Thread: Archive Latest News - Think Tank - 15/04/08 - 26/08/08

Continued......

5.Creation Of A National Oil Company

At present, there is a huge debate within Iraq on the need to establish a national oil company. It is seen by many as the cornerstone for revitalizing the Iraqi oil industry. The confusion amongst a lot of experts is the talk about a national oil company rather than an oil company. A successful national oil company should be first and most of all a successful oil operator, with all the strengths and attributes of major oil companies.

A successful (national) oil company needs:

i Independence
ii Expertise
iii Competitive Remuneration
iv Joint Ventures
v Collaboration with Service Companies

i.Independence

The oil company should have an independent board of directors, not connected to the Ministry of Oil or any government body. The board, with its chief executive, would determine the direction the company takes based on the broad policies passed to them by the Iraqi government. These would be: protection of the nation’s interests, maximizing profits, development and contribution to local economy and development of local expertise. The government’s major requirement from the company is to meet certain production targets.

Of course the chief executive must first be appointed by the Iraqi government. This person will be the catalyst for revitalizing the oil industry, not a political person, chosen for his connection with local parties or because he belongs to an established family. The chief executive must have intimate knowledge of the oil industry from exploration to development. He must also have intimate knowledge of the local culture to be able to transmit ideas and to avoid conflicts. He must have complete freedom to choose his senior staff, provide the vision and foundation for the new company.

The reader only has to look at major successful oil operators to see that most of the top people are true professionals who learnt their skills through many years of experience and their promotion resulted from a business need rather than external influence. The tragedy is that I have already heard people talking about certain former Iraqi politicians being the only ones who can fulfill the role of the chief executive. If this happened, then another tragedy would befall the Iraqi oil industry. The people I am referring to have none of the above attributes for such a job. One can only hope that with democracy, politicians will appoint the right man if they want the Iraqi people to re-elect them again.

ii.Expertise

To increase production from 2mn to 8mn b/d would require a core workforce of approximately 70,000 people, encompassing all disciplines: drilling, geology, reservoir engineering and production. Expertise would be required at all levels from senior people to maintenance staff. Ancillary support activities will also be required, providing further employment to perhaps more than 70,000 people.

Today, there is a worldwide shortage of expert staff in the areas of drilling and production engineering. On average it takes 5-10 years to train and develop a drilling engineer; a similar number of years for most other disciplines within the operational side of the oil industry. Hence expertise will have to come from outside Iraq and this will present a major problem when it comes to staff salaries as will be discussed next.

iii.Competitive Remuneration

A field drilling supervisor can earn $1,000-2,000 per day, depending on location. A senior petroleum or drilling engineer can command an annual salary of between $100,000-200,000 a year, before benefits and pension contributions. Compare these figures with an average salary for an Iraqi oil expert of just $800 per month, ie less than one pay day of an expatriate. Such a huge disparity in pay will create conflict and unrest within the new (national) oil company.


The author presents here a model which is successfully employed in some of the Gulf States and of which he has intimate knowledge. In this model the salaries of all operational staff would be raised, on the arrival of foreign experts, to a minimum of $4,000 per month, rising to a maximum of 50% of the expatriate staff pay, assuming both the Iraqi and the expatriate are doing exactly the same job. The salaries would be reviewed annually and compared to a basket of salaries of similar oil professionals in the Gulf States. The advantages of such a scheme are many, including:

• Attraction of the best graduates from Iraqi universities. Currently, petroleum engineering at Iraqi universities is not considered very highly amongst high school leavers. Indeed most engineers would elect courses in civil engineering in preference to petroleum engineering.
  
• Raising salaries and making the oil industry pay higher than that of doctors (as is the case in most oil countries) will ensure that the best engineers join the oil industry, with the consequent advantage of faster development for the new oil company.
  
• Providing incentives for the local staff to train and learn faster to assume the jobs of the expatriates who will be recruited on short-term contracts to fill in the knowledge gaps.
  
• Transfer of wealth to the poorer areas of Iraq to help the establishment of new, wealthier communities where oil production exists.

