SHARJAH, United Arab Emirates, May 28 (UPI) -- In a 20th floor leisure room overlooking the lake in the center of this Emirate's skyscrapers, Majid Jafar talks of matters far up the Persian Gulf, where seemingly every oil company wants to be: Iraq.
Crescent Petroleum, the Sharjah-based oil company of which Jafar is an executive director, is already there. Along with Dana Gas, partly owned by Crescent and on whose board Jafar sits, the company is working with the Kurdistan Regional Government to develop natural gas resources for domestic consumption and exports.
This move, however, has kept both companies off the short list of firms eligible to bid in a first round of development deals to be offered by the Iraq Oil Ministry, which thus far has blacklisted the more than 20 international companies that signed deals with the KRG.
Jafar, whose family comes from Iraq, talked to United Press International from Crescent headquarters about his companies' current and future plans in Iraq, and what the future of the country's oil and gas sector should look like.
Q: Why did Crescent, and by extension Dana Gas, choose these projects in Iraq?
A: We were actually approached by the prime minister of the Kurdistan Regional Government, Mr. Nechirvan Barzani, to address the pressing need for gas supply for power generation, and were uniquely positioned to do so, as a local consortium with capability across all elements of the value chain -- from upstream to downstream, with readiness to start work immediately and deliver results quickly. As you know, ensuring adequate power generation is a primary objective in Iraq today, and especially in the Kurdistan region, where no new-generation capacity has been installed since my grandfather, Dr. Dhia Jafar, as Iraq's development minister inaugurated the two hydroelectric dams 50 years ago. New power plants to produce 1,250 MW, which will benefit all of Iraq, are now in the final stages of construction near Erbil and Suleymaniya, and the gas we will be producing, processing and transporting to fuel them will provide savings to the government of over U.S. $2.5 billion that would otherwise have to be spent on importing liquid fuels. Simply put, these projects will essentially provide sustainable electricity for over 4 million Iraqis in addition to creating thousands of job opportunities.
Q: Where do you see Crescent Group in Iraq in the short, middle and long term?
A: We are proud to have had an uninterrupted presence in Iraq for almost 20 years now, through all the conflicts, sanctions and hardships. As an indigenous company, we have a real long-term commitment to Iraq and the Iraqi people, with offices across the country in Baghdad, Erbil, Suleymaniya and Basra; and we are capable of real work on the ground today. Our current projects in the Kurdistan region see us investing U.S. $650 million in just over a year -- the largest private sector project in Iraq today and the largest energy project by the private sector in decades. The project is well over 80 percent complete and includes shooting seismic, drilling wells, constructing 180km of gas pipelines across difficult and sometimes mine-infested mountainous terrain, and installing two brand-new LPG plants for gas processing. All this is being carried out in just over a year -- a record feat in any environment, but especially in Iraq with all the unique challenges. We are very proud of these achievements and hope to build upon them in all parts of Iraq, especially the south, where we have had a much longer involvement and experience. In the longer term, I hope that Crescent will be one of many Iraqi-owned private companies that are actively participating in the development of the vital oil and gas sector for the national benefit of all Iraqis.
Q: Is there any worry CG will be sidelined from the rest of Iraq because you signed to develop the KRG area?
A: The work we are doing in the Kurdistan region will benefit all of Iraq and is something we are proud of. As I said, over 4 million Iraqi citizens will benefit from affordable electricity as a direct result of this project, with the surplus power supplies going to the national grid as well. In addition, we are providing work opportunities for over 2,000 Iraqi nationals of all ethnic groups and sects, as well as extensive on-the-ground training and community support projects in the areas in which we operate. We are entirely confident about the legal, technical and moral correctness of what we are doing, and as Iraqis, we certainly don't expect any discrimination for providing positive tangible benefits for Iraq at this critical time. In any case, all government revenues from all oil and gas projects in all regions of Iraq are to be shared by all the people in accordance with Iraq's Constitution.
Q: What would CG like to do in the rest of Iraq? What are some projects you're thinking about or have already proposed?
A: Our relationship and experience with the Oil Ministry in Baghdad goes back a long way. In particular, our focus has been on the Ratawi oil field in Basra governorate, for which we formed a consortium and negotiated a detailed development plan and contract with the Oil Ministry in the 1990s, but chose not to sign out of respect for the international sanctions at the time. We have fully updated the plan and budget, and are ready to implement it straight away, with first oil in production within 18 months, and adding 250,000 barrels per day of new production capacity for Iraq faster and more economically efficient than could be achieved by any foreign company. In addition, we have carried out an exploration study in the south at the ministry's request, and carried out training programs for personnel of the ministry and state-owned companies. Our success and proven capability in the north have already resulted in requests by officials in Baghdad and the southern governorates to replicate such projects for local benefit as well.
Q: Crescent and Dana were not part of the 35 pre-qualified companies. Why do you think that was?
A: As we all know, there is a lot of politics in Iraq at the moment -- with statements by the current oil minister, the third in Baghdad in four years, that he wants to exclude companies investing in the Kurdistan region, and counter-statements not just from the KRG but from other ministers in Baghdad also. The irony is that not one of the so-called qualified companies has any recent experience in Iraq or even a presence of any kind in the country today, and it's not clear what the process is all about. For our part, we focus on results and stay out of short-term politics: Crescent is the oldest private-sector oil and gas company in the Middle East, and we have been qualified for oil and gas operations by many countries, including the (United Arab Emirates), Qatar, Iran, Egypt, Yemen, Pakistan, India and, of course, by Iraq itself for almost 20 years, as I mentioned. Dana Gas is the largest regional publicly listed energy company operating in the Middle East, with 300,000 shareholders and is a major gas producer in Egypt. Both companies have already proven an ability to deliver real results on major integrated energy projects in Iraq, quicker and more cost-effectively than any foreign company could. At the end of the day, results speak for themselves, and we are confident in our ability to play a real and positive long-term role in the development of the Iraqi oil and gas sector. The Iraqi people are tired of politics and unrealized plans, and don't need more technical studies but rather real rapid results delivered by companies willing to invest in Iraq and work on the ground immediately.
