Former Iraqi oil minister says oil deals must go through Baghdad

In an interview with Azzaman, former Iraqi Oil Minister Issam al-Chalabi explains the current crisis between the Ministry of Oil and oil companies in Iraq, after several international companies announced their withdrawal from the country.

al-monitor Issam al-Chalabi addresses delegates at the Oil & Money Conference in central London, Oct. 12, 2010.  Photo by LEON NEAL/AFP/Getty Images.

Topics covered

oil contracts, oil & gas, kurdistan regional government, krg, investments

Feb 26, 2014

Former Iraqi Oil Minister Issam al-Chalabi revealed that a latent crisis is brewing between Iraq’s Oil Ministry and the largest oil companies in Iraq.

In a statement to Azzaman, Chalabi, who is now serving as an international adviser for energy affairs, held the Ministry of Oil responsible for this crisis, saying that it will affect oil production in the long run.

Chalabi criticized the role Turkey played in the oil crisis between the federal government and the Kurdistan Regional Government (KRG). He told Azzaman that Turkey would have to terminate its contract with the KRG and go back to its previous policy, which is contracting with the federal government in terms of oil investments and pipeline extensions.

Chalabi explained that the reason behind this crisis is the rounds of permits that were done in haste. Additionally, the ministry’s staff is not adequately qualified to provide infrastructure for the work of foreign companies in Iraq. He said the Ministry of Oil had failed to meet its undertakings toward the foreign oil companies.

According to Chalabi, it was not easy to solve the problem between the ministry and the companies, because the ministry lacks absorptive capacity.

When it comes to the crisis of oil exportation between the federal government and the Iraqi Kurdistan Region, Chalabi told Azzaman that the decisions to export oil and all related contractions must be central and concluded with the State Oil Marketing Organization.

He added that it is not possible to have a mini-state within the state. According to him, one official party should deal with foreign parties in terms of oil.

Turkey used to respect this and deal with the federal government in Baghdad. Yet, it later changed its course and started to deal directly with the KRG, which seeks to open a personal account for the oil exports revenues in a Turkish bank. According to Chalabi, the KRG will be spending as much as it wishes and handing the rest to Baghdad, and this is unacceptable. Furthermore, the Angolan oil company Sonangol announced Feb. 24 its withdrawal from Iraq due to security challenges.

This decision came after the Norwegian company Statoil, a partner of Lukoil in the Qurna oil field, pulled out of Iraq.

According to Chalabi, British Petroleum (BP) announced the suspension of worker deployment in the oil fields of Qayara and Najmah in the Ninevah province, due to the delay in issuing entry visas.

Annabella Fonseca, board member of Sonangol and chief of international investments, said in a press conference that the decision was made after the company was no longer able to develop both fields, as they are located in the conflict area.

Oil reserves in Qayara and Najmah are put respectively at about 800 million and 900 million barrels. Sonangol has a 75% stake in both fields.

Fonseca said an independent technical and financial audit is being conducted to allow Sonangol to end its operations without violating any of its contractual obligations to the Iraqi government.

For its part, a prominent Iraqi official said that the government approved on Feb. 24 two major contracts worth about $1 billion in the Zubair oil field managed by Eni. This move came hours after the company announced its readiness to leave Iraq if specific contracts were not made available in the next few weeks, since the extra complicated procedures threaten to scare off investors.

The Iraqi official said, “We respect Eni and take their opinions seriously. We want them to stay in Iraq.”

He added, “We are doing our best to approve high-cost contracts as soon as we can. The delay in approving the contracts will affect productivity and profitability.”

Chalabi told Azzaman that the Ministry of Oil promised oil companies simple procedures free of complications and bureaucracy, saying they can easily send their representatives, workers and engineers to work in Iraq. It also promised a simple entrance of goods, commodities and machinery.

However, the problems started after the signing of the contracts of licensing rounds with BP and Italian Eni investing in Zubair, US ExxonMobil investing in Qurna and French Total investing in the fields of Halfaya and Majnoon in southern Iraq.

Chalabi said it is clear that the Ministry of Oil is not capable of implementing plans and conducting studies and designs within the period of time specified in the investment contracts of the fields managed by the companies.

He explained that the ministry’s capabilities are limited to signing the $100 million contracts. Anything else falls outside the scope of its authority, which creates further complications for the companies.

Chalabi stressed that the companies are frustrated about the issue of entry of their staff to Iraq, given the inability of the ministry to grant visas in cooperation with the Ministry of Interior. Also, as provinces became involved, visas were delayed for months.

Chalabi told Azzaman that oil companies are required to obtain exit permits for their experts and workers to leave Iraq, which is doubling their troubles with bureaucracy. In fact, there is no official party in charge of these tasks. The biggest complications and problems oil companies face are the transport of machinery used in the fields from the port of Umm Qasr, where it is held up for months.

Chalabi said that these companies tried in vain to build a port to import their machinery. He reiterated that the entry forms are taking months to be finalized. He told Azzaman that the biggest problems oil companies are facing in Iraq are related to the Oil Ministry’s ratification of the contracts of secondary contractors, noting that the ratification of secondary contracts takes months as well.

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