I have, of course, left the salaries of the chief executive and the directors to the end to soften the shock to my Iraqi compatriots. If the best is to be attracted then average salaries of $1mn per annum must be considered as the norm for the top executives and not the $80,000 per year, touted by many as an attractive salary.

iv.Joint ventures

To be successful, the new company must have the right to enter into joint ventures inside and outside Iraq to explore and develop oil reserves. Internal joint ventures would involve the establishment of offshoot oil companies involved in the development of Iraqi oilfields. These may be new fields requiring extensive investment or ones that require special expertise such as very deep, high pressure and high temperature wells in the Jurassic reservoirs. For these oilfields, the new national oil company would find it advantageous to seek partners to reduce costs, expedite development and acquire expertise. Once again, detailed studies must be made to ensure that the return on investment for foreign investors remains within the internationally acceptable limits.

External joint ventures should also be encouraged. After all, if this company has the expertise and if it can enhance its revenues by doing external work, without jeopardizing its initial remits, then it should be encouraged to seek external joint ventures to add extra revenues to the Iraqi economy.

v.Collaboration With Service Companies

Of paramount importance is collaboration with international service companies and the establishment of new service companies to help the development of the oil industry. There is little to be gained from depending on a major foreign oil company to bring in a service company to do some short-term work and then leave after it is completed. This service company will provide little or no long-term contribution to the local economy.

The new national oil company should, therefore, encourage the establishment of local service companies. This is achieved by awarding them grants, short-term contracts and facilities to help these new fledgling Iraqi service companies to get established quickly and successfully. Of course some companies will fail; this is part of the learning process. However, if only 50% of the new service companies were to succeed then this should be regarded as an achievement. The establishment of local service companies should not be regarded as an alternative to using major established ones. The two can work together, as is the case in many Gulf countries.

As an oil expert, I believe Iraqi oil engineers can easily establish and run basic services such as wireline services, cementing, acidizing and coiled tubing without waiting for foreign service companies to get established in Iraq. These are incidentally the main services required in any oil well.

6.Conclusions

Efforts should be focused on extracting as much oil as possible to generate revenues for the Iraqi people. There is a lot of wasted effort by some Iraqis talking about other energy sources which at present represent 0% of Iraqi output and input. These moves will further delay the development of the Iraqi oil industry. You only have to look at the background of these people to realize they have little or no knowledge of the oil industry. My shout here is for every Iraqi to think oil, oil and only oil for the next 20 years.


A Road Map For Vitalizing The Iraqi Oil Industry

Credit Markets: Pakistan, Iraq Bonds Shine

NEW YORK -- Iraq and Pakistan may be two of the roughest places around, but for those intrepid fixed-income investors who have bought into the two countries' sovereign debt, they have been worth the trouble.

Their international bonds are posting returns that far exceed most of those from other emerging markets. Pakistan's bonds have returned 9.1% so far this year, while Iraq's have returned 8%, according to J.P. Morgan Chase's Emerging Markets Bond Index Global. That compares with a 1.9% gain for the broader EMBI Global index.

"People have gotten more comfortable with these countries after being very uncomfortable," said Adam Michael Weiner, who manages more than $200 million in the Global Emerging Markets Fund at FrontPoint Partners. He has invested in both countries' bonds in the past but doesn't currently own any.

For investors, the outlook for Iraqi returns now may be better than for Pakistan's, because investors increasingly expect Pakistan to repay some bonds next year. That has led to a collapse in those bond yields, which pushes up prices.

The appeal of Iraq's bonds is due partly to an increased willingness by investors to take on the risk of shakier credits and partly to limited supply.

Iraq's only outstanding sovereign bond has been on a roll since the summer of 2007, after getting "beaten up" earlier in the year, said Stuart Culverhouse, chief economist at Exotix Ltd., a securities firm that trades illiquid bonds and loans such as those of Iraq and Pakistan. Iraq has $2.7 billion of bonds, which mature in 2028 and carry a 5.8% coupon. They yield about 9.4%.

Boosting the outlook for Iraqi debt is the ever-higher price of oil and an improving domestic economic environment, notwithstanding the continuing security problems.

