Thread: Archive Latest News - Think Tank - 01/01/08 - 14/04/08

Baghdad's Strange Dilemma: Flush With Oil Cash, Unable to Spend It

Sky-high oil prices are pumping tens of billions of dollars into Iraq's coffers, reaping a windfall for a war-torn nation plagued by unpassable roads, dilapidated hospitals and crumbling schools.

Yet most of this desperately needed cash is languishing in the bank. The reason: Iraq's government is so ill-equipped to handle the basics of finance, it is having trouble spending the money.

In 2006, the Iraqi central government spent just 22% of its $6 billion capital budget, which is aimed at improving Iraq's infrastructure, while the oil ministry spent less than 3% of its reconstruction money. In 2007, Iraq's .....

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Analysis: Iraq Oil Law Holdup Political

Iraq's oil law debate is political, not technical, a top U.S. official said, adding Iraq has tagged billions of dollars to boost oil production regardless.

Charles Ries, U.S. State Department minister for economic affairs and coordinator for economic transition in Iraq, said the proposed law isn't necessary for Iraq to produce oil "but it would clearly be much, much better and incentivize private investment to help Iraq produce more if a bill would pass."

U.S. Vice President Dick Cheney is in Iraq Monday and said he's pressing Iraqi leaders to move the controversial legislation forward.

Ries said Iraq has set aside $2.5 billion for Technical Support Agreements over the next two years. TSAs, being negotiated with BP, Shell, ExxonMobil, Chevron and Total, would see a transfer of technology, expertise and training to Iraq's oil sector.

Further down the road, Ries said Iraq will sign production-sharing agreements to develop areas not currently producing.

"That is the likely course for the upstream industry in Iraq," Ries said, pointing to Syria and Indonesia as examples of countries that utilize PSAs to garner investment. He said "all parties, with a few exceptions of parties that are not in government," back PSAs.

Iraq's oil workers and civil society groups, as well as members of Parliament, have come out against PSAs, fearing Iraqis won't get their fair share. Some MPs have said they'd be OK with PSAs in certain situations, but not all, and only if the percentage for companies is low enough.

The PSA is a favorite of international oil companies, reimbursing it for expenses and guaranteeing it a percentage cut of oil for usually decades-long deals. It's compensation for the risk of exploring and coming up empty, say the companies, which can add the reserves when Wall Street looks at its books. But Iraq is not like Syria or Indonesia. It holds the world's third-largest reserves despite being vastly underexplored. Those in search have higher percentage of finds than in other countries, and what they get is usually highest quality, thus less expensive to produce, transport and refine.

The contract model itself, which will determine the extent of foreign involvement in the currently nationalized oil sector, is one sticking point in approving the law. The other is a power struggle between the majority in the central government and Iraq's Kurds and others.

"The oil and gas law from a technical standpoint is largely done," Ries said. "The problem relates to the distribution of power and autonomy in the federal structure." He refused to offer a prediction for its passage.

The Kurdistan Regional Government insists on a decentralized governing structure over the oil and gas instead of the national government. The law is stuck in Parliament's Energy Committee.

An official told reporters en route to Iraq Cheney will press government officials to approve the oil law in order to facilitate foreign oil companies' entry to Iraq. He said the constitution, which is accused of being too vague and thus creating the oil law dispute, does not need to be amended first.

Iraq is producing about 2.4 million barrels per day and exporting about 1.9 million bpd. Sales brought in $41 billion last year. With increased output and higher oil prices oil exports have fetched $11.6 billion through the first 10 weeks of 2008, according to the State Department's Iraq Weekly Status Report.

Iraq's oil reserves could handle producing much more -- the Oil Ministry has a 6 million bpd goal for 2012 and some say 10 million bpd is feasible, even without bringing online oil fields not yet found. The producing fields need to be fixed and modernized and workers retrained after decades of Saddam Hussein's mismanagement, U.N. sanctions and war. This will take tens of billions of dollars.

Iraq has been trashed by members of Congress here in Washington for not investing enough of its own funds -- a mostly misguided attack. Sens. Carl Levin, D-Mich., and John Warner, R-Va., have asked the Government Accountability Office to look into what banks Iraq stores its revenue in (Answer: the Federal Reserve Bank of New York, per U.N. mandate), how much is going to reconstruction and what is America's contribution to the rebuilding effort. Sen. Hillary Clinton, D-N.Y., on the campaign trail Monday, reiterated such concerns.

They could have just asked Ries. Of the $49 billion FY 2008 budget, $13 billion is pegged for capital investment and more than $3 billion is heading to the Oil Ministry, he said. Iraq still lacks the capacity to actually spend the funds, according to previous years. Ries said 2007 will see 60 percent of capital budgets spent when the final numbers are in, though a GAO report in January questioned the figures provided by the U.S. State and Treasury departments and the Iraqi Finance Ministry. Regardless, it has increased the allocation.

"They are paying several orders of magnitude more of the cost of reconstruction than we are now," Ries said. "Iraq's oil revenues are all being spent on the Iraqi government, both operating expenditures and reconstruction," he said. There's about $27 billion at the U.S. Federal Reserve to stabilize its currency.

