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A gushing future
By: Fouad Al-Kadhimi
Published date: 21/7/2003
The US and its allies face a tremendous challenge in their efforts to restore Iraq to the glory and prosperity it deserves and to make Iraq an example to the Middle East. I believe the Iraqi people and in particular the middle classes are willing to cooperate with the rehabilitation team to achieve this great goal with no political ambitions or associations in mind.
We are guided by our belief that the US and its allies are sincere in their desire to restore Iraq to its past glory and we firmly believe that it is in the interest of the Iraqi people that all the parties concerned to cooperate fully with this great challenge.
The oil and gas industry will be a financial cornerstone of this reconstruction challenge. But what guidelines should the reconstruction and development of the oil and gas sector follow?
Fair distribution of benefits
I will start by saying that the oil and gas wealth of Iraq belongs to the Iraqi people and it should therefore be used to rehabilitate all of Iraq fairly and without any discrimination. I believe this means that Iraq’s future oil wealth should be administered by the central government.
Any calls for this wealth to be under the governorates or regions, through the granting of autonomy or federal status, would not be correct since it is not in the interest of the Iraqi people as a whole. But it would also likely not be in the long-term interests of the very regions seeking autonomy or federal status. For example, lets consider the desire of some factions of the Kurds to include Kirkuk governorate in their region and have control of its oil wealth. The reserves of the Kirkuk fields are estimated at six billion barrels of oil. This represents at best about 5 to 6 percent of the total estimated reserves of Iraq. The Kurds form about 20 percent of the total population of Iraq, which means that if the constitution of Iraq decrees for the fair distribution of wealth, the Kurds would be better served and cared for if Iraq’s oil and gas wealth is controlled by the central government. In addition, this policy will alleviate the worry of neighboring states toward any moves to give the Kurdish region active self-sufficient federal status.
Private sector involvement
The private sector should be allowed to participate in some activities of the oil and gas sector. For instance, in the operation of filling stations, bottling and distribution of liquid propane gas, in the set up of LPG cylinder manufacturing plants, in the transportation of oil products by tankers, in lubricating oil manufacture and distribution, and the gradual undertaking of major maintenance and overall activities.
Of the major oil fields with proven reserves — Nahr Umar, Majnoon, Nassiriya West and Gourna — Nahr Umar is the most suited to accelerated exploitation and can probably achieve a production rate of 600,000 barrels per day within three years of the award of a contract to a foreign oil company. What is called “the accelerated production sharing formula” would allow foreign companies access to enough oil revenue to recover its costs and expenses within about six years, thereby accelerating the speed at which production is brought on-tap.
Some understanding and initial agreements for developing some of these fields have been negotiated with foreign companies, but no such agreement can be considered legally or morally binding in the present circumstances.
Using ‘home-grown’ skills
The Iraqi oil sector is developed to a stage where it can participate actively in the construction, operation and general redevelopment of these fields. Therefore, contracts should be awarded to foreign companies on the basis that they provide engineering and equipment delivery, and the supervision of erection and initial operation, while Iraqi organizations undertake the construction and erection activities under this supervision.
Iraq therefore needs to concentrate on efforts to support and upgrade certain related institutions within the Iraqi oil industry. Examples include the State Company for Oil Projects (SCOP), which installs gathering lines, tanks and pipeline electrical distribution systems, the North and South Refineries Administration, and the Iraq Drilling Company. It is important to involve Iraqis in the development of their country and provide skilled and un-skilled work for a country facing a hazardous unemployment problem. This policy will also encourage Iraqi technicians working abroad to come back to help rebuild their country. Attempts by foreign companies to bring foreign technicians and workers to Iraq with the present situation of unemployment among the Iraqi people will create a very serious threat to the stability of Iraq.
Technical expertise
The Iraqi oil sector has an excellent record in the running of three major technical training institutes in Baghdad, Kirkuk and Basra. These allow the domestic oil sector to be fed continuously with competent technicians in all fields. It may be a good idea to review the status of these institutions and encourage upgrading their courses and training procedures to reflect the technology demand of modern projects.
But these address only a few of the issues facing a prosperous Iraqi oil industry. Others include the rehabilitation of the Iraq Oil Tankers Company and the recovery of its remaining fleet of tankers. There should also be negotiation with the Saudi government for the recovery of the pipeline from the Rumaila fields, through Saudi Arabia, to the Red Sea. This pipeline has a capacity of 1.6 million barrels per day and it would help to accelerate the export of oil. Also, the refining sector is in dire need of investment. The replacement of refineries such as that at Daura, which is about 50 years old and possess safety and environmental hazards, is needed. Finally, and on a more political note, there is also the question of Iraq’s inherent interest in maintaining the delicate balance between the interests of oil exporting and consuming countries. This interest would be served through Iraq’s membership of OPEC.
Fouad Al-Kadhimi is a retired oil expert who has worked for 36 years in the oil industry and now has a consulting bureau.
Published date: 21/7/2003
Author: Fouad Al-Kadhimi
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