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.

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

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.

2019 Budget: Appeasement, Non-Compliance and Extortion

By Ahmed Mousa Jiyad.

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

2019 Budget Law: Politics of Appeasement, Non-Compliance and Extortion

Data from different sources indicates that KRG oil exports, so far in this year, ranged between 418.8 and 438 thousand barrels daily-kbd and KRG gross oil export revenues at end of May mounted to $3.681 billion.

Draft of the budget law was debated, amended and approved by the parliament; then endorsed by the President of the Republic and finally promulgated as a law when it was published on the official gazette. KRG, Kurdish politicians, parliamentarians and commentators praised the law as it favors them.

Yet, so far and as it officially confirmed by the Minister of Oil and the Prime Minister, KRG did not deliver a single barrel of oil; this is the usual KRG’ non-compliance extortion practice.

Such practice prompts a wave of criticisms and accusations against the Prime Minister, who is known for his appeasement towards KRG even at the expense of the rest of Iraq. KR leaders know too well how to exploit Prime Minister’s weaknesses and his lack of resolve and leadership; KRG succeeded so far.

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.

Uneven Development in the Iraqi 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.

This article may also be downloaded here in pdf format.

Restraining the Game-Changer: A Decade of Uneven Development in Iraq Petroleum Sector*

Abstract and Introduction

The development of the Iraqi petroleum sector during the period 2008-2018 represents, from all related aspects, a distinct phase in the sector and in its role in the national economy.

The petroleum sector comprising three different but interrelated sub-sectors through critical forward-backward linkages: Upstream (including exploration, field development and production); Midstream (pipeline, storage, export terminals) and; Downstream (crude refining, gas processing, petroleum product distribution and petrochemicals).

Though the state has been the dominant actor in petroleum sector development, the post 2003 period witnessed grand opening of the sector for International Oil Companies- IOCs. Different contractual modalities, mostly reflecting the peculiarities and realities of each sub-sector, were proposed or adopted to govern the relations with the IOCs.

Thorough and continuing follow-up and research suggest that most of the evidenced development has taken place in the upstream sub-sector, with heavy IOCs involvement in a significant part of proven oil reserves through most prized oilfields.

 

But the “triple shocks”, of collapsing oil prices since June 2014 (economic risks) accompanied by Da’esh (security risks) effects and Kurdistan Regional Government-KRG taking-over some of North Oil Company-NOC oilfields (June 2014-October 2017) (political risks) with the prospect of “lower-for- longer” oil price that prevailed almost a year ago, contributing to continue deepening the fiscal crisis of the state and elevated the “fear-factor” among Iraqi decision makers. That, combining with apparent human, systemic and institutional capacity-gaps limitations (business risks), have resulted in Iraq giving important concessions to IOCs without having tangible benefits in return.

 

Accordingly, the article would argue that, analytically and empirically, a sub-sector focused policy impacts, negatively, the development in that sub-sector, in the sector itself and on the sector’s contribution to the development of the national economy. That indicates to the absence of well thought, coherent and integrated petroleum and energy policy; and to the “indicative non- mandatory” National Development Plan-NDP. The outcomes would exacerbate structural imbalances, vulnerabilities to external factors and increase dependency on oil revenues, which prohibits desirable structural change, diversification and transformation.

 

The nature of the topic decides the research methodology. Hence, the article is a multi-disciplinary in its approach focusing on the relevant and important economic, legal, institutional, political economy and geopolitical analytical frameworks and aspects. Also, the article offers evidence-based analysis by relying on official, verifiable and crossed-checked data, information and documentation. Time-series and charts for the ten-years covered period are necessary for elaboration but avoided for space restriction.

The article adopts a holistic view by addressing the three interrelated levels of analysis: micro, sectoral and national, excluding KRG. Throughout the article, many questions were posed indicating the need for further scholarly work and research investigation. Finally, because of my constant follow-up and frequent contributions on Iraqi energy and petroleum sector, this article refers heavily to some of my previous works and publications.

This article comprises two parts and concluding remarks: part one identifies and analyzes the most important milestones in petroleum upstream development while part two provides assessment of successes and failures in the petroleum sector.

 

Part one

Milestones in Upstream Petroleum Development 2003-2018

Since 2003, upstream petroleum subsector is having many milestones with significant direct impacts on the development of the sector-wide and also on the national economy at different degrees. Some of these landmarks constitute, by their own right, a distinct phase and sometimes overlapping. This part addresses the most important landmarks some of them could shape the development of upstream petroleum for, probably, many decades to come.

First: Ministry of Oil MoUs with IOCs[1]

Between 2004 and end 2008 the Ministry of Oil-MoO had concluded some 40 memoranda of understanding-MOUs with IOCs: including majors, independents as well as minors.

The first step was to formulate a standard text for the MoU, which spells out the structure, the terms of reference governing the signed MoU and its duration and renewal if needed. For each MoU there was one  “Joint Steering Committee-JSC” comprises three or four representatives from each side; the names and number of the Iraqi side are known while the corresponding information on the IOC side are not. The role and mission of the JSC is to oversee and insure the full and proper implementation of the related MoU.

Each MoU was signed by the MoO while the other party was either a single company or a consortium of companies or an official entity.

One consortium comprising three companies; three consortia each comprising two companies while the rest represent MoUs with single companies. All MoUs were signed with companies except one, which was signed by the Norwegian Ministry of Energy.

The parties to the signed MoUs belong to 23 countries; the USA has the largest participation with 9 companies, followed by Japan and Norway with 4 each, then China, UAE, UK and Canada has 2 each and one company from each of France, Russia, Holland, Ireland, Turkey, Kuwait, Malaysia,  Brazil, Indonesia, Austria, Angola, Australia, Spain, Italy, India and  South Korea.

One of each MoU objectives is to conduct “Joint Studies” and for each study there was a “Technical Committee”; again the names, positions, specializations and number of the Iraqi side are known while those for IOCs are not provided. The number and coverage of the joint studies are not unified for all MoUs; some has only one joint study, while many have more.

Another important objective is human capacity development; each MoU offers different opportunities for training, workshops on variety of subjects and programs and for academic degrees.

These MoUs provided various opportunities, both serious and visits, for MoO staff and affiliated companies to interact with their international counterparts after decades of relative isolation. For IOCs, MoUs represent unprecedented and invaluable opining of all archives relating to upstream petroleum in the country that helped IOCs to explore where they would be involved and what they could provide to chart their way towards business objectives in Iraq’s upstream petroleum.

Execution and performance of these MoUs are not similar in delivering stated objective and some were terminated when the related IOC signed contracts with KRG without the approval of the federal Ministry of Oil.

Apparently, eventually outcomes did not correspond to IOCs efforts as their actual involvement in upstream project could tell. Two examples could highlight this: the USA had the largest participation with 9 companies in these MoUs, yet only one, ExxonMobil, has only 32% participation interest in one oilfield. On the other side, Russia had only one company that participated in these MoUs, but Russia has now three IOCs with significant participation interests in four oilfields and exploration blocks.

The same valid also on a company level as the cases of Chevron and Kuwait Energy-KE exhibit. For the MoU signed with Chevron, the three Iraqis in the JSC, headed by the current Minister of Oil-Jabbar Allibi (Luaibi), had a record high of convening meetings outside Iraq (between February 2004 and April 2008 they traveled to London 8 times, to Bahrain 5 times and to the USA twice); Chevron organized 44 training activities (in USA, Jordan, Bahrain, Kuwait and Turkey) attended by 741 Iraqis and held 17 workshops (mostly in Amman) with 139 participants. Finally, Chevron was involved in 15 joint studies. Yet, Chevron did not have a stake in MoO concluded contracts as per the bid rounds.

KE MoU, by contrast, was signed in September 2007 and has one year duration only; the JSC held one meeting only in Kuwait in 2007; the company participated in one joint study only and it provided no training or organized a workshop. Yet, the company has stakes in three MoO signed contracts, including the field it participated in its study!

 

An important outcome of these memoranda of cooperation is their contribution in the formulation and development of the model contracts for the four bid rounds; they helped the formulation of two year technical support contracts-TSCs, which were devised for implementation by the international oil companies during 2008 and 2009. These contracts focus first on halting the production decline of the major oilfields (Rumaila, Zubair, West Qurna1, Missan and Kirkuk), and then increase production by 400 to 500 thousand barrels per day-kbd. MoO pays for both investment requirements and the IOCs fees to achieve that target. Negotiations on these technical support contracts lasted from the fourth quarter of 2007 to mid-2008 without conclusion because of differences on serious issues (Al-Ammedi 2009).

MoO then reduced the duration of the technical support contracts to one year. After that time they would overlap with the timing of bid rounds. The IOCs refused the one year duration as too short for such contracts. Accordingly, the ministry abandoned the contracts to focus on the bidding rounds.

Based on the previous experience with the technical support contracts and the expected bid rounds the ministry began formulating and drafting the model contracts that would constitute the contractual framework governing the relationship with the IOCs (Al-Ammedi 2009a).

 

Second, the Accelerated Program and the Symposium for Reviewing Iraq Oil Policy

Intense debate inside Iraq during the period September 2008 to April 2009 focused on the desperate state of the upstream sector, especially in the southern part of the country.

A team of nine senior oil professionals including two former oil ministers conducted in depth survey on the status of the upstream sector. The team visited various locations and sites and held intensive discussions with top management and senior staff there during the period 21-31 December 2008. A final and detailed report was presented to the PM on 12 January 2009. Copy of the report was distributed during the Symposium for Reviewing Iraq Oil Policy held in Baghdad February 27-March 1, 2009.[2]

The first recommendation of the said “report” calls to adopt a program aiming at increasing oil production by some 350-500kbd, and the Symposium endorsed such program, to be executed within two years (2009 and 2010). Two days after the Symposium, the Council of Ministers-CoM[3] authorized a committee comprising the PM, his Deputy, the Ministers of Oil, Finance and Planning, and the Legal Advisor of the PM to review the state of the oil industry and decide on the requested mandates and authorities for the MoO and oil producing companies.

Apparently, the accelerated program was primarily drawn by a former Director General-DG of South Oil Co-SOC and oil ministry and CoM advisor Jabbar Allibi. However, Allibi was removed from been in charge of the program.[4]

Allibi removal had in effect derailed the program and considering the fact that the occupancy of DG position of SOC had changed three times, this had contributed to causing further management instability and worsening deterioration of the upstream operations especially in the south.

Not surprisingly, therefore, to observe the continuous fluctuation of oil production and exports causing serious loss in oil revenues and deepening the financial crisis of the country. Based on official data by the MoO compiled by the author, Iraq did not benefit, as it should have been, from high oil prices because its oil export was sharply declined from a total of 58.8 million barrels-mb to 54.4mb to 49.4mb in July, August and September 2008 respectively, at a time when the average price of the exported Iraqi crude was 118.81$/b, 102$/b and 85.30$/b during the same three months period.

The gradual improvement in oil export revenues during 2009 was a reflection of oil prices upward trend more than oil exports, which kept in regular and sharp fluctuation due to technical capacity constraints and security conditions.

 

But what is more important was the state of the petroleum upstream sector went from bad to worse and the accelerated programme to at least capture the decline and prevent it from worsening have not succeeded in a sustainable way to insure steady levels of oil production and exports, as the above data indicates clearly. One thought suggests it might be a “deliberate neglect” to justify the opening up of the oil sector before foreign investors- the IOCs.[5]

 

This might and might not be the case. But judging by outcomes, the above figures clearly suggest mismanagement and lack of vision. Instead of proposing “Grandiose” move by offering more than 80% of Iraq’s petroleum reserves through bid rounds, the MoO could have adopted gradual, feasible and achievable approach starting from rehabilitating the upstream sector moving upwards. Evaluation, selection, prioritisation, sequencing and implementations are fundamental ingredients and preconditions for successful development and testimonies for sound and effective federal petroleum policy.

