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Analysis: Iraq oil law holdup political


Published: March 17, 2008 at 6:20 PM
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By BEN LANDO
UPI Energy Editor
WASHINGTON, March 17 (UPI) -- Iraq's oil law debate is political, not technical, a top U.S. official said, adding Iraq has tagged billions of dollars to boost oil production regardless.

Charles Ries, U.S. State Department minister for economic affairs and coordinator for economic transition in Iraq, said the proposed law isn't necessary for Iraq to produce oil "but it would clearly be much, much better and incentivize private investment to help Iraq produce more if a bill would pass."

U.S. Vice President Dick Cheney is in Iraq Monday and said he's pressing Iraqi leaders to move the controversial legislation forward.

Ries said Iraq has set aside $2.5 billion for Technical Support Agreements over the next two years. TSAs, being negotiated with BP, Shell, ExxonMobil, Chevron and Total, would see a transfer of technology, expertise and training to Iraq's oil sector.

Further down the road, Ries said Iraq will sign production-sharing agreements to develop areas not currently producing.

"That is the likely course for the upstream industry in Iraq," Ries said, pointing to Syria and Indonesia as examples of countries that utilize PSAs to garner investment. He said "all parties, with a few exceptions of parties that are not in government," back PSAs.

Iraq's oil workers and civil society groups, as well as members of Parliament, have come out against PSAs, fearing Iraqis won't get their fair share. Some MPs have said they'd be OK with PSAs in certain situations, but not all, and only if the percentage for companies is low enough.

The PSA is a favorite of international oil companies, reimbursing it for expenses and guaranteeing it a percentage cut of oil for usually decades-long deals. It's compensation for the risk of exploring and coming up empty, say the companies, which can add the reserves when Wall Street looks at its books. But Iraq is not like Syria or Indonesia. It holds the world's third-largest reserves despite being vastly underexplored. Those in search have higher percentage of finds than in other countries, and what they get is usually highest quality, thus less expensive to produce, transport and refine.

The contract model itself, which will determine the extent of foreign involvement in the currently nationalized oil sector, is one sticking point in approving the law. The other is a power struggle between the majority in the central government and Iraq's Kurds and others.

"The oil and gas law from a technical standpoint is largely done," Ries said. "The problem relates to the distribution of power and autonomy in the federal structure." He refused to offer a prediction for its passage.

The Kurdistan Regional Government insists on a decentralized governing structure over the oil and gas instead of the national government. The law is stuck in Parliament's Energy Committee.

An official told reporters en route to Iraq Cheney will press government officials to approve the oil law in order to facilitate foreign oil companies' entry to Iraq. He said the constitution, which is accused of being too vague and thus creating the oil law dispute, does not need to be amended first.

Iraq is producing about 2.4 million barrels per day and exporting about 1.9 million bpd. Sales brought in $41 billion last year. With increased output and higher oil prices oil exports have fetched $11.6 billion through the first 10 weeks of 2008, according to the State Department's Iraq Weekly Status Report.

Iraq's oil reserves could handle producing much more -- the Oil Ministry has a 6 million bpd goal for 2012 and some say 10 million bpd is feasible, even without bringing online oil fields not yet found. The producing fields need to be fixed and modernized and workers retrained after decades of Saddam Hussein's mismanagement, U.N. sanctions and war. This will take tens of billions of dollars.

Iraq has been trashed by members of Congress here in Washington for not investing enough of its own funds -- a mostly misguided attack. Sens. Carl Levin, D-Mich., and John Warner, R-Va., have asked the Government Accountability Office to look into what banks Iraq stores its revenue in (Answer: the Federal Reserve Bank of New York, per U.N. mandate), how much is going to reconstruction and what is America's contribution to the rebuilding effort. Sen. Hillary Clinton, D-N.Y., on the campaign trail Monday, reiterated such concerns.

They could have just asked Ries. Of the $49 billion FY 2008 budget, $13 billion is pegged for capital investment and more than $3 billion is heading to the Oil Ministry, he said. Iraq still lacks the capacity to actually spend the funds, according to previous years. Ries said 2007 will see 60 percent of capital budgets spent when the final numbers are in, though a GAO report in January questioned the figures provided by the U.S. State and Treasury departments and the Iraqi Finance Ministry. Regardless, it has increased the allocation.

"They are paying several orders of magnitude more of the cost of reconstruction than we are now," Ries said. "Iraq's oil revenues are all being spent on the Iraqi government, both operating expenditures and reconstruction," he said. There's about $27 billion at the U.S. Federal Reserve to stabilize its currency.

"We spent somewhere between $4 and $5 billion in the oil sector in five years. And they're spending $3 and a half (billion)," he said, adding there's no new U.S. spending in the oil sector.

He said the State Department is focusing its effort away from "bricks and mortar" to capacity building.

--

(e-mail: blando@upi.com)

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