al-Yamama oil- known for high quality/API etc.,) in the light of oilfield development projects currently on implementation;
  • The proposed platform (SST) may be managed either within the existing SOMO’ administrative structure or by the establishment of a subsidiary company (e.g., SOMO-SPOT). The conditions, controls and practical and organizational procedures of the proposed platform for spot trading must be well elaborated and premised on three fundamental principles: competitiveness, transparency and efficiency. Direct spot sale to oil buyers without bidding should be strictly prohibited and constitute punishable offence;
  • The governance of SST and its management should be subject to the same control and oversight by the Ministerial Committee with additional openness and answerability.

 

[1] This article was originally written in Arabic, shared with my professional network of contacts and posted on many websites such as: https://www.akhbaar.org/home/2019/7/259802.html and

http://www.tellskuf.com/index.php/mq/83238-uj065.html

[2] Debating SOMO’ TransformationThe English text posted on IBN and AlKhbaar on 5 Sept 2017 http://www.iraq-businessnews.com/2017/09/05/expert-blog-debating-somo-transformation/  ; http://www.akhbaar.org/home/2017/9/233074.html and the Arabic text on http://www.akhbaar.org/home/2017/9/233297.html

[3] https://oil.gov.iq/index.php?name=News&file=article&sid=1653

[4] Reforming and Transforming SOMO- A Follow Up, posted on IBN on 13 Dec 2017 http://www.iraq-businessnews.com/2017/12/13/reforming-and-transforming-somo/ and on Al-Akhbaar 13 Dec 2017 http://www.akhbaar.org/home/2017/12/238018.html

[5] My article can be found and accessed through the link   http://www.akhbaar.org/home/2019/3/255755.html

[6] https://oil.gov.iq/index.php?name=News&file=article&sid=2276

[7] As reported by Iraq Oil Report-IOR, 24 May 2017

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Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.