 

Third: Conversion of the Contract for Al-Ahdab Oilfield

The production sharing “Development and Production Contract”-DPC was signed 4 June 1997, received endorsements at the time from the Iraqi National Council (parliament) when it was first initialled in 1996 and ratification from the cabinet and revolutionary command council in 1997 before it became effective, but remained idle due to UN sanctions.

The MoO decided to renegotiate the terms in 2006 to convert that PSC into a 20 year service contract; formalised it in late August 2008 in Beijing during a visit by Iraqi Oil Minister, Hussein al-Shahristani, approved by the Cabinet on 2 September 2008 leading to the contract signing on 10 November 2008 in Baghdad.[6]

The significance of this conversion takes many aspects: it marks the first IOC to break ground in Iraq’s oil sector since the 2003 US-led invasion; it indicates the type of contract (long term service contract-LTSC not PSC) Iraqi government would accept; it provides the terms, conditions and provisions of such contracts; it highlights the importance of bilateral government-to-government relations or “oil diplomacy” and finally, it establishes the basic first version of the model contract that was adopted latter (but with many modifications reflecting a learning curve) for four bid rounds.

Also this contract offered the Parliament a powerful opportunity to have and consolidate its role in approving the contract and thus establishes a precedence; but regretfully that opportunity was missed due to negligence, incompetence or intentional.

Al-Ahdab original PSC of June 1997 was ratified by law[7]  and thus the new converted contract becomes legally invalid unless it is either ratified by a new law or the old law be revoked by a law. The Cabinet decided on the latter option, proposed a draft law and referred it to the Parliament.[8] Instead of insisting on ratify the new contract by a new law, and thus consolidate its role in approving all LTSCs, the Parliament[9] agreed, on 27 March 2011, to the government request and approved an abrogation law!

 

 

Fourth: The big-push strategy through four bid rounds

By benefiting from the insights of the MoUs, the status of the accelerated program and the successful conversion of Al-Ahdab contract with lessons learned from it, MoO launched what I considered a fast-tempo big-push strategy (Jiyad 2011).

All existing development and production service contracts and exploration, development and production service contracts were awarded through bid rounds except, as mentioned above, the one relating to Al-Ahdab oilfield.

The four bid rounds followed a similar procedure comprising the following steps:

  • Announcement of the fields and exploration blocks offered in the round;
  • A request for international oil companies to apply for pre-qualification;
  • Specification of the parameters for pre-qualification and announcement of the qualifying companies;
  • Preparation of a profile and data package for each offered field or block, and sale of that information to the interested qualifying companies;
  • Workshops for the companies to discuss the data package and the draft model contract, and to review the bidding process and parameters. These workshops are usually open for the media and attended by senior officials from the ministry. The fourth bid round was attended also by representatives from local authorities in the areas of the offered blocks;
  • The holding of bidding events in Baghdad with full publicity and TV coverage, with the bids being opened and announced in public with full competitiveness and disclosure; and
  • Approval of each contract by the Council of Ministers.

 

The Final Tender Protocol-FTP for each bid round specifies the bidding parameters and the formula for calculating the bidding scores. For the first three bid rounds the bidding parameters were the plateau production target and the remuneration fee, while for the fourth bid round there was only one parameter, the remuneration fee.

 

For all bid rounds MoO accepted the highest scoring bidder provided the remuneration fee proposed by the highest scorer does not exceed the maximum remuneration fee acceptable. This maximum is disclosed only if the highest scorer’s proposed remuneration fee exceeds the maximum, in order to give the bidder(s) concerned the opportunity to revise their proposed fee downward to that of the maximum remuneration fee. MoO did not disclose the maximum remuneration fee it had set on many occasions when the highest scorer’s proposed remuneration fee was lower than that maximum.

In the case of tied bids, whether the remuneration fees proposed are equal to or less than the maximum set, and where the tie is between a consortium and a single company, the consortium bidder is preferred and declared the winner.

Main features of and developments in the model service contracts are briefly analysed below.[10]  This analysis of all versions of the model service contracts identifies the nature and main characteristics of the contracts concluded under the four bid rounds, which were considered as “unknown in the oil industry” when they were introduced (Chalabi FJ 2010:258).

First, each bid round has its own “model contract” reflecting the nature of the offered opportunities and the lessons learned from the previous rounds.  From negotiation theory and practice- who sets the agenda impacts the outcome. Thus, the Ministry did well by setting the agenda, i.e., the model contract, and asks the IOCs for feedbacks instead of following Terry Adams proposal.[11]

Second, all the contracts have similar structures in terms of equal number of articles, annexes and addenda, except those for the fourth bid round which have more addenda. Almost all the articles are identical or could be considered as common clauses, except those reflecting the specifics of the field or block.

Third, the contracts could be considered as being in a hybrid category of their own since they include components from production sharing contracts and components from conventional service contracts. Among the main features taken from production sharing contracts are: the long duration; the privileges of first/exclusive rights; the payment of a signature bonus; the R-factor as a sliding scale remuneration fee; and restrictions on sovereignty through consensus-based decision-making within the joint management committees. ‘Business risk’ for IOCs relating to the commerciality of petroleum discovery is covered only by contracts relating to bid round four, which is for exploration blocks.

Fourth, all the contracts are premised upon the principle of take-or-pay/now-or-later even when the government decides to exercise its sovereign rights to curtail production.

Fifth, all payments to the international oil companies (costs and the remuneration fee) are denominated in US dollars, not in barrels or barrels of oil equivalent. This implies that any economic rent (windfall) belongs to the Iraqi side, and the international oil companies do not have any claim on rent in the event of oil price increases. The international oil companies benefit from higher oil prices by expediting the recovery of their capital and operating expenditure and by receiving greater volume in remuneration fees through the operation of the payment caps when there are higher revenues. This, however, also calls for the application of the R-factor, which reduces the remuneration fees.

Fifthly, for each of the concluded contracts there is a carried state partner participation interest of 25% (now reduced for some of oilfield offered under bid rounds one and two) with no up-front payment from the Iraqi side. The international oil companies in the consortium cover, proportionately, this participation until they recover it. The model contract for the fourth bid round does not have a state partner participation interest since the risk of exploration is taken on fully by the international oil companies should there be no commercially worthwhile discovery.

 

New provisions in the model contract for the fourth bid round

The current version of the fourth bid round model contract exhibits many new components, reflecting the still evolving development of the model contracts and the Ministry of Oil’s learning curve in contract formulation.

A pre-development holding period is introduced, subject to certain rather complex provisions, in the event of an oil discovery. The rationale for this is that Iraq has too much oil to manage if all the contracted fields are developed as planned in addition to the existing production from other fields.

Also for the first time there is a transitional state partner. Initially the state partner is Oil Exploration Co, but once the value of the R-factor exceeds 1 then a new state company takes over the role of state partner. This reflects the different phases of the contracts arising from the distinction between the exploration and development phases, and this distinction lead to the removal of the state partner’s 25% interest, as mentioned above.

The third development is the absence of a performance factor, because with only one bidding parameter (the remuneration fee), and therefore no production plateau target, there is no reason to include the performance factor.

An important fourth new element was introduced to reduce the cost-inflating tendencies of international oil companies. A new term, ‘cost production’, is included to reduce the remuneration fee entitlement in such a way as to induce the international oil companies to pursue cost effectiveness and refrain from exaggerating costs.

The fifth new development is related to the application of take-or-pay/now-or-later principle. The contracting Iraqi oil company’s obligation is confined to 80% of the produced gas if circumstances call for application of the take-or-pay/now-or-later principle. It is worth noting the application of this principle remains as it was in the previous bid rounds in the event of an oil discovery.

The sixth new component is provision for dry gas export, subject to a separate contract and marketing arrangement. This is an option for the international oil companies to pursue, but does not constitute an obligation on them. No such option was or is offered for oil.

Another new provision gives the Iraqi oil company the right to terminate the contract if the international oil companies conclude another contract with any regional or provincial authority without Ministry of Oil approval.

The final new development is the establishment of an infrastructure fund to finance infrastructure projects in the province where the contract area is located. During the term of the contract the contractor will pay 10% of the annual budget for the fund.

It is worth mentioning that each signed contract comprises other detailed provisions, annexes and addendums reflecting the particularities of the related field or exploration block.

The Ministry held four bid rounds between June 2009 and May 2012: the first was for the already producing, known as brown, oilfield; the second was for discovered but not developed, known as green oilfield; the third was for free gas fields and the fourth was for exploration blocks. The outcomes of these four bid rounds can be summarized as follows:

  • Four contracts covering six oilfields were concluded under first bid round comprising oilfields Rumaila, Zubair, West Qurna 1-WQ1 and Missan (comprising three fields of Abu-Garab, Faqa and Buzorgarn). Their combined proven reserves, at the time of contacting, was 33 billion barrels and their combined contracted production plateau target –PPT was 7.335 million barrel per day-mbd;
  • Seven contracts for seven green oilfields were concluded under second bid round comprising West Qurna 2-WQ2, Majnoon, Halfaya, Gharraf, Badra, Najma and Qaiyara. Their combined proven reserves, at the time of contacting, was 33 billion barrels and their combined contracted PPT was 4.765 day-mbd;
  • Adding Al-Ahdab oilfield to the above would give a total PPT of 12.3mbd to be reached at end 2017 and sustained for seven year. They have 67billion barrel of proven reserve; constituting 58% of the country proven reserves at that time.
  • The number of involved IOCs in the above 14 oilfields was 15 companies from 12 countries including the five permanent members of the UN Security Council.
  • Three free gas fields, Akkas, Siba and Mansuriya, were contracted under third bid round with a combined PPT of 825 million cubic feet daily-Mcfd and 11.2 trillion cubic feet. Three IOCs from three countries were involved.
  • The fourth bid round was about exploration blocks; four blocks, 8, 9, 10 and 12 were contracted with 7 IOCs from 6 countries.

The decision to go for the bid rounds and their outcomes, especially the first two, had created vibrant, interesting, mobilized and courageous debate on many aspects pertaining to timing, the type and number of the offered oilfields, the type and conditions of the contracts, the feasibility and sustainability of proposed and concluded production targets, the legality premises among others.

Why there were such wide powerful and impacting concerns on these bid rounds?

First, historically, there seems to be a strong association, in the Iraqi conscious, on three nexus of “oil, politics and patriotism” or what is termed, wrongly, in the western business terminology as “resource nationalism”.

Second, there was a prevailing conviction that invasion is “all about oil” and that conviction was consolidated not only by the many and repeated statements in international media; but also by the apparent attention given to oil matters by the occupying forces, by the many MoUs (as discussed above) and by the massive intrusive efforts by US and UK embassies and their preferences regarding related oil issues such as type of contracts, oil law, privatization of INOC.

Third, there was strong resistance “from within” the petroleum sector itself that argued their opposition on national efforts and capacity premises. The most apparent protest came from Basrah Council[12], Basrah professionals[13] and SOC senior staffers.[14]

 

Fourth, former oil technocrats, experts and professionals, especially those residing outside the country were very active and had crucial role in mobilizing and energizing the debate through their analysis, commentaries and articles (Al-Husseini 2010; Al-Chalabi I 2009;  Jiyad 2011; Al-Khayat 2012 among many others),

Moreover, the first bid round came at the height of a heated debate on the ill-fated Draft of Federal Oil and Gas Law[15] and the first announcement of Shell’s Head of Agreement-HOA, that was negotiated and concluded behind closed doors.