"We spent somewhere between $4 and $5 billion in the oil sector in five years. And they're spending $3 and a half (billion)," he said, adding there's no new U.S. spending in the oil sector.

He said the State Department is focusing its effort away from "bricks and mortar" to capacity building.

Analysis: Iraq oil law holdup political - UPI.com

Update......

Najaf refinery gets 2nd unit; 3rd planned

Iraq has doubled the production capacity in its Najaf refinery, which, though a small facility, will help Iraqis facing massive fuel shortages.

Oil Minister Hussain al-Shahristani held a news conference at the Najaf governorate building Saturday.

"The refinery will cover Najaf's demands for kerosene, gasoil, and fuel oil," he said, the Voices of Iraq news agency reports.

The second refinery unit at the Najaf plant brings the capacity to 20,000 barrels per day. Shahristani said a planned third unit will serve Najaf and neighboring provinces, boosting capacity to 30,000 and making it Iraq's fourth-largest refinery.

The three largest are much larger -- the 110,000 bpd Doura refinery; the 150,000 bpd Basra refinery; and the 310,000 bpd Baiji refinery. Baiji is back online after a March 13 power trip, VOI reports.

All three are operating at below capacity as recent accidents, attacks and a short supply of electricity takes its toll.

Najaf, a southwest province in Iraq and one of Shiite Islam's holiest areas, has expressed disdain in the past for a lack of electricity and fuels. The entire country is underserved currently.

Dathar al-Khashab, director-general of the state-run Midland Refineries Co., said "the company signed a contract with the U.S.-based company Cisco to construct Najaf refinery's gasoline unit."

Najaf refinery gets 2nd unit; 3rd planned - UPI.com

Analysis: Petraeus makes Iraq energy calls

Gen. David Petraeus is calling on "large Western corporations" to invest in Iraq's energy sector as Iraq looks outside to boost oil, gas and power production.

Petraeus, who as commander of Multi-National Force-Iraq overseas all coalition troops there, said Prime Minister Nouri al-Maliki asked him to convey the message to companies.

"The prime minister is very keen on getting large Western corporations re-engaged in the oil and electricity sectors," Petraeus said Monday at a news conference in Iraq with Vice President Dick Cheney and U.S. Ambassador to Iraq Ryan Crocker.

Petraeus' spokesman would not tell United Press International which companies the general had called.

"We have made some initial inquiries on (Iraq's) behalf," said U.S. Army Col. Steven Boylan. "Rest assured it would be companies that have the capability and reach to take on projects of the size and scope that Iraq needs to continue to progress forward."

Iraq is producing and exporting oil at post-2003 heights, an extra boon when you figure in today's oil price. But most natural gas produced is burned as waste instead of consumed or exported, Iraq's power plants lack the fuel to give Iraqis even a quarter of demand, and there is still a massive fuel shortage. The oil, gas, refining and electricity sectors need billions of investment dollars to repair and modernize after decades of Saddam Hussein's mismanagement, U.N. sanctions and wars.

Exactly how that investment will funnel to the respective sectors isn't clear. U.S. and international post-war demands are Iraq should privatize its economy. While in many aspects the government is making that transition, most Iraqis support a nationalized energy sector, especially oil and gas production.

The prospect that international oil companies will be allowed into Iraq's world-leading reserves is one reason a draft oil law is stalled in Parliament. The tens of thousands of workers that make up Iraq's oil and electricity unions -- who support limited foreign participation -- have criticized Baghdad for not investing more of its own funds instead of waiting for international companies to put in.

Those companies say the legal status of investment is still too shaky. The Oil Ministry, for example, is relying on Saddam-era directives to negotiate limited two-year deals with Big Oil firms and an upcoming bidding round. Sources tell UPI those talks keep running into hitches. Iraqi oil and gas is a hot ticket still, further evidenced by the more than 100 companies that have pre-registered for the bidding round.

And if deals were to be signed there's no guarantee the companies will send money, let alone people, to Iraq until the security situation improves.

"Sometimes to get the ball rolling it takes a senior leader to engage other senior leaders in the corporate world to have a discussion" on the realities of security in Iraq, Boylan said. Boylan added it's part of the U.S. effort to help Iraq's government build its capacity. He said the level of security for these companies depends on the area of the country.

A spokesman for Shell, which recently authored a master plan for Iraq's gas sector, wouldn't confirm whether Petraeus had contacted the company.

"Shell executives hold meetings with a range of Iraqi government and interested third parties," the spokesman said, "the details of which are commercially confidential."

UPI's calls to a number of "large Western corporations" were not returned.

At least Shell, BP, ExxonMobil, Chevron and Total are negotiating Technical Support Agreements with the ministry. Iraq would pay transfer technology, training and equipment transfer to increase production in at least five of the largest oil fields. The ministry said the deals would increase production by about 100,000 barrels per day in each field.