Record oil prices helped increase Iraq's foreign-exchange reserves by more than one-third in 2007 to $31 billion, greatly improving the country's ability to pay its debts. A recent U.S. government report projects Iraq's oil revenue to top $70 billion this year, and it estimates the country earned more than $18 billion from oil sales in the first quarter. At the same time, Iraq's annual inflation rate dropped to 10.8% in January from a high of 32% in January 2007.

But for all the positive economic news, Iraq's security and political problems prevent the yield premium that investors demand over U.S. Treasurys from shrinking much from around 5.26 percentage points. Some investors see a continued risk that the country could break into three nations, representing its Sunni, Shiite and Kurdish populations. This summer's provincial elections could affect that thinking.

WSJ(5/12) Credit Markets: Pakistan, Iraq Bonds Shine - Middle East News

Memorandum of Understanding between the chambers of commerce and industry in Russia and Iraqi Kurdistan

Chairman of the Chambers of Commerce in Russia, Yevgeeny Primakov, and Chairman of the Federation of Chambers of Commerce and Industry of Iraq's Kurdistan province, Dara Al-Khayyat, signed a memorandum of understanding to establish economic ties and attract Russian companies.

Primakov said during the signing of the memorandum in Sulaymaniyah, "representatives of the Russian chambers of commerce came with open heart to Kurdistan, and the memorandum is an important document paving the way for a constant cooperation between the two sides." He added, "Certainly we want to work in Kurdistan region…The conditions of security and stability are available and they are encouraging factors."

Al-Khayat described the memo as "a historic agreement that will bring trade and economic gains for both sides, especially for the Kurdish side which wants to take advantage of the possibilities and work techniques of Russian companies." He explained that the memo included various aspects of work which begin with exchanging visits between members of chambers of commerce on both sides, and end with cooperation and joint action.

http://www.iraqdirectory.com/DisplayNews.aspx?id=6100

Maliki launches two strategic projects campaigns

PM Noori Maliki begins today two national campaigns to carry out strategic projects that worth $5B and improve educational sector in the country. These developments came with Govt.'s effort, once calmness return to Sadr City, to carry out wide reconstruction projects there that includes building big housing complexes, as official sources unveiled plan to activate ration cards, spokesman of the Govt. Ali Dabbagh said. On the other hand, political agreement's articles between United Alliance and Sadrists would limit to 10 from 14 articles with making some changes on these articles, MP of the Sadrist bloc, Nassar Ruba'ai said.

http://www.iraqdirectory.com/DisplayNews.aspx?id=6108

Article 140 and the Future of Iraq

On May the 9th, the Washington Kurdish Institute held a seminar entitled Article 140 and the Future of Iraq in participatrion of many Kurdish and US figures.

Speakers at the conference, including Dr. Najmaldin Karim, President of WKI, Qubad Talabani , the Representative of KRG in Washington , the KRG Minister for Exrta Regonal Affaires,and other Kurdish figures inUS, discussed all dimensions of Article 140 and its implementation . They also discused anicient and modern history of Kirkuk through presenting many scientific and documentary discourses.

Article 140 of the Iraqi Constitution mandates a process of normalization and referendum for disputed territories, although it continues to be a vexing issue which needs to be addressed. The most significant of these disputed territories is the governorate and city of Kirkuk, which suffered ethnic cleansing and expulsion by the Baathist regime of Saddam Hussein. Makhmur, Sinjar, Khanaqeen and other areas of rural Kurdistan also fall under the jurisdiction of Article 140.

The future of Iraq depends on Article 140 and its aim of using a democratic and constitutional framework to address problems that are long overdue for resolution. The Iraqi government failed to meet the 2007 deadline for Kirkuk specified by Article 140, which includes full normalization and a referendum on unifying with the Kurdistan Regional Government. A six-month extension was granted to fulfill this constitutional obligation.

PUKmedia :: English - Home

Talabani Reiterates His Support for Resolving Kirkuk Issue According to Article 140

Today the Secretary General of the PUK, Jalal Talabani, supervised a meeting of the PUK politburo in Qalachwalan town near Sulaimani.
Talabani highlighted the latest political developments on the Iraqi and Kurdistan region arena.

Secretary General of the PUK also stressed the significance of holding the third general conference of the PUK which are scheduled to be held late this year.