Fifth, Oil workers and trade unions were also among the early protestors, but were focused first around Rumaila oilfield, then on Zubair, WQ1 and Majnoon. The Federation of Oil Unions of Iraq and the Federation of Workers Councils and Unions in Iraq have condemned the Ministry’s decision to award a foreign consortium the contract to develop Rumaila (Mohammed A 2009); partly on legality grounds and partly for fear of unemployment and, later, for not been properly compensated.

Sixth, ironically, KRG and its related interest groups, individuals or contracted companies had their share in praising KRG PSCs as superior to MoO contracts in serving Iraqi interests!!

Finally, from petroleum industry perspectives they were between two contrasting positions- “crazy” and “game changer”.

Total, then CEO Christophe de Margerie was reported by Reuters (28 October 2009) have said “The 12 million barrels is crazy”.

US Department of Energy, according to Cordesman (2010), “projects Iraq will expand its oil production from 2.4 million barrels per day in 2008 to 2.6 in 2015, 3.1 in 2020, 3.9 in 2025, 5.1 in 2030, and 6.1 in 2035.”

But the executive director (2012) of the International Energy Agency-IEA, Maria van der Hoeven was adamant that “Iraq has a potential as a game-changer” and becoming a “strategic source of world oil supply” in the years ahead (Hill 2013). That takes us to the next milestone.

 

Fifth: INES and IEA-IEO Support PPT Revision

For the first two bid rounds, the production plateau target was one of two bidding parameters, as mentioned earlier. This prompted IOCs to inflate their production targets to out-bid their competitors. Consequently, plateau levels in all the resultant contracts came out much higher than even the Ministry had envisaged. Hence, euphoria began to surface at the prospect of crossing the threshold of 12.3mbd, and this then became a sacrosanct target for some within the ministry and outside it. But, as mentioned above, many oil professionals doubted the feasibility of attaining these plateaus within the specified timeframe, and questioned the justification of constructing expensive production and export capacities based on these figures.

Initially, MoO and the government were reluctant to the idea of revising down the PPTs[16], however, they became more receptive to the revision of the plateau targets, especially after the finalisation of two thorough studies.

The government and the World Bank agreed to the necessity of having an integrated strategy for the country. Thorough, well researched, intensively debated through more than forty meetings and 18-month study resulted in a final report of the Integrated National Energy Strategy (2013-2030)-INES.[17]

Concurrently with INES, Iraq and IEA cooperated in conducting another study, Iraq Energy Outlook-IEO.[18]

 

Both studies came to similar conclusions to those expressed by many Iraqi oil professionals on the unattainability and feasibility of the contracted production targets: INES discusses the implications under three (high-13mbd, medium-9mbd and low-6mbd) production plateaus with different commencement timelines and plateau period durations. IEO assesses the consequences under “high”, “delayed” cases and “central scenario” of 6.1mbd by 2020 and reaches 8.3mbd in 2035.

Thus, these studies prompted the Iraqi authorities to consider seriously lowering down their previously contracted production targets and take what that entails by amending the contracts.

 

Sixth: Lower PPT, More Concessions 

Even before the government approves INES[19], MoO under the, then, new Minister Abdul Kareem Luaibi, was already reworking on reducing the production targets; Russian Lukoil was the first to renegotiate its contract, bringing production targets for WQ2 oilfield down from 1.8mbd to 1.2mbd (Osgood 2013).

By September 2014 and based on available brief information, this author compiled, that total production plateau from the amended PPT in the signed contracts would be reduced from over 11 mbd (Old Plateau Target-OPT) to 7.15 mbd (New Plateau Target-NPT) (Jiyad 2014). NPT could be even lower after Shell and Petronas relinquished Majnoon in 2018, WQ2 PPT was reduced for the second time to 800kbd (IOD 2017), and possible Badra reduction.

 

Reducing production targets is important course of action and has many significant long lasting implications and effects since that requires amending the contracts, which opens the door for renegotiating the terms, conditions and provisions of these contracts; and here lays the catch 22! First, this reduction is, hypothetically and theoretically, advantageous for Iraq. Had Iraq succeeded to attain the contracted plateau production targets (of 12.3mbd) by 2017 it would have by now:

  • Have a minimum of 8mbd of idle capacity, considering OPEC production cut enforced since January 2017;
  • It would have paid $184.5billion of capital cost, since each 1mbd capacity requires $15 billion initial investment;
  • It would have to encore substantial “maintenance cost” for the 8mbd of idle capacity;
  • It would have to pay the IOCs the “remuneration fee” for 8mbd of idle capacity according to contractual provision/ condition “Take or pay”;
  • There could have been thousands of unemployable oil professionals.

 

Second, IOCs found this the opportunity they had hoped for to improve the contracts for their benefits. They argued, reducing the PPT impacts negatively the economics of their projects, and thus they should be compensated to maintain their original Internal Rate of Return-IRR.

Our follow-up on this issue indicates a range of IRR between an “absolute minimum” of 8% and “not overly profitable” 17%.[20] But, on the other hand, reducing these “crazy” plateau targets would first give them more time to attain the new targets and, second, would reduce significantly the “up-front” investment requirements; and both have significant fiscal positive implications for IOCs.

Lukoil provides clear example; a reduction of WQ2 PPT from 1.8 mbd to 1.2mbd would reduce investment to $26 billion from $33 billion over the next 10 years.[21] Thus and based on that, the latest reduction in the PPT to only 800kbd would reduce investment requirement by, probably, another $4.7billion.

Moreover, the actual negotiations regarding PPT reduction had resulted into the following gains for the IOCs:

  • Reduction of the “State Partner-SP” share in the remuneration fee from 25% to as low as 5% would results in billions of dollars concessions to IOCs from Iraq; we have identified four such reductions. Based on the related new production targets and the resulting increase in IOCs share due to these reductions in SP share our calculation arrives that those IOCs would get an additional $441million a year in their Net Remuneration Fee-NRF (post income tax and SP share). That, over the years of the contracts would result in billions of dollars move from the Iraqi coffers to IOCs.
  • Another concession given by the Ministry was the elimination of the R-Factor (which relates remuneration fee to cost recovery). By eliminating the R-factor, IOC gets all its new NRF per barrel even after all capital cost was recovered. This would give IOCs, especially during the plateau production period (which has been prolonged due to plateau reduction), additional millions much more, in magnitude, than the previous concession[22];
  • The third concession was the elimination of P-Factor (which is a performance measure linking the payment of remuneration fee proportional to the achieved production target). Elimination the P-Factor could result in two negative consequences for Iraq first, it disincentives IOCs to comply with the new production targets (a forward concern) and second, it relieves the IOC from the penalty for non-performance so far (a backward concern). The magnitude of non-performance so far could be, theoretically, gigantic since all IOCs had not attained the contracted plateau target. To illustrate, MoO had in 2013 informed Shell (the operator of Majnoon) that its consortium had cased Iraq financial losses estimated at $4.6billion for not performing their contractual obligations (Jiyad December 2017).
  • Another concession was related to increasing the “natural decline factor-NDF” on the “base-line production-BLP” for the brown fields, i.e., those covered by bid round one. Increasing the NDF would give corresponding proportional increase in the additional oil production that should be attributed to IOCs and, thus, increases its remuneration fee. For example, NDF for Rumaila was increased by 2.5 percentage points starting from 2014 (IEITI 2016), which expedites the deductions for BLP. Our calculations indicate that Rumaila consortium, e.g., BP and CNPC, would gain additional of over $23million per year in their NRF. However, it is not known whether such NDF was applied to all or some of the brown fields.

Third, it should be stated that all these concessions were dealt with in complete secrecy restricted to the Ministry, Energy Committee of CoM and the related IOCs. What was puzzling, though, these revisions occurred while the architect of these contracts, i.e. Shahristani, was still walking in the corridors of power!  Why was he so passive?

Apart from what was reported by the business circles, IOCs and professional sources of information, nothing disclosed by Iraqi authorities until the IEITI annual reports provide formal admissions on these changes.

What even more serious and suspicious is while the Ministry offered these significant and long lasting concessions, it got absolutely nothing in return for the country. Moreover, the Ministry had actually and practically lost the leverage over the IOCs to, for example, cope with the impact of low oil prices, as discussed next. But it remains vital to know why that was allowed to happen and how the Minister, i.e., Abdul Kareem Luaibi, was able, in such ease, to   cause the country billions of lost revenues?

 

Seventh: Formal Revisions of the Concluded LTSCs

After 2014 election, a new cabinet installed with Haider Al-Ebad- PM and Adil Abdul Mahdi- Minster of Oil. On the Parliament side, late Ahmed Al-Chalabi became the chairman of the Finance Committee. Politically, Mahdi was a long time senior member of The Islamic Supreme Council of Iraq-TISCI (formerly known then Al-Hakeem party) and Al-Chalabi  (Iraqi National Congress-INC) was affiliated with TISCI during the election; the two are known for their opposition to Shahristani, strong support for privatization and inclination towards PSCs. Their position was strengthened by the support they got from the new Minister of Finance, Hoshiar Zebari (KRG).

Soon after the formation of the new government in September 2014 a new powerful and coordinated campaign directed against the LTSC; partly but mostly, political motivations and rivalries and partly unfamiliarity with oil industry in general and the concluded contracts in particular.

The new minister of oil began, in February 2015, a series of statements by first expressing openly his preference for PSC, “Iraqi public,.., needs to be educated about the benefits of PSCs”[23], then continues in discrediting the LTSCs, though, making erroneous claims that actually expose his modest understanding of oil economics and signed contracts.[24]

On the same wave-length advises Hoshyar Zebari, “It is better to move from service contracts with IOCs to production sharing contracts”, asserting  “Even the most strong opponents of this now have come to see that these [current technical service contracts] are not beneficial.”[25] His remarks are recycling of those aired by KRG and pro PSCs.

Al-Chalabi, used his parliamentarian position and the opinions expressed by minsters of oil and finance to make further and formal onslaught on LTSC through a formal communication to the Minister of Finance. But, thorough assessment of the data presented in the formal communication proved to be inaccurate with many flaws and wrong interpretation of the signed contracts (Jiyad October 2015).

The same call continued unabated even after the last cabinet reshuffle, which brought current minister, Jabbar Allibi who, a few days after taking the helm of the ministry, stated, “We are opening dialogue to come into acceptable terms that are of benefit to both Iraq and IOCs.”[26] For months latter he said “We are in the process of concluding a consultancy contract,…., to help us in reviewing some of the clauses in the contracts.”[27]

 

What prompts and enforces such persistent calls for contract revision or conversion?

Following the debates, expressed opinions, statements, information and statistical data and course of events could lead to the following main brief explanations:[28]

  • Politicization and personalization of the issue, primarily directed towards Shahristani;
  • Unfamiliarity and wrong understanding of types of contracts, especially the comparative assessment of LTSC vs. PSC as evidenced by what Mahdi, Chalabi, Zebari and Allibi among a few others have said;
  • Da’esh (Islamic State of Iraq and Greater Syria- ISIL/ISIS) effects since June 2014 after the governorates of Naynaw (Mosul), Salahuldeen and Ramadi were taken by Da’esh; represents serious existential security threats, severely interrupting economic activities including petroleum sector and depleting the country’s meager financial resources;
  • KRG seizure of oilfields operated by NOC, leading to depriving the federal treasury of significant stream of revenues; during the entire period between June 2014 and January 2018 export of Kirkuk oil constitutes only 2% of total oil export revenues and 1.9% of the corresponding volume of exports;
  • Collapsed Iraqi oil export prices from $102.61/b in June 2014 to lowest floor of $22.21/b in January 2016 before improving gradually to $63.288/b.

