Baghdad, Erbil Trade Accusations on Oil Payments

Baghdad has accused the Kurdistan Regional Government of failing to pay Western companies for oil-extraction costs, further raising tensions between the two sides, writes Omar Shaher.

al-monitor Kurdish engineers and other employees work at the Tawke oil field near the town of Zacho on May 31, 2009 in Dohuk province about 250 miles north of Baghdad, Iraq. Photo by Muhannad Fala'ah/Getty Images.

Topics covered

kurdistan, krg, federal budget, erbil, baghdad

Feb 28, 2013

Baghdad and Erbil, the capital of the semi-autonomous Kurdistan region of Iraq, have exchanged accusations over the payment of foreign oil companies for extraction costs, which the Kurdistan Regional Government (KRG) demands that the federal government honor. This cost stands at around $4 billion.

Kurdish MP Farhad Atrushi said that the federal government is delaying the payment of dues to oil-extracting companies operating in the provinces of Erbil, Sulaymaniyah and Dahuk in the Kurdistan region. Yet, an MP and close associate of Iraqi Prime Minister Nouri al-Maliki replied that so far, Baghdad has paid Erbil $1 billion in oil-extraction costs, while it has received revenues from 56 million out of 160 million exported barrels, according to documents.

Shiite MP Abdul Abbas Shiaa said, “The $1 billion exceeds the cost of extracting 56 million barrels, from which revenues were received from the region. Yet, it is demanding $4 billion as payment for extracting 160 million barrels, of which Baghdad received the revenues for only 56 million barrels.”

Atrushi said, “$20 billion in Iraq’s budget has been allocated to the Oil Ministry from the sovereign expenditures, while oil will be extracted from fields spread over easily accessible locations. Moreover, Iraq’s oil contracts with the oil-extraction companies [are intended] to provide services, so why [are] all these allocations [needed]?”

He added: “Baghdad tells us that the dues to foreign companies operating in the region will be paid from the abundance of oil revenue. This amount will never be reached, because the government is defrauding parliament annually, and with the fraud, the extra amounts are lost.”

He said: “I find this logic strange. Is the region producing onions or tomatoes? Doesn't the region produce oil, just like you do? Why is your oil sovereign and ours not? Is there a first-class and second-class oil?”

Shiaa replied: “A recent meeting to discuss the dues to Western oil companies operating in the Kurdistan region was held in the presence of Abdel Basset Turki, head of the Supreme Audit Board. Turki presented documents proving that the KRG informed Baghdad that it has exported 160 million barrels of oil recently. Yet, it has paid the federal government a sum that only covers 56 million barrels. Where is the sum equivalent to the remaining 104 million barrels?”

Shiaa added: “When we confronted the Kurdish MPs with these documents, they said that they will ask the minister of natural resources in the KRG to come to Baghdad and explain the issue.”

He continued: “Kurdish MP Farhad Atrushi said in a press conference a while ago that extracting a barrel of oil costs up to $50 in Iraq, according to the share of the Federal Oil Ministry in the budget. Yet the government in Baghdad does not say that to Iraqis. Rather, it says that the cost of extracting a barrel of oil is two dollars.” Shiaa added: “When we requested the federal Oil Ministry explain that, the answer was that its financial allocations in the 2013 budget do not only cover the cost of extraction for this year, but rather many more years, which Atrushi did not mention.”

Shiaa said: “We gave the Kurdistan region two options: receive the dues to Western oil companies in the form of treasury bonds, or from the abundance coming from the increased oil exports. And we have not received the answer yet.”

He asked: “The semi-autonomous region gets 17% of Iraq's budget. Does it really produce 17% of Iraq's oil?”

Parliamentary sources in Baghdad said that the lack of an agreement on Iraq’s budget for 2013 goes back to the fact that political blocs have escalated their demands. The State of Law coalition — led by Maliki — is attempting to reduce the share of the Kurdistan region from 17% to 11%, which is strongly opposed by the Kurds. On the other hand, the Kurds seek to add a clause to the budget regarding the extraction cost, guaranteeing that the dues to foreign companies operating in their provinces will be paid.

Omar al-Shaher is a contributor to Al-Monitor’s Iraq Pulse. His writing has appeared in a wide range of publications including France’s LeMonde, the Iraqi Alesbuyia magazine, Egypt’s Al-Ahaly and the Elaph website.

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