Q: Crescent and Dana's plans appear to be focused on domestic use. Why is that?
A: Quite simply, because that is what Iraq needs today. Especially for natural gas, the highest economic value for any country comes from displacing liquid fuels for domestic power generation. Thereafter, local industrial use guarantees higher economic value and job creation, and we are addressing this need through the development of the Gas City in the Kurdistan region -- which will utilize additional gas supplies beyond the needs of the power plants to encourage local industry and hence spur economic growth, foreign investment and job creation. We are actually developing this unique concept in multiple other locations across the region, and have plans to offer it for southern and western Iraq as well.
Q: Most companies trying to get work in Iraq are focused on exploring, developing and producing for export. Is this the wrong course for Iraq?
A: It is not wrong to export the crude oil or natural gas, but only when domestic requirements are met, of course. As a tragic example, Iraq is currently flaring over 1 billion cubic feet of gas per day in the south and has been since at least 2003. Apart from the environmental catastrophe and loss of potentially billions of dollars of value, this gas could fuel 6,000 MW of power generation -- all of Iraq's current needs -- while Iraqis continue to suffer on only a couple of hours' electricity supply per day. Even on the oil side, we export crude but continue to import billions of dollars' worth of oil products!
Unfortunately, most of the foreign companies, and especially the majors, are most interested in booking reserves and exporting production to developed markets -- partly because they have no capability or understanding in developing the local market or economy. The Western majors have a colonial legacy in Iraq that many Iraqis resent. My grandfather as the Iraqi minister responsible at the time negotiated against the Western majors over 50 years ago, but back then they were the only companies around and had a dominant position. Today, and despite their size, they mostly have falling reserves and production figures worldwide, and are desperate to re-enter Iraq, which is the last high potential oil and gas play, though they would rather sit on the sidelines for now and do studies from outside the country due to security fears and perceived political risks. There will be a role for them, I am sure, but there are also other reputable companies capable and willing to invest and work in Iraq today, and Iraq also needs to develop its own private sector, like all developed economies, so as not to be dependent on foreigners anymore. They will benefit Iraq more in terms of employment, GDP, re-investment, and will also have better advantages in terms of lower costs and local knowledge.
Q: What's Crescent Group's policy for local content in its projects?
A: We see ourselves as a local company, so it is not even a matter of having a policy for local content actually: All of our offices in Iraq are staffed 100 percent by Iraqi professionals -- many of them with distinguished careers and extensive experience working in the state oil sector. On our current projects, only a small number of temporary staff with specific technical expertise might be foreign, but almost all are Iraqis, and from all the ethnic groups and regions and faiths represented in Iraq. Even with the contractors we have used, except with some specialized drilling services, they are all local, though they sometimes partner with Turkish or other contractors. Indeed, maximizing local content is an obligation on our contracts with the KRG and should be in all the contracts Iraq signs.
Q: Is there a role for the oil unions?
A: The right to organize as labor is enshrined in Iraq's Constitution and must be respected. There has, however, been some unnecessary controversy, with some scaremongering that somehow private companies investing in Iraq will lead to unemployment of state employees. This is of course a fallacy -- the experience of all other countries in the region and internationally has shown that having more private companies working and investing in the oil sector will actually significantly increase both the number of jobs and the level of salaries paid, in addition to other benefits such as training and development of local staff.
Q: What are Crescent Group's thoughts on whether Iraq should privatize, or denationalize the energy sector and to what extent and timeline? Why?
A: Privatize is the wrong word -- as it implies the selling of state oil companies to the private sector, which is not what is being talked about. However, after decades of neglect and unfulfilled potential, there is a real and urgent need for private sector investment and management in the Iraqi oil sector. Because of the socialist and centralized legacy of the past and the sensitivity to colonialism, there has been some negative response to this, but observing the achievements of other countries in the region that have had success in developing their oil sectors should allay any fears: Syria, Egypt, Algeria, Libya, the UAE, Qatar, Yemen, Oman, Sudan and many others have all managed to retain full sovereignty and regulatory authority over their oil and gas sectors while having many private companies of different sizes investing and working in competition to maximize the benefits to the state. Iraq's history in the oil sector is a tragedy of political interference and lost opportunity: It has probably the largest oil reserves in the world, yet production today is still below the levels at the time of nationalization over 35 years ago and still not even consistently at the levels at the time of the invasion. Apart from the Kurdistan region more recently, there have been no new discoveries or reserve additions in decades, and, in addition, the state oil sector has been suffering from a brain drain with most of the expertise at or close to retirement.
Iraq will continue to have a need for state involvement to manage and expand potential from the existing fields, which should be brought up to produce 4 (million) to 5 million barrels per day -- a huge feat and operation in itself, and one which may require partnership with private companies. In parallel, however, Iraq's undeveloped fields and exploration areas require urgent private sector investment and management, so that total production can reach 10 million barrels per day and more, which should be well within Iraq's grasp. The gas sector and downstream activities should not be neglected either, and, of course, for all oil and gas activities, including upstream, Iraq needs to develop its own private sector companies, as I have mentioned.