 

The impact of these calls and views was culminated in imposing, by the Parliament, a provision in state budget law for 2016 and then for 2017, obliging the government and the MoO to, “Revising bid round contracts with the aim of amending them to protect Iraq’ economic interests and to increase oil production and reduce expenses and find a mechanism that links cost recovery in accordance with oil prices.”[29]

 

Obviously, that provision in budget laws indicates the advocates for contract revision are not aware that Iraq, as discussed above, had already gave significant concessions and thus lost vital negotiation power and any revision would entail giving further concessions.

The target to “reduce expenses” is a matter of “skill capacity” of the Ministry staff to insure prudent projects co-management not the contract itself. Moreover, calling for coupling cost recovery with oil price would, legally, economically and practically converting the LTSCs into a “revenue sharing contract”, which works for the IOCs favor as work progress towards the production plateau; Finally, if that occur it will not “protect Iraq’ economic interests”.

 

Eighth: New Contract Model with More Reliance on the IOCs

When he took office in August 2016, the Minister of Oil pledged to use more “national efforts” and base decisions on “solid sound studies” regrading upstream petroleum projects. By now, he renegades on both; MoO has been working under rather different environment characterized with inconsistency, secrecy, ambiguity, absence of coordination and coherence, inclination towards foreign companies and lack of project feasibility.

Since that reshuffle of August 2016, the MoO has been persistently trying to offer most possible remaining oilfields and exploration blocks to IOCs under new contracts that differ from those adopted by the Ministry in previous four bid rounds.

On 23 October 2016, only two months after the current Minister took the helm of the Ministry, the Ministry offered 12 new discovered but not developed oilfields announced.

The most alarming and absurd components of the announcement are the contractual modality and the process of awarding and contracting. The Ministry asks the IOCs to submit “their own proposals for contractual, commercial and financial terms and conditions..”, and “Bilateral and direct negotiations between the ministry of Oil and the IOCs will be used as a basis for awarding the fields’ development and production contracts to the IOCs after agreement on the terms and conditions of the contracts”.

The above contravenes the experience, the process and the basic premises of the Ministry used at least since the preparation for first bid rounds mid-2008. No model contract; no process timeliness; no final tender protocol; no bidding parameters; no open bidding. Simply, the IOCs state what they want not the other way around as what it should. Elementary negotiation principle implies that those who decides the terms and conditions comes the winner. Even people with no negotiation experience at all do surrender this way! So what was going on at the Ministry, why and who was behind this demise?

A bilateral and direct negotiation is recipe for corruption and bad governance; it is really shocking to see such a retreat from the open and very transparent bidding process to behind closed door bilateral negotiation.

What make the matter even worse and devastating are the human resource skills and capacity gaps, especially in international contract negotiations, implementation, follow-up and monitoring.

Less than three weeks later the offer was postponed for a year due to pressure that questions the rationale for such offering.[30]

MoO reinvigorated rather intensively the direct behind closed door negotiation, with ExxonMobil regarding the package for developing Ratawi and Nahr Bin Omar in oilfields under a new, proposed in November 2016 by the Minister,  Southern Iraq Integrated Project – SIIP, which incorporates the  stalled Common Seawater Supply Project-CSSP.

The Minister stated that, “[w]ithdrawing this project [CSSP] from ExxonMobil in 2012 was a grave mistake.” (IOR, 2 December 2016). I disagree for the following reasons:

  • ExxonMobil was lead company in initial CSSP proposal 2010, but was excluded after the company signed contracts with KRG in conformity with the then and still blacklisting policy of the Ministry;
  • The proposed cost of $20 billion was unreasonably high;
  • The burden-sharing or IOCs proportional contribution in the cost of project was not endorsed by other IOCs;
  • The capacity of the project was based on the contracted PPT, which, as explained above, was reduced dramatically, Thus, had CSSP executed as envisaged initially, it would be significantly idle capacity by now;
  • By declaring such a mistake soon before launching discussion with Exxon manifest professional and negotiation naivety because it simply gives your opponent a leverage over yours!..

By first week February 2017 and while the Minister was in the US and after having “[A] dinner with their [ExxonMobil] CEO”, he said, “We have reached a good stage now” indicating the deal will be signed, “Before the end of the year” (IOR, 13 March 2017).

That did not materialize; the Minister declared that no agreement was reached with ExxonMobil and the project, i.e., SIIP, will be offered to other companies if the two sides do not agree by February 2017.[31]  The back and forth on this deal was finally ended by announcement in June 2018 that ExxonMobil is out of CSSP / SIIP[32]

Further remarks are due on this deal. First, this project was supposed to be executed jointly with CNPC, but there are no credible and verifiable evidence that suggests the Ministry had conducted any discussion with this company, why?; second, during the entire two years negotiation between the Ministry and ExxonMobil, no information was made available on any essential parameters of the negotiation, what was offered by each side and why was the negotiation reached a stalemate; third, it seems the Ministry has left it to ExxonMobil to propose the type and conditions of the contract then the Ministry would look at that; fourth, it was not known whether there was /is a committee that was charged with negotiating this important project on the Iraqi; fifth, no information is available to indicates that the Energy Committee of the Council of Minister and/ or Oil and Energy Committee of the Parliament had been duly kept informed on all phases and results of the negotiation.

The third example is the latest mass offering of border fields and exploration blocks. In a sudden move the Ministry announced in first week of January 2018 it will hold the fifth bid round on 7 May 2018 and proposing very tight schedule to accomplish the bidding; thus expedite the timing it has previously indicated in its announcement of 27 November 2017. The Ministry provides no clarification on why it decided to hold the round earlier than announced previously.

 

By offering some 18 onshore brown and green fields and exploration blocks and one offshore area, all grouped under “9 exploration blocks” on the borders with Iran and Kuwait, the Ministry seems to be embarking for yet another grand-opening to IOCs.

 

26 IOCs were qualified to participate in this round including six already blacklisted by the Ministry from participating in upstream petroleum projects. Thus, it is puzzling to see the Ministry contravenes its own policy; who is behind this obvious chaos?

 

What causes serious concerns is the complete blackout on the type and components of the contract(s) for this bid round. Moreover, what complicates the matter even more is that IOCs are who will suggest these contracts as stated by the Minister said, “The commercial models, by the companies wishing to invest, will be studied and analyzed then negotiated and select the contract which achieves our objectives”[33]

Leaving the contracts to IOCs discretion is, as discussed earlier, a recipe for disadvantageous imbalanced deal that works against the country’ interests and adoption of the abandoned Terry Adams approach.

 

Also, due to the tight timetable and known management capacity gaps at the Ministry, the biding process presents serious challenge as there are 9 groups of fields and blocks; 3 or 4 types of contracts and 26 companies eligible to participate in the bid round. Covering areas with two or three different types of already producing (brown) fields with discovered by not developed (green) fields and exploration blocks in a single contract would require the formulation of a complex difficult contract, largely due to the significant differences between the financial terms, contractual provisions and technical and geological requirements of these three covered areas.

Additionally, and this is very important, the contracts of this bid round should reflect the special status and the prioritization of developing fields straddled along borders with Kuwait and Iran, especially with regard to the possibility of joint development through the formula known as “Unitization” of the concerned field. This is in addition to the need for including in the contracts many of the conditions, provisions and practices recognized by international contracts for border fields.

Finally, the timing of the bid round was first set five days prior to the national election on 7 May this year then brought forward to 15 April and later moved it to 25 April! The Ministry announced on 13 April it has delivered the Final Tender Protocol and two Model Contracts to the 14 IOCs that bought the “Data Package”, without mentioning their names and not providing the text of the mentioned documents, as the MoO used to for the previous bid rounds.

 

The fifth bid round took place on 26 April 2018 in Baghdad and the model contracts were published soon afterwards. The process, the outcomes and the model contracts of this bid round have caused outrage among most known Iraqi oil and economic experts as they expressed their strongest opposition.[34]

 

Ninth: Shrinking Transparency, Deals Behind Closed Doors and Return of Secrecy

Transparency, in Iraq petroleum sector, is a new concept. Formally and officially it was introduced in the International Compact with Iraq -ICI under benchmark, “Establish and implement mechanisms to ensure transparency of petroleum sector flows” (GoI 2007). Pursuant to ICI obligations, MoO began publishing publicly available reports on production, export, and processing of crude oil and made them available on the Ministry’s website and also to take the necessary steps to joining the Extraction Industries Transparency Initiative-EITI.

 

Following its undertakings under ICI, 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) launch conference on 10-11 January 2010, when the country was accepted, by EITI as a Candidate.

As a candidate country, Iraq took all necessary actions and fulfilled EITI requirements that led the EITI International Board on 12 December 2012 to announce Iraq as “Compliant” country under the EITI Rules.

Attaining the compliant status seemed to be misunderstood by those at the Ministry, IEITI and others. Having the compliant status was seen as “mission accomplished”; as “permanent membership” in EITI; as “testimony of transparency in the sector”; it is about “oil revenues only” among others.

Hence, a sense of complacency prevailed and each IEITI annual report becoming mostly a copy of the previous one; the National Secretariat of IEITI-NS became more passive, less responsive to external views and non-transparent in its records.

Transparency at the MoO begun shrinking gradually and one month after the current Minister took office he caused serious blow to transparency; most data that used to be posted on regular intervals on the Ministry website since 2008 were suspended from September 2016 and all previous data archives became inaccessible.

But Iraq’s status as a compliant country was subject to “validation” of continued full compliance with EITI rules and standards, which was scheduled in 2017. Accordingly, a team from EITI International Secretariat-EITI-IS visited the country on April 2017 for a fact finding mission and prepared “Initial Assessment”, which found Iraq non-compliant (EITI 2017).

The Validator, Adam Smith International-ASI, agrees with the EITI-IS preliminary assessment but, moreover, downgraded two benchmarks and, thus, makes Iraq’s compliance even weaker.[35]

 

Apparently, the “Initial Assessment” forced the Ministry to resume posting, on its website starting from July 2017, some data, that was suspended in September 2016. But that was too little too late and EITI suspended Iraq status on October 2017.

Ironically, the Ministry continued on its non-transparent attitude and practices even after the suspension and after the Ministry and Iraqi authorities declared their commitments to EITI and to comply with the needed requirements to regain Iraq status. Examples are many, the one year long negotiation with ExxonMobil regarding SIIP (March 2017-February 2018);  with Jinhua, a Chinese company, to develop East Baghdad Oilfield (December 2017); the agreement signed on January, 2018 with the US company Orion to utilize associated gas from Nahr Bin Omar oilfield in Basrah province; the contract/agreement signed with the GE-Baker Hughes US companies in July 2017 related to associated gas from Nassiriyah and Gharraf oilfields in Thi Qar province, among others.

As usual, the Ministry has continued on its direct behind closed doors deals with IOCs without disclosing any vital information on these deals or about the contracts or agreements that were signed. Moreover and worst still, all the above mentioned contracts and agreements were negotiated and concluded without following the usual official contracting procedure that requires public tendering, open bidding and transparent selection. Finally, the Ministry was unable to clarify why associated gas from Gharraf oilfield was contracted to Baker Hughes when the associated gas from this field is already governed by the contract signed with Petronas and its partners!?

 

The latest manifestation of the Ministry’s non-transparent and secrecy mentality is related to the current fifth bid round.  Actually, this anti-transparency mentality contravenes all what was prevailed during the previous four bid rounds.