He indicated the importance of the unity of people of Kurdistan in the current stage and the role of the Kurdistan political leadership in Iraq .Talabani said that disputed issues between the KRG and the Iraqi federal government, particularly the issue of the Kurdistan region Peshmerga forces are close to be resolved. Talabani also indicated the need for improving public services to people of Kurdistan region.

Regarding the normalization of Kirkuk and other disputed areas, Talabani reiterated his support for the need for resolving Kirkuk issue according to the article 140 of the Iraqi permanent constitution, stressing the significance of peaceful coexistence among all the fractions in Kirkuk.

PUKmedia :: English - Home

Shays to Discuss Progress in Iraq

U.S. Rep. Christopher Shays leaves Thursday for a World Economic Forum in Egypt, where he will participate in a panel discussion on the future of Iraq with Iraqi Prime Minister Nouri al Maliki and others.

"I am going to use the (2008 presidential) election as a catalyst to say how important it is for Iraqis to continue making political progress and not sit on their laurels," Shays said. "We can't be certain who will be elected president and there will be different approaches from each."

In the last six months, Shays said, Iraq has made significant political strides. The government is distributing oil wealth as if it had a formal law in place and has begun to accept former Baathist Party members back into the government and military.

There also seems to be a willingness among Shia, Sunni and Kurds to cooperate more, Shays said.

Still, Iraq needs to formalize its oil wealth distribution system, rebuild a bureaucracy to get financial resources to civic projects, and establish a fair system for handling Iraqi refugees, he said.

The annual forum in Sharm El Sheikh will include more than 1,500 government and business leaders from more than 55 nations, including President Bush.

Shays said his panel will likely include a House Democrat and also representatives of Jordan and Iran.

"The forum's unique ability to convene leading figures from politics, business and civil society makes it a platform where decisions are taken that will affect the region and beyond," said Andre Schneider, managing director of the Forum.

After the panel discussion Friday, Shays also plans to spend a day in Iraq -- marking his 21st trip there since the fall of Saddam Hussein.
He last visited Iraq in March.

PUKmedia :: English - Home

Demand for dollar soars up in daily auction

Demand for the dollar was up in the Iraqi Central Bank's auction on Tuesday, registering at$157.795 million compared to $69.120 million on Monday.

"The demand hit $6.315 million in cash and $151.480 million in money transfers outside the country, all covered by the bank at an exchange rate of 1,200 Iraqi dinars per dollar, stable for the fourth consecutive session" according to the central bank's daily bulletin which was received by Aswat al-Iraq - Voices of Iraq - (VOI).

The 16 banks that participated in the auction offered to sell $1.200 million, which the bank bought at an exchange rate of 1,198 dinars per dollar.

Speaking to VOI, Ali al-Yasseri, a trader, said that the increase was due to the high remittances in today’s session while the bids in cash decreased in the past three sessions.

The Iraqi Central Bank runs a daily auction from Sunday to Thursday.

Aswat Aliraq

German companies seek investment in Iraq

Municipalities and Public Works Minister, Riyadh Gareeb, discusses with German investors and CEOs the investment's opportunities in Iraq at his meeting with them yesterday in Berlin, whom expressed their strong will to enter the Iraqi market, the ministry's press advisor said. The minister reviewed at the meeting the oportunities at many sectors as oil and gas, minerals, agriculture, industry and tourism besides reconstruction and rebuilding, as the minister visited some of garbage recycling and water electronic meters' factories, the advisor said.

German companies seek investment in Iraq

ISX opens with Huge Contract

The Iraqi Stock Exchange (ISX) opened its session on Tuesday with a 32-million-shares-contract.

The contract was concluded by an Iraqi company, which bought 32 million shares from al-Sarar Company for Agricultural Products at a value of 0.500 Iraqi dinar (1 U.S. dollar= 1,221 Iraqi dinars) per share.
Another contract was concluded by a foreign company, which bought 832,580 shares from al-Warkaa Bank at a value of 1,400 Iraqi dinars per share.

The Iraqi Stock Exchange holds three sessions a week: Sunday, Tuesday and Thursday.

Aswat Aliraq