Iraq is producing 2.4 million barrels per day now and is exporting about 1.9 million bpd. Iraq has set aside $2.5 billion over two years for the TSAs, according to U.S. State Department Minister for Economic Affairs and Coordinator for Economic Transition in Iraq Charles Ries, and dedicated more than $3 billion of its $13 billion capital investment budget in fiscal year 2008 to the Oil Ministry. Iraq has been able to annually spend only a fraction of the capital budget, however, as it's plagued by real and perceived corruption and a lack of institutional capacity.

Iraq's Electricity Ministry has complained that it has billions of dollars to spend on contracts, but so far there have been no American and European takers. China and Iran have signed the only large electricity deals.

Analysis: Petraeus makes Iraq energy calls - UPI.com

Al Rafidain and Al Rasheed banks conclude an agreement for the use of smart cards

Al-Rafidain and Al-Rasheed banks concluded a joint agreement with an international company to use the Smart Card which has become the ideal means of cash circulation in the world.

Banks Affairs Assistant at the Ministry of Finance, Dhiyaa Al-Khayoun, said in a press statement that the coming days will witness the smart card in circulation in Al-Rasheed and Al-Rafidain bank in cooperation with an Iraqi company registered in the United Arab Emirates.

Al-Khayoun pointed out to the start of the extensive system for the development of banking operations in Al-Rafidain Bank only and by mutual agreement with the British company Mayses.

Many of the private bank, markets and shops owners hope that the smart card circulation will contribute to the revitalization of the shopping movement.

Al Rafidain and Al Rasheed banks conclude an agreement for the use of smart cards | Iraq Updates

America’s VP Arrived in Erbil

US Vice-President, Dick Cheney, arrived today at Erbil International Airport and was received by the President of Kurdistan Region, Massud Barzani. They are going to discuss the latest developments in Iraq, Kurdistan Region and the area.

PUKmedia :: English - America’s VP Arrived in Erbil

2nd National Conference Starts in Baghdad

Under the motto:”Unifying the National Parties to achieve Security, Construction and Sovereignty”, the 2nd National Conference started today in Baghdad and will continue for 2 days.

The Conference aims to achieve the National Reconciliation in Iraq. It was attended by Dr. Nuri al-Maliki, the Iraqi PM, Mahmud al-Mashhadani, the Speaker of Iraqi Parliament along with Iraqi political factions.

Dr. Tahssen al-Shakily the spokesman of the Conference said in a press statement:” Nearly 500 Iraqi national figures will participate in the conference which is arranged by the State Ministry of National Dialogue.”

“The preparatory committee suggested workshops consisting of 10 national principles in addition to 4 basic points to be discussed in the Conference”, al-Shakily added.

PUKmedia :: English - 2nd National Conference Starts in Baghdad

President Barzani Meets VP Cheney

The President of Kurdistan Region Massud Barzani met America’s Vice President Dick Cheney in the office of the KRG PM. The meeting was attended by Kosrat Rasul Ali Vice President of Kurdistan Region, Nichervan Barzani the KRG Prime Minister and Omer Fatah his Deputy.

A press Conference is going to be held, after the meeting to clarify its content.

PUKmedia :: English - President Barzani Meets VP Cheney

Iraq’s PM Call all Sides to Support Reconciliation

The Iraqi PM Nuri al-Maliki emphasized the importance of National Reconciliation in his speech to the 2nd National Conference, he said:” The National Reconciliation is a gain for Iraq and the government’s strategy; it became a distinctive political tradition.”

“National Reconciliation accomplished its goals in unifying the Iraqi People and resulted in forming the support councils in the unsecured areas. The tribes have important role in the reconciliation process and combating terror”, al-Maliki added.

He called all political groups to support the reconciliation project, stick to law and avoid resorting to foreign sides in solving the problems. Al-Maliki also called the mass media to sense responsibility towards this matter; he demanded the neighboring states to respect Iraq’s Sovereignty and support it in all aspects.

Speaker of Iraqi Parliament also made a speech, and then Nasser al-Ani the head of the Iraqi Presidency, read a speech on behalf of President Jalal Talabani.

PUKmedia :: English - Iraq’s PM Call all Sides to Support Reconciliation

President Talabani: National Reconciliation is Unavoidable for Iraqis

Dr. Nasser al-Aani, Iraqi Presidency Diwan head made a statement on behalf of President Jalal Talabani at the second Conference of Iraqi National Powers, which was held in Baghdad today.

In his speech, President Talabani emphasized that the national reconciliation project is very expensive, where bloods were spilled for it and it is a test for those who set out for this mission.

President Talabani also emphasized that all the political parties should introduce concessions for each other on the way of solving all the problems.

“We must reject using violence between us, and conciliate far from the sharing spirit that we afflicted with. We need to conciliate the participated and non-participated political parties in the political process, and without exception any armed group that is uninvolved in spilling the Iraqi blood”, President Talabani added in his speech.

He also said that national reconciliation is an unavoidable matter for Iraqis, and that the plan of moving the sectarianism had been buried forever.

PUKmedia :: English - President Talabani: National Reconciliation is Unavoidable for Iraqis