 

Regrettably, in reality there has been a clear consistent pattern on shrinking transparency and a return to pre 2003 secrecy of information in the petroleum sector, especially since the last ministerial reshuffle of August 2016; deeds are more revealing than symbolic formal declarations and rhetorical statements!

 

Part two:

The Balance-Sheet of Successes and Failures

Our evidence-based assessment of the development in the sector-wide petroleum focuses on the fundamental components of the sector. The basic premise is the assertion that the success of a prudence and soundness of petroleum policy could only manifest itself through harmonious, coordinated and timely execution of the main components of the said policy. Further assertion, logically and analytically, follows: a failure of policy at a sector-wide petroleum leads to further dependency of the national economy on oil export and consequently less sustainable development on the macro-levels.

However, this essay focuses on the petroleum sector leaving the sector-macro nexus to other time or to other scholars. Thus, the remaining space of this contribution covers five basic issues: Profile of oil production capacity and performance; Oil export, destinations and new marketing modalities;   Refining Structure and the chronic production-demand misalignment; The wasteful continuation of gas flaring; and finally the recent disturbing development regarding regulating the upstream petroleum.

 

Profile of Oil Capacity and Production

Oil production capacity and actual production in Iraq can be looked at from locational/ provincial or organizational (i.e. National Oil Companies-NOCs) or management (i.e. by National Efforts- NEs or by Joint Management Committees-JMCs with IOCs pursuant to bid rounds) perspectives, though overlapping.    However, availability and details of consistent data (especially in continued time series) limit the analysis.

At the commencement of 2018 Iraq production capacity stands at 5mbd[36] and total production at end December 2017 at 4.189mbd[37] (excluding KRG), indicating 16.2% idle capacity. This significant idle capacity, with its negative consequences for cash-needed Iraq, can be attributed to multiplicity of causes, including OPEC cut deal. If this idle capacity comprises some of those covered by the bid rounds, this would entail paying IOCs their corresponding Remuneration Fee in compliance with “take or pay” contractual provisions. It should also have implications for pace and scale of developing capacity further.

Based on our computation of average daily production during the second half of 2017 some 80.4% of total Iraq oil was produced by Basra Oil Company-BOC (including production from Thi Qar province); 10.5% from Missan Oil Company-MOC; 5.2% from Midland Oil company-MidOC (mostly from Wasit province) and 3.9% from North Oil Company-NOC (Mostly from Kirkuk province since production from Kirkuk, Ninawa and Salahuldeen provinces was negatively impacted by Da’esh effects and KRG seizure of some oilfields that are operated by NOC ).

 

The above indicates that ca. 96% of the country’s oil production during the second half of 2017, i.e., from BOC, MOC and MidOC, involves IOCs, due to the first two bid rounds, and those fields developed by national efforts; but MoO data does not make such distinction and thus we have to make some estimations.

IOCs have been involved, through ten contracts, in ten (twelve) currently producing oilfields, while another two, i.e., Najma and Qayara in Ninawa (Mosul) province have been on hold due to Da’esh effect.   Based on the signed contracts and their amendments and published data from formal and industry sources the following methodology was used to estimate oil production resulting from bid rounds and IOCs involvement.

  • Base Line Production –BLP, upon signing the contracts, was 1881kbd for oilfields under BR1 and 48kbd for two oilfields only in BR2;
  • BLP under BR1 are subject to “Natural Decline Rate-NDR” at constant 5% annually; it was increased to 7.5% from 2014 onward for one oilfield; the cut-off year for computation is 2011. BLP under BR2, though mentioned but contractually was not a counted for since these are “green-fields”;
  • The Remaining of BLP-RBLP at end 2017 was calculated for each oilfield under BR1 using its NDR;
  • Current Production-CP, at end 2017, for each oilfield was compiled from “latest available” data;
  • Net Additional Production-NAP, i.e. due to IOCs involvement, for BR1 oilfields was calculated as follows: NAP=CP-RBLP and for BR2 oilfields: NAP=CP.

 

Appling the above approach gives the following estimates:

  • Total oil current production-CP from the ten oilfields at end 2017 was 3653kbd;
  • The remaining base line production-RBLP for oilfields under BR1 at end 2017 was 921.05kbd;
  • Net additional production-NAP from IOCs involvement in the ten oilfields at end 2017 was 2731.95kbd;
  • Total oil production (excluding NOC and KRG) at end 2017 was 4041kbd, which means oil production from oilfields operated by National Efforts-NF was 388kbd (i.e. 4041-3653)

 

The above analysis and computation indicate that actual production from the ten oilfields was less than one-third of the originally contracted plateau production that was supposed to be reached at end 2017. But because of the limited development of oil production by national efforts, actual production from the ten oilfields constitutes over 90% of total oil production. Most likely, oil production by national efforts had actually carried the burden of OPEC cut.

Net additional production, which represents the real IOCs contribution, stands at 2.7mbd and this represents 68% of total oil production in the middle and southern Iraq. Also NAP decides the magnitude of two important financial parameters: capital investment that was spent to have such production levels and net remuneration fees; both parameters represent payment to IOCs.

 

Oil Export, Destinations and New Marketing Modalities

Monthly data on oil exports continued, by State Oil Marketing Company –SOMO, uninterrupted by deliberate anti transparency measures imposed by the current Minister of Oil. Export data are grouped under Kirkuk blend, which is exported through pipeline through Turkey to port of Ceyhan, and Basra blend, exported from export terminals on North Arabian Gulf. Until mid-June 2014 small quantities used to be trucked to Jordan from Kirkuk.

 

From end June 2008 to end January 2018 Iraq exported a total of 8.8 billion barrels, 90% of which is Basra blend.  Kirkuk export, since March 2014, was severely impacted by security conditions, Da’esh effect and KRG actions. In fact SOMO data indicates zero Kirkuk export since October 2015 except minor quantities between September 2016 and July 2017.

During the last ten years Iraq generated an accumulated $626.8billion in oil revenues, 88% of which is generated from Basra blend; indicating 2 percentage points in the price for Kirkuk blend favor reflecting quality and location advantages.

 

Iraq has three major market destinations: Asia, the Americas and Europe. There has been a dramatic change in markets configuration since 2008, leaning forcefully towards Asian markets at the expense of the Americas. Asian markets had 32% of Iraqi oil compared with 41% for the Americas and 27% for European markets. In 2015 Asian markets share almost doubled to 61%, the Americans down to 9% and the European increased slightly to 30%.

This significant shift towards Asian markets could be attributed to many factors: high growth demand for oil in East Asian economies; refinery configurations in that region could very well process Iraqi crudes-both Basra heavy and Basra light; most IOCs that are involved in the bid rounds and receive their entitlements (for cost recovery and remuneration fees) in crude which is shipped to Asian markets; the serious and continued interruption of Kirkuk crude and finally aggressive pricing and marketing by SOMO to enhance its share in the that market.

It is worth highlighting in this juncture three developments concerning SOMO:

First, from June 2016 onwards SOMO diversified crude grades by launching Basra Heavy, reflecting the increasing magnitude of heavy crudes production due to bid rounds and also protecting the quality of its flagship Basra Light blend. But the monthly export data makes no such distinctions between these two crudes.

Second, on April 2017 SOMO broke with its established policy and began limited spot trading through auction on Dubai Mercantile Exchange-DME. Our monitoring and calculation suggest that between April 2017 and January 2018 SOMO sold 12 shipments of 2 million barrels each equally divided between Basra Heavy and Basra Light. Basra Light shipment generated total premiums worth $2.484 million over the Official Selling Price-OSP and a corresponding $11.242 million from Basra Heavy.

In addition to DME, SOMO began, in February 2018, similar auction through Platts and considering to auction through Argus.[38]

Third, on December 2017 SOMO entered an “agreement of partnership work” with the Russian company Litasco, Lukoil‘s international marketing and trading arm, by establishing a new venture, Lima Energy. The later name now changed into Iraq Petroleum Trading- IPT and becoming one of SOMO’ clients!

However, neither SOMO nor the Ministry provides information on the basic terms of this venture; surprisingly enough the Parliament did not make a move despite the fact that this type of “international agreement” should be subject to its approval!

 

Refining Structure, Production and Demand Misalignment

The structure of the Iraqi refining sub-sector has evolved, over many decades, in such a way that is currently characterized with multiple core complexes each has some smaller “satellite external” refineries linked, administratively, to it. Each core complex was developed gradually over the years by adding new capacities in the same location (or province) or by modernizing existing capacities or by both: addition and modernization.

Until mid-June 2014 Iraq has a nameplate refining capacity 984-kbd comprising all state owned North Refineries Company-NRC (494kbd); Midland Refineries Company-MRC (220kbd) and South Refineries Company-SRC (270kbd). Baiji refinery (402kbd) is the core complex of NRC; Doura refinery (140kbd) is the core of MRC and Basra refinery (270kbd) is the core of SRC. There are 10 state-owned smaller refineries with total capacity of 232 kbd (23.6%) while the three core complexes have a combined 752kbd (76.4%).

But all that has drastically changed after June 2014 due to Da’esh (ISL/ISIS) effect; most of NRC designed capacity has been extensively damaged, especially in Baiji and Qayara. Consequently, more than one-third of the country’ refining capacity was lost, and might take years and billions of investment to reconstruct it again.

 

Even before Da’esh effect, the refining sector suffers from two chronic misalignments: the first, actual refinery production is much below the nameplate capacity; indicating low utilization rate and the second, the obsolete technologies produce more of the lower parts of the barrel of products that is not commensurate with demand; leading to production-demand misalignments that has to be increasingly met through imports of expensive petroleum products.

In late 2009 the MoO commissioned many international consulting firms to undertake Front End Engineering and Design-FEED studies for four modern grassroots refineries with a total refining capacity of 890kbd.[39]  All refineries were offered for investment through many promotional activities since 2011 but without good results, except a scandalous contract, with technically incompetent and financially bankrupt, for Missan refinery that was signed many years but remains ink on paper to this day!

Also the government decided to execute Karbala refinery and began the work on 2014; but the construction encountered lack of funding and change of prioritization under current Minister of Oil, who discourage state involvement in the refining sector, while the Ministry seems to encourage Iraq state investment in refineries outside the country![40] Was there any such confusion and absent of basic economic principles of prudent petroleum policy??

Under the current minister, the ministry announced repeatedly these and other refineries for private investment without noticeable success, except small, and accordingly technologically inferior, refineries that would deepen the above mentioned misalignment.  However, the Ministry announced an award of 300kbd Faw Refinery in Basra province to two Chines companies but without FEED study and no known information or details on the signed contracts.[41]

So far, refining sector remains one of the major failures of petroleum policy, or lack of it, in the country and thus the chronic supply-demand misalignment.[42]   It is worth mentioning in this regards that the Ministry has suspended, since September 2017, providing monthly data on the demand on “other oil products”, which constitutes major import item since January 2009![43]

Gas Flaring Continues

Another chronic disappointment that manifest serious policy malfunction is the continued gas flaring and at accelerated rate.

All gas production in the country has been associated with oil production; the more oil is produced the more associated gas is produced as well depending on the gas-oil ratios of the related oilfields.

Monthly statistical data indicates that, on average, gas flaring to total produced associated gas has increased from 51% in 2009 to reach a maximum of 69% in 2015.

The Ministry suspended the publication of these data on September 2016, a month after the current Minister took the helm of the Ministry, and the monthly average of the flared gas for the first eight months of 2016 was down to 64%.

In this regard I would argue that gas flaring is more of apparent policy failure than absence of legal framework.

The establishment of north and south gas industry entities within MoO in 1979 and 1980 intended to “utilize all associated gases available in the fields of Iraq to produce dry Sales gas, LPG, Natural gasoline and Sulphur for domestic needs and for exports. But wars from 1980 to 2003 had interrupted the giant Southern Gas Project [44]

Law 84 of 1985 for Reservation of Hydrocarbon Endowment, which is still valid, forbids, according to Article 8-Second, gas flaring “unless it is not possible to utilize it economically”.

 

On April 2005 the MoO signed a MoU with Shell and Mitsubishi to conduct a two-stage Comprehensive Gas Plan covering all fields, which was delivered by end 2008. Based on that MoU, MoO and Shell signed on 22 September 2008 a Head of Agreement-HoA to, “establish a joint venture to reduce gas flaring in the South of Iraq and gather and gas for utilization in the domestic and export market (the “South Gas Utilization Project” )”.

The leaking of “confidential” HoA prompted evaluation, criticisms and opposition from many Iraqi professionals, e.g. Jiyad (2009), Merza (2010), Al-Ameer (2011), among others.

 

The negotiation and finalisation of the HoA lasted longer than anticipated but eventually lead to signing a joint venture establishing Basra Gas company-BGC between South Gas Co (51%) Royal Dutch Shell (44%) and Mitsubishi (5%); BGC was approved by the Iraqi Cabinet on mid-November 2011 and officially announced the commencement of its operations on 1 May 2013.

One direct consequence of BGC was to exclude gas utilisation provisions in the contracts governing Rumaila, WQ1 and Zubair oilfields offered under first bid rounds; while such provisions were included in the contracts for oilfields covered by the second bid round and offering the same remuneration fee for gas on oil-equivalent barrel.

BGC’ first tanker of exports of condensates was on 22 March 2016; almost eight years from signing the HoA, which ironically includes a “Quick Wine Assets” that supposes to  “optimization and fast-track procurement of equipment in order to increase gas production before incorporation of the Joint Venture”!!!

The Ministry signed on the World Bank Zero Flaring Initiative by 2030, but the Ministry keeps giving inconsistent indications on when gas flaring would end.[45]

 

Another policy inconsistency is manifested by three contradictory developments: continued gas flaring, importing Iranian gas and commitment to exporting “surplus” gas to Kuwait (Ministry press office, 21 September 2017)!

But the strangest lack of proper policy understanding is what the Minister has reportedly said, on 2 February 2017, “Gas utilization in the country was impacted by, among other factors, the fluctuation of gas prices in the international markets”. ! Iraq fails to utilize its associated gas for domestic uses, it imports gas from Iran, yet it blames gas prices in the international markets!![46]

 

The publication of data on gas production, utilization and flaring  resumed on July 2017 and based on them the average monthly (July 2017- February 2018) flared gas down again to 56.6% of total of associated gas production.

Much of that reduction in gas flaring was attributed to BGC activities that led to increasing export of condensates and LPG in the first quarter of 2018. Also it was attributed to increased gas utilization form oilfields contracted under the second bid round. For example, gas treatment plant with capacity of 2 million cubic meters daily- mcmd was inaugurated at Buzergan oilfield (CNOOC as Operator) on 2 April 2018 that would supply power plant to produce ca 104MW.[47] Earlier, in December 2017, Russia’s Gazprom Neft, operator of Badra oilfield, launched the commercial operation of a 1.6 billion cubic meters a year capacity gas processing plant at the oilfield, which monetizes at least 95% of the produced associated gas.[48].

But the challenge that would face the Ministry’s efforts to end gas flaring in 2021-22 is of two folds; gas flaring rate is now stands at 56.6% at oil production (excluding KRG) of 4.360mbd and thus much is needed from the Ministry to reduce that rate to zero even at today’s oil production level. Moreover, oil production in 2021-22 will, according to the Minister[49], reach 7mbd, which implies increasing associated gas production by 61% on today’s level.

 

It should be mentioned at this juncture that the Council of Ministers has approved Resolution 51 of 30 January 2018 mandating the MoO to launch “Supplemental Natural Gas Processing Contracts (SNGPCs) for the processing of associated gas to qualified investors through a competitive and transparent bidding process that adheres to best international standards” no later than 30 June, 2018.[50]

So far, the Ministry has been non-compliant to that Resolution since none of the announced deals and contracts were awarded “through a competitive and transparent bidding process” e.g., Baker Hughes for associated gas in Nassiriya and Garraf oilfield (2 April 2018); Orion Gas Processors to capture and treat gas from Nahr Bin Omar oilfield (9 January 2018).

But the question remains on whether the Ministry could keep its promise for ending gas flaring by 2021-22?

 

 

Regulating the Upstream Petroleum

Two legal instruments of particular and direct relevance to upstream petroleum have been under the focus of attention since 2003; these are Federal Oil and Gas Law-FOGL and Iraqi National Oil Company-INOC Law. Many drafts for both laws were proposed and discussed and much has been written about them, particularly since February 2007.

While FOGL, even in its latest version, has practically been overtaken by events, INOC Law was passed recently by the Parliament. But because this law was full of flaws, ambiguities, contradictions, inconsistencies and, above all, contraventions to the Constitution, it prompted strong and wide opposition to the extent that this author has launched formal detailed appeal before the Federal Supreme Courte by highlighting where and why this law is unconstitutional and, thus, should be revoked.

Due to the importance of the law and its highly likely damaging impacts on the petroleum sector and on the Iraqi economy at large, it is imperative and of vital necessity to adopt inclusive and participatory methodology for combating the law. For this purpose I adopted four phases AMTA approach: Awareness, Mobilization, Teaming-up and Action.

Awareness phase aims at highlighting what is seriously wrong with the law by providing preliminary evaluation of the law and then further specific with economic evaluation on how this law could violate the constitution, weaken INOC itself and contribute to the disintegration of the country. Articles in Arabic and English were shared widely and posted on many websites.

Mobilization phase began by calling upon Iraqis, collectively or individually, to protest the law and file “open” appeal to the Federal Supreme Court; two articles in Arabic were shared and posted on 26 and 27 March respectively.

The call aims at prompting the citizens to know their constitutional rights and empower them with the knowledge base to act as was enshrined in the constitutional article 93.

Team working phase began when many oil professionals, lawyers, civil society organization, politicians, parliamentarians and media sources among others supported the idea of appealing to FSC.

A small group of Iraqi oil professionals was assembled in Baghdad to maintain contacts with the lawyers and follow-up the matter inside the country especially with media sources and events organization. Two fundamental steps were done: the first is to prepare a draft of detailed appeal against the law on article-by-article base and the second is to provide the lawyers with “Power of Attorney” by the plaintiffs.

Action phase began with many different actions such as writing articles, organise meetings and roundtable debates and a group of Iraqis abroad launched on 4 April an online-campaign against the law.[51]

All components of the AMTA approach are ongoing and continue until this atrocious law is revoked. Increasing number of articles and positions in support of the appeal are evident in the Iraqi media and among the professional networks.[52]

Two colleagues from Baghdad with legal team made the formal appeal before the Federal Supreme Court and the process is moving forward.

On its side, the Council of Ministers-CoM asked the Ministry of Oil on what the Ministry has taken regarding the implementation of the said law and also to provide its opinion on the appeal against the law and which articles in the said law the ministry would appeal against.[53]  The Ministry formed a 12-man committee but focusing on the implementation matters with no mention of the appeal issue![54]

Much of the future development of upstream petroleum, prospect of INOC itself and the integrity of the country, I would argue, hinge on revoking or radically amending this law. Time will only tell!

Another issue of particular and critical importance is the legality and constitutionality of KRG’PSCs and its independent export of oil without the consent of the federal government.  The latter appealed to Federal Supreme Court-FSC many years ago, but KRG resisted appearance before FSC. However, the comparative power shift post the untimely referendum on independence and the collapse of Da’esh had forced KRG to attend before FSC. Accordingly, FSC, on 27 June 2018, listened to the filed case by the Ministry of Oil against KRG and gave lawyers of both sides until 4 August this year to present additional documents and evidences pertaining to Kurdistan region’s independent oil policy, and set the next hearing for 14 August 2018.[55]

 

Concluding Remarks

NDPs post 2003 have become increasingly indicative documents with all ministries are non-accountable for adhering to the targets of the NDP or complying to what was included in that plan. A logical consequence of such lack of sound and coherent national planning perspectives is the continued structural imbalance and reliance heavily on commodity export, i.e., crude oil. And with the absent of meaningful structural diversification (both vertical and horizontal) the state “oil dependency” increases, “rentierism ” consolidates, vulnerability to external shocks and leverages enhances and, consequently, sustainable socio-economic development derails significantly.

Similarly, there was no white-paper for coherent and coordinated petroleum policy that integrates the three sub-sectors; all major policies and actions were mostly “Minster-base” even if there were plans or strategies as the case of INES signifies. Over the last 15 years, decision makers, i.e., ministers of oil were mostly motivated by “scoring achievements through contracting” instead of “delivering results and outcomes”. That is why upstream petroleum attained less than half its contracted levels with almost no progress on refining and gas flaring continues unabated.

The political economy of relationship between IOCs and the host developing country, e.g. Iraq can be assessed through the contents of the contracts and their implementations. The foregoing analysis clearly demonstrate a deteriorated condition for Iraq; while the original signed contracts were for the Iraqi interests, the revisions of these contracts and the concluding the recent ones (of April 2018) have shifted the balance towards IOCs interests.

Considerations of and data on cost, effectiveness and payment to IOCs are hardly made on regular intervals, on time and with full disclosure. Hence, there seems to be deliberate persistent efforts to prevent proper and comprehensive economic analysis and assessment. On the other hand, the Ministers and senior officials at the ministry use to make unsubstantiated and mostly contradicting statements on these matters.

It seems that all the above occurred under conditions of lack of transparency, absent of good governance and a return to secrecy with many important deals are concluded behind closed doors, particularly with the American companies, and without the usual economic justification or feasibility assessment. This bad unproductive and questionable style of management had prevailed especially since the last cabinet shift of August 2016.

All the above, and as highlighted throughout the article, deserves further attention and investigations through serious academic and professional research works.

*Originally published on International Journal of Contemporary Iraqi Studies, V12:3, 2018

 

 

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Cordesman,  Anthony H.(2010), ‘Iraq: ‘Mission Accomplished’ Mark II.’ Aug 20, 2010. CSIS-Center for Strategic & International Studies- Washington, D.C. http://csis.org/publication/iraq-mission-accomplished-mark-ii Accessed 11 February 2018.

Council of Ministers (2013), Integrated National Energy Strategy 2013–2030, Baghdad, June.

EITI (2017), Validation of Iraq: Report on initial data collection and stakeholder consultation. Norway. https://eiti.org/sites/default/files/documents/iraq-_2017_validation_initial_assessment_final_draft_asi_comments.pdf  Accessed 23 February 2018.

Government of Iraq-GoI (2007), A Shared Vision A Mutual Commitment, The International Compact with Iraq, 2007 Mid-Year Progress Report, Released at the United Nations in New York, 20 July.

Hill, Patrice (2013), “Iraq’s flood of ‘cheap oil’ could lock world markets”, The Washington Times, 3 February 2013.  http://www.washingtontimes.com/news/2013/feb/3/iraqs-flood-of-cheap-oil-could-rock-world-markets-/#ixzz2KS7TiLBe  Re-accessed 11 February 2018.

IEA (2012), Iraq Energy Outlook-World Energy Outlook Special Report, Paris, October.

IEITI- Iraqi Extractive Industries Transparency Initiative (2016), Annual Report 2015, Baghdad, Iraq. The annual report was prepared by KPMG for IEITI.

International Oil Daily-IOD (2017), 1 December.

Jiyad, Ahmed Mousa (2009), Iraqi-Shell Gas Deal: who occupies the driver’s seat? Posted on Energy Intelligence http://www.energyintel.com/PubHome.asp?publication_ID=112, also reposted on IOF http://www.iraqoilforum.com/wp-content/uploads/2009/05/ahmad-musa-jiyad-iraqi-shell-gas-deal-who-occupies-the-drivers-seat.pdf

Jiyad, Ahmed Mousa (March 2010),Remuneration Fees Are Measured In Cents, Not Dollars.” MEES v53 nr 11, 15 March.

Jiyad, Ahmed Mousa (2011),“Oil upstream development: the feasibility of a fast-tempo, big-push strategy”, 5(1) International Journal of Contemporary Iraqi Studies pp11-46 (IJCIS) (Intellect Books, UK);

Jiyad, Ahmed Mousa (September 2014), The New Oil Production Targets- New Terms and Implications. Posted on Iraq Business News- IBN, 8 September, http://www.iraq-businessnews.com/2014/09/08/the-new-oil-production-targets/

Jiyad, Ahmed Mousa (March 2015), Remarks on Recent Statements from the Ministry of Oil.  Posted 3 March 2015 on http://www.iraq-businessnews.com/2015/03/03/remarks-on-recent-statements-from-the-ministry-of-oil/ the Arabic translation was done by and posted on http://www.iraqicp.com/index.php/sections/objekt/26001-2015-03-09-21-25-03

Jiyad, Ahmed Mousa (April 2015), PSCs – wrong idea, wrong time. Energy Economist-Platts, Issue 402- April 2015.

Jiyad, Ahmed Mousa (May.2015), $14.4bn Compensation to IOCs: How Accurate or Possible? (With two feedbacks from the Ministry of Oil). http://www.iraq-businessnews.com/2015/04/05/14-4bn-compensation-to-iocs-how-accurate-or-possible/

Jiyad, Ahmed Mousa (October 2015), The Finance Committee of the Iraqi Parliament: The Need for More Accuracy and Better Transparency, http://www.iraq-businessnews.com/2015/10/20/parliamentary-finance-cmte-the-need-for-more-accuracy-transparency/

Jiyad, Ahmed Mousa (2017), Iraq, in: Pereira, Eduardo G and Talus, Kim (co-edit), Upstream Law and Regulation, A Global Guide, 2 edition. Glob Law and Business Ltd. Gomer Press, UK. Pp. 673-698.

Jiyad, Ahmed Mousa (January 2017), “Iraqi Refining: Reality Check and Policy Thoughts for Consideration”. Posted on 24 January on IBN website: http://www.iraq-businessnews.com/2017/01/24/iraqi-refining-reality-check-and-policy-thoughts-for-consideration/

Jiyad, Ahmed Mousa (December 2017), Developing Majnoon Oilfield by National Effort-Important Move in the Right Direction, posted on IBN 26 December 2017 http://www.iraq-businessnews.com/2017/12/26/majnoon-development-plan-important-move-in-the-right-direction/  the Arabic version posted on Al-Akhbaar 22 December 2017 http://www.akhbaar.org/home/2017/12/238430.html

Joint Organisation Data Initiative- JODI, https://www.jodidata.org/oil/database/country-by-country-review.aspx

Iraq Oil Report-IOR, various issues

Mackey, Peg (2011), Iraq Set to Rework Oil Contracts as it Rethinks Output Target, IOD, 6 May, London.

MEES (2018), Vol 61, Issue 25, 22 June

Merza , Ali (2010), Notes On Pricing In The Heads Of Agreement On Natural Gas In Southern Iraq,  29 January, http://www.mees.com/cms/2010/01/notes-on-pricing-in-the-heads-of-agreement-on-natural-gas-in-southern-iraq/ Accessed 12 February 2010.

Mohammed, Aref (2009), Iraq’s weakened unions fight foreign oil firms. Reuters, 13 July.

Osgood, Patrick (2013), “New energy strategy aims to streamline oil sector”, Iraq Oil Report-IOR, 28 March.

Petroleum Intelligence Weekly-PIW (2012), Middle East’s Transition Offers Little for IOCs, 15 October.

Sharushkina, Nelli (2012), Gazprom Neft Eyes New Projects in Iraq, IOD, 3 February, St.Petersburg.

 

CONTRIBUTING DETAILS

Ahmed Mousa Jiyad is an independent development consultant and scholar. He is founder and owner of Development Consultancy & Research; Norway; Energy Senior Expert mandated by the European Commission; accredited Expert on Extractive Industry Governance by UNDP; Associate of the (former) Centre for Global Energy Studies- CGES, London; Affiliated Expert with European Geopolitical Forum (Brussels); Global Energy Associate with Brussels Energy Club (Brussels); Senior Country Analyst for the PRIX- Index on Political Risk and Oil Exports (Oslo); Blogger Expert for Iraqi Business News-IBN (UK); Senior Associate with Mannara Consulting (UAE); Contributor to and Guest Editor of the academic International Journal of Contemporary Iraqi Studies-IJCIS (UK/USA/Canada); MEES and Energy & Geopolitical Risks; Oil, Gas and Energy Law-OGLE, among others. He has been, and still is, professionally cooperating with many Iraqi, regional and international companies, organisations, institutes, media, civil society organisations and variety of other entities.

Jiyad studied and graduated with BSc in Economics (Univ., of Baghdad), High Diploma in Planning (Univ., of Birmingham, UK), MSc in Development Studies (Univ., of Bath, UK) and MA in Law & International Affairs (Fletcher School of Law and Diplomacy: Tufts and Harvard universities, USA); in addition to attending numerous professional courses.

He has over 40 years of extensive international professional and academic experience working with governments, local governments, academic institutions, private sector, NGO and international organisations in Iraq, UK, USA, Norway, and, with UN organizations, in Poland, former Czechoslovakia, Hungary, Uganda, Sudan and Jordan.

While in Iraq (1968-88) he was a Lecturer at Almustansiriya University; Senior Economist with Ministry of Oil and INOC; Chief Expert and Director at the Ministry of Trade; Chief Expert and Head of Commission with the External Economic Relation Committee- Council of Ministers. During 1975-88 he had actively participated in negotiating major oil projects and contracts, financial agreements, project financing and bilateral economic and technical cooperation agreements.  He left Iraq to the US in July 1988 as Fulbright Hubert H. Humphrey Visiting Fellow.

Jiyad is active scholar with regular participation in international conferences, workshops, seminars and related events. He has written and publishes widely since 1976 on energy and other developmental issues, and he is regular contributor to academic, professional and industry journals and periodicals; most of his contributions and publications, in English and Arabic, can be found online, mostly on http://www.iraq-businessnews.com/category/oil-gas/ahmed-mousa-jiyad/ ; http://www.akhbaar.org/home/search/?sq=Ahmed%20Mousa%20jiyad

He is Iraqi-Norwegian citizen, born in Iraq 1945, and lives in Norway since October 1989. He can be reached at: mou-jiya@online.no and his mailing address: Skreia 19, 5725 Vaksdal, Norway.

https://orcid.org/0000-0002-0946-9898

[1] This part of the article was based on data and information from 40 detailed Excel spreadsheets, each summarizes one MoU.

[2] I was invited to attend the Symposium, and was co-moderator of the Oil Policy Working Group.

[3] In its meeting Nr. 8 dated 3 March 2009. See http://www.goi-s.com/view.224/. Accessed on 9 February 2010.

[4] For detailed testimony see his interview with Ruba Husari for Iraq Oil Forum-IOF in Dubai dated 11 May 2009, posted 20 May on http://www.iraqoilforum.com/?cat=7 Accessed 21 May 2009.

[5] For example Issam Challabi, in his statement dated 27 September 2008 on the proposed deals including the HoA with Shell provides details suggesting deliberate neglect; Direct email communication. 

[6] Based on information from MEED, 3 September 2008 and International Oil Daily-IOD, 12 November, 2008

[7] Law Nr. 21 of 1997 published in Alwaqee Aliraqia nr. 3683 dated 18 August 1997 ratifying the Development and Production Contract and the Memorandum of Understanding related to Al-Ahdab oilfield signed in Baghdad on 4 June 1997 between MoO and CNOC and CNI, represented by Alwaha Company.

[8] Council of Ministers-CoM Meeting, nr. 8 dated 23 February 2010.

[9] http://www.parliament.iq/Iraqi_Council_of_Representatives.php?name=articles_ajsdyawqwqdjasdba46s7a98das6dasda7das4da6sd8asdsawewqeqw465e4qweq4wq6e4qw8eqwe4qw6eqwe4sadkj&file=showdetails&sid=4343 Accessed 27 March 2011.

[10] This part borrowed heavily from Jiyad (2017).

[11] The proposal was that Adams would consult with IOCs and academics as to ‘the desired features of a model contract”. More on this see Greg Muttitt article- No blood for oil, in this volume.

[12] Basrah Provincial Council held two extraordinary meetings on 24 and 28 June 2009 to debate the first bid round.

[13] Speaker of the House, Iyad Alsammari, met, on 22 October 2009, with delegation from oil professional in Basrah. They outlined and explained the main flaws of the contracts related to the bid rounds and their disadvantages to Iraq from technical, economic and legal angles. Alsammari asserts in the meeting that the Parliament has the rights and responsibilities to go thoroughly through any of such contract. Press Office for the Parliament president, 22 October 2009.

[14] SOC staff held many meetings resulted in drafting and forwarding formal letter to the Minister of oil proposing the further development of the brown oilfields by national efforts through EPC conventional service contracts. See,  Letter To Iraqi Oil Minister From The General Manager Of South Oil Company, MEES, Vol. LII, No 25, 22 June 2009

[15] See, Open Letter from Iraqi Oil Experts to the Parliament (regarding draft oil and gas law), 5 March 2007 http://www.iraq-enterprise.com/oillaw/AmmanMeeting17FebruaryE.htm Last accessed 15 February 2010.

[16] Iraq’s, then Deputy Prime Minister for Energy, Hussain al-Shahristani, said that Iraq does not plan to lower its target for oil production of 12 mbd or to re-negotiate contracts with oil firms over their plateau targets.

http://www.iraq-businessnews.com/2011/05/09/shahristani-denies-rumours-of-reduced-oil-target/ Accessed 12 May 2011.

[17] To that end they signed an agreement on 11 January 2010 leading in a contract, financed jointly, that was signed on 1 July 2010 with an international consulting firm, Booz & Company, selected in competitive bid. A Jul. 17-18 Baghdad symposium was convened to launch the study and help ministries formulate the most expedient approach. See, Council of Ministers (2013): INES has seven elaborated appendixes but they are not in the printed and distributed document.

[18] IEA, Iraq Energy Outlook-World Energy Outlook Special Report, Paris, October 2012. This author was among the participants in the high-level workshop held in Istanbul- May 2012 and a peer reviewer of the Report.

[19] The Council of Ministers approved INES, based on its Executive Summary, at its meeting on 16 April 2013 by its Order No. 157 of 2013.

[20] See, for example, Mackey, Peg (2011), Sharushkina, Nelli (2012) and PIW (2012).

[21] Nefte Compass, 14 March 2013.

[22] For discussion on and calculation of R-factor see, Jiyad (March 2010).

[23] MEES, Vol. 58. No. 08, 20 February 2015.

[24] This author had debated these statements extensively; for detailed debate, see, Jiyad: (May 2015), (April 2015) and (March 2015).

[25] IOR, 2 April 2015.

[26] IOR, 22 August 2016

[27] IOR 2 December 2016

[28] There is good deal of details concerning these and other explanations, but space considerations limit our coverage.

[29] The same text appears in State Budget Laws, see, Alwaqee Aliraqia (2016; 2017). Author translation from Arabic.

[30]  https://oil.gov.iq/index.php?name=News&file=article&sid=718 Accessed 10 November 2016.

[31] http://www.alliraqnews.com/modules/news/article.php?storyid=69623  Accessed 25 December 2017.

[32] MEES, Vol 61, Issue 25, 22 June 2018

[33] http://oil.gov.iq/index.php?name=News&file=article&sid=1768  Accessed 28 November 2017.

 

[34] See http://www.akhbaar.org/home/2018/5/243940.html posted on 9 May 2018

[35] Adam Smith International (ASI), UK, was appointed as the independent Validator to evaluate whether EITI-IS’s work was carried out in accordance with the Validation Guide of EITI. The EITI-IS ’s Initial Assessment was transmitted to ASI on 16 July, 2017, giving also copy to IEITI-NS; ASI draft Validation Report, sent to the International Secretariat on the 10 August 2017. ASI (2017), Validation of Iraq.  https://eiti.org/sites/default/files/documents/asi_validation_report_iraq_first_draft_v1.pdf  Accessed 23 February 2018.

 

[36] As stated by the Minister of Oil at “Kuwait International Conference for the Reconstruction of Iraq”, http://www.akhbaar.org/home/2018/2/240670.html  Accessed 13 February 2018.

[37] https://oil.gov.iq/index.php?name=Pages&op=page&pid=113 Accessed 24 February 2018.

 

[38] SOMO’ Energy News Brief, issue 1 March 2018, https://docs.google.com/viewerng/viewer?url=http://somooil.gov.iq/images/DALAL/1-3.pdf Accessed 9 March 2018.

[39] These are Missan, Kirkuk and Ninawa refineries at150kbd each; Karbala at 140kbd and Nassiriya at 300kbd. http://www.moo.oil.gov.iq/studies/STUDIES/projects.html Accessed 4 March 2018.

[40] For example the recent information that Iraqi state is acquiring a stack in the Moroccan SAMIR refiner, see http://www.shafaaq.com/ar/Ar_NewsReader/62919d13-e251-4ff1-ba14-afbe01212f01  accessed 21 April 2018

[41] https://oil.gov.iq/index.php?name=News&file=article&sid=1846  Accessed 29 January 2018.

[42] For further detailed analysis on these issues see Jiyad (January 2017).

[43] On this latest move on data manipulation by the Ministry see monthly data provided by the Joint Organization Data Initiative- JODI.

[44] http://sgc.oil.gov.iq/date_co.php and http://ngc.oil.gov.iq/en_index.htm  Accessed 14 April 2018.

[45] Initially it was end 2018, then the Minister was reportedly said, on 16 September 2017, that gas flaring will ceased by end 2019 (http://newsabah.com/newspaper/133572   Accessed 17 Sept 2017,  then he said, on 2 April 2018, before end 2021 (http://www.akhbaar.org/home/2018/4/242541.html Accessed 2 April 2108.

[46] As reported on Almustaqila on 2 February 2017

[47] https://oil.gov.iq/index.php?name=News&file=article&sid=1913 Accessed 3 April 2018.

[48] http://www.iraq-businessnews.com/2017/12/06/gazprom-neft-commissions-new-gas-plant-at-badra/  Accessed 7 December 2017.

[49] See   http://www.akhbaar.org/home/2018/2/240670.html Accessed 13 February 2018.

[50] This resolution was related to approving a roadmap proposed by the Ministry in 26 November 2017 for the amended Work Plan regarding the World Bank Loan Requirements.

[51] http://ehamalat.com/Ar/sign_petitions.aspx?pid=1002  – the number of cite visitors exceeds 37000 (at 30 June 2018)

[52] For the text of the appeal in Arabic and other articles written by this author on both laws since 2007 can be accessed through the following links: http://www.akhbaar.org/home/search/?sq=Ahmed%20Mousa%20jiyad; http://www.iraq-businessnews.com/category/oil-gas/ahmed-mousa-jiyad/

[53] CoMs’ official communication number 19333 dated 28 May 2018.

[54] See IOR, 20 June 2018

[55] See IOR, 28 June 2018 and AlForat News (in Arabic), 27 June 2018, Baghdad, Iraq.

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.

The full article can be downloaded in pdf format here.

IEITI: Making Iraq “Compliant” Again

By Ahmed Mousa Jiyad.

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

IEITI: Making Iraq “Compliant” Again!

The Extractive Industries Transparency Initiative (EITI) suspended Iraq’s status as a “compliant” country on October 2017; the suspension, after initial irrational denial, prompted the Iraqi authorities to take necessary measures addressing this matter aiming for reinstating the country’s status and restoring relations with EITI.

The delayed, and still disappointing, 2016 IEITI Annual Report and this workshop, on the Report, are part of the formal efforts for making Iraq compliant again.

I have been following the progression of IEITI since its inception and directly involved, as independent external consultant, in many related research-work, peer-review assessments of related research papers, capacity development activities and consulting assignments, particularly those through Revenue Watch Institute-RWI (USA) and later through Natural Resource Governance Institute-NRGI (UK/USA).

Moreover, I have assessed every IEITI Annual Report since the first one on 2009 in addition to other related documents, work plans, annual activity reports and reports among others; as the two annexes to this intervention testify.

This brief is an outline of the PowerPoint presentation prepared, after formal invitation from IEITI National Coordinator, for and to be delivered, through Skype, before “Energy Experts Workshop on IEITI 2016 Annual Report” held in Baghdad, Iraq, 2 February 2019.

Key Messages

  • «Good Reporting» on Transparency improves transparency and enhances good governance;
  • “Publishing reports is not a goal in itself”;
  • IEITI annual Report is sovereign obligation and thus should be depoliticized;
  • 2016 Report: Progressing but Gaps Persist and the Disappointment Continues
  • Future IEITI annual Reports ought to be more qualitatively different from previous ones;
  • National capacity involvement in the process of IEITI Annual Reports preparation SHOULD be substantive and progresses significantly;
  • IEITI should be more “Independent” and Impacting than

Main Topics for Debate and Discussion

I – The Essence of Transparency in the Iraqi Extractive Industry (……..);

II – Assessing IEITI Annual Reports from 2009 through to 2016: Methodology & Guiding Principles; Each of these assessments was guided by and upholds four basic principles to be:

  • Objective (Pros & Cons: for & against)
  • Credible (Factual, truthful and evidence-based; cites examples, provides reference, specifies the case or the subject matter,.., ),
  • Independent (Professional, industry-focused, analytical and inquisitive)
  • Constructive (Improvement-oriented, forward-looking: provides suggestions, recommendations and way-out; what, how and why..)

III – IEITI 2016 Report: The Gaps Persist, the Disappointment Continues!?

PROS: Progressing but not there yet; it keeps the record of produced annual reports; First since Suspension; Includes 25 “Requirement-guided” contents.

CONS: Too long; Old information; Structurally fractured; Too many methodological flaws; Unforgivable statistical errors; Many inconsistencies; Missing items; Lacks comparative assessment; Irrelevant for policy implications; Astonishing “double counting” misjudgment; Unconvincing higher “materiality threshold”; Wrong understanding of basic terms; Lacks explanation of  very apparent and substantive data irregularities; Nothing on what plagued the sector: e.g., corruption!; Missing reconciliations of important data/revenue; Unexplained unreasonable huge PP price differentials; “Not intended to be relied upon” for “professional advice”!!!!!!; Too many more!!!!!

Required Immediate Actions for IEITI Report 2016   

  1. Remove the IEITI Report 2016 immediately from IEITI website;
  2. IEITI-NS & EY Revise, Correct, Redraft and significantly Shorten the Report to make it readable and understood by non-specialists;
  3. Cross-check (verify) the Report by External Independent Consultant;
  4. MSG reviews and approves the cross-checked Report;
  5. Circulate the cross-checked shortened, reviewed redrafted version and then translate it into the three languages.
  6. Organize few activities for specialized and professional debating of the report first then embark on wider societal engagement through different forms of participatory modalities.

IV – Lessons Learned: What, Why, How

Instead of repeating, through the usual copy& paste, lessons learned in almost every annual report, a detailed assessment of lessons learned over the 10 year experience and suggestions are done on the following related and relevant four blocks.

First, Report contracting and preparation process (……..) ;

Second, MSG’ role, effectiveness and openness (……..);

Third, IEITI- NS (…….);

Fourth, the Reconciler/ Administrator (…….).

V – IEITI Way Forward– from Symbolism through Effectiveness to Impacts

A.  Specific “Monthly/Quarterly/Annual” Evidence-Based & Verifiable Transparency Indicators (what, where, how, why..):

SOMO (volume, value, Crude type & export outlets; destination & who bought bow much, etc ;

PCLD (Field based IOCs investment; Cost recover & RF in cash and in kind; Contracts disclosure; Production ; Employment & Training; CSR; etc;

NOCs “Material balances” for BoC, MoC, MdoC, TQOC, NOC;

NGC & SGC

NRCs Input-output (CO:PP) balances: NRC, MRC, SRF;

Other MoO’ SOEs & related entities, …etc.;

MoE (Power generation)

GCT (CIT)

B.  Undertake realistic and factual IEITI SCOR Analysis;

C.  Identify Capacity & Skill Gaps;

D.  Focus on how to making and keeping Iraq EITI “Compliant”;

E.  National Capacity Development Action & Priority Plans;

F.  IEITI Structural Model & Report Process;

G.  Make IEITI “really transparent and truly open”; it is logical inconsistency and counterproductive that a transparency agency is non-transparent!!!

H.  The Reconciler/ Administrator of the IEITI Annual Report (contractual condition);

VI – Concluding Remarks and Key Takeaways

Iraqi EI governance is complex, politicized, challenging but very significant case in MENA region.

Key Takeaway: Addressing IEITI short term capacity gaps and challenges could help attaining the long term aspirations.

Improvement of IEITI working process should have a priority in bridging the Capacity Gap aiming for Real, Comprehensive, Good, Democratic and Effective EI Governance. Key Takeaway: Good, Thorough and Timely Reporting on Governance Improves Governance

Future IEITI Reports become more detailed, comprehensive and challenging due to:

1- Addressing the flaws of previous Reports and learns from past experience are a must;

2- The EITI Standard is progressing and thus its related requirements;

3- The governing contractual modalities and conditions in the Iraqi extractive industry, especially in the petroleum sector.

Key Takeaway: National Capacity Development Activities and Specialized Human Resources within IEITI-NS are urgently needed and doable;

EITI “Compliance” is always conditional and thus must be maintained.

Key Takeaway: There is no “business as usual” or “complacency” or “mission accomplished”

IEITI needs to be more “Independent” and “Proactive”.

Key Takeaway: Avoid “appeasement” of wrong-doing;

Don’t be “mute” on obvious non-transparent official practices;

Be aware of the deceptive praise by “Sultans’ advisers” and alike!! 

 

Annexes

A1- List of Research and Publications by IDC&R on IEITI and Transparency Issues.

A2- List of Presentations, Capacity Development and Consultancy Services by IDC&R, particularly those done for IEITI, RWI/NRGI.

Annexes are available upon request from Iraq/ Development Consultancy & Research-IDC&R.

 

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.