KRG exports to restart after hush agreement

KRG exports to restart after hush agreement

Iraq Oil Report
January 19, 2011

Kurdish exports will resume Feb. 1, but officials on both sides of the KRG-Baghdad divide are keeping quiet about the details.
KRG President Massoud Barzani (right) and Iraqi President Jalal Talabani (a top Kurdish leader) ceremoniously turn on the tap of exports from fields in the KRG June 1 (source: krg.org)



BAGHDAD - Oil tensions appear to be easing between Iraq’s central government and the northern Kurdish region, at least a temporarily. Following high-level meetings here on Monday, the semi-autonomous Kurdistan Regional Government (KRG) will resume exports via Iraq’s pipelines beginning Feb. 1, at rates that will reach 100,000 barrels per day (bpd).
Iraqi Prime Minister Nouri al-Maliki and other key Baghdad officials hosted a delegation from the KRG, which was led by Kurdish Prime Minister Barham Salih and included Ashti Hawrami, the KRG’s minister of natural resources. Following that meeting, officials from both sides confirmed that pipeline exports would re-start from two Kurdish fields, Tawke and Taq Taq, which are being developed, respectively, by Norway’s DNO and Genel Enerji (in partnership with Sinopec of China).
“We’re very happy with it,” said Hawrami. “We’re happy we have a new atmosphere.”
Oil policy has been a major point of contention between Baghdad and the KRG for more than four years, since the beginning of Maliki’s first administration. And previous agreements have not lasted. The central government has claimed ultimate authority over the country’s oil sector, while the KRG has signed more than 40 contracts with international oil companies – deals which Baghdad has characterized as illegitimate. As recently as Sunday, a disagreement over oil and money prompted the Kurdish delegation to walk out of a session of Parliament.
After Monday’s meetings, however, Salih posted to his Twitter account: “Productive meeting w PM Maliki in Baghdad. Agreed to resume oil exports from Kurdistan by Feb 1st, resolve outstanding issues on oil, budget.”
Neither side would provide details explaining how a deal was struck despite their many differences, or how the new agreement would handle payment of the foreign oil companies working in the KRG. In the past, Baghdad has claimed that the KRG must pay their contractors out of its regional budget, while the Kurds say the central government should make such payments.
The two sides have also butted heads recently over revenue distribution. The KRG, which comprises three semi-autonomous northern provinces, receives 17 percent of the national revenue that is split among Iraq’s provinces.
The draft 2011 budget has called for the KRG to send 150,000 bpd of oil through Iraq’s northern export line; if not, the value of the missing oil would be deducted from the region’s revenue allocation.
In response to this provision, the Kurdistan Alliance in Parliament has twice led walk-outs when the budget was presented.
According to sources familiar with the negotiations and political leaders, the new agreement will bring the KRG’s export requirement down to 100,000 bpd. The lower quota addresses concerns that the KRG might fail to sustain the higher rate for an entire year, and then risk the financial consequences.
“This is the point,” said Kamal al-Saidi, a top official and member of parliament in Maliki’s Dawa Party. “That’s why there were objections” to the 150,000 bpd quota.
Najmaldin Karim, a new member of parliament and key ally to Iraqi President and Kurdish leader Jalal Talabani, confirmed that Kurdish output would be closer to 100,000 bpd.
Karim also said there need to be “provisions” included to indemnify the KRG in case oil is shut-in outside of its control, such as “technical problems, natural disasters or terrorist attacks.”
The new oil agreement will likely remain mostly secret until the budget is presented to Parliament, which is on holiday until Jan. 30.
“Of course, nothing has been implemented yet. We hope this time things are more serious,” Karim said, adding that “the tone is totally different.”
Hawrami has had a tense relationship with Hussain al-Shahristani, who was the Iraqi oil minister from July 2006 until last month, when he was named deputy prime minister for energy. They have been the two main figureheads of the KRG-Baghdad oil dispute.
Even before the fall of Saddam Hussein’s regime, Kurdish leaders signaled their ambitions to run an autonomous oil sector, signing a contract with Genel Enerji for the Taq Taq field in 2002.
After the U.S.-led invasion, oil policy was a key sticking point in negotiations over the country’s new constitution. As a result, Iraq’s 2005 constitution largely avoids the question: it calls for a suite of legislation to clarify the lines of control over the country’s oil sector.
A draft oil law did emerge in early 2007 – but not before the Kurds had signed three more oil deals. The oil legislation passed Iraq’s cabinet but then sunk in Parliament. Since then, the oil law has not resurfaced.
In the absence of such legislation, Iraq’s oil development has only accelerated. Since late 2008, Baghdad has signed 12 oil contracts and awarded three gas field contracts in open bidding rounds.
In combination, those deals aim to increase Iraq’s production capacity from 2.7 million bpd to more than 13 million bpd within seven years.
Meanwhile, the KRG has now signed more than 40 oil deals including, most recently, four deals with U.S. oil firm Marathon late last year. In negotiations over the 2007 oil law, Maliki and the Kurds had signed an agreement to acknowledge the legitimacy of the KRG’s first four oil deals. But the deal fell through in April and Baghdad has called the KRG’s subsequent deals illegal, and blacklisted any companies who signed Kurdish contracts from entering Baghdad’s oil and gas auctions.
A narrow agreement was ironed out in 2009, which allowed for oil exports in May of that year from two fields, Taq Taq and Tawke, through Iraq’s northern pipeline, which is controlled by the central government.
But the holes in that deal were quickly realized. The KRG wanted Baghdad to pay the contractors’ costs, since all the export revenue was going to the central government. Baghdad, however, said that the KRG, as the entity that signed the contract, was responsible for paying the companies from its own regional budget. Exports stopped in September 2009 after just four months.
Neither Kurdish nor central government officials have indicated how these intricate and long-standing disputes might be resolved in the new export agreement.
Hussain al-Shahristani, the former oil minister and current Maliki deputy, was en route to an Arab finance summit in Egypt and couldn’t be reached for comment. The Oil Ministry deferred comment to the politicians. Maliki’s office and that of government spokesman Ali al-Dabbagh did not respond to calls.
On the Kurdish side, one of the few officials to answer his phone was Hawrami, the KRG’s natural resources minister. He declined to give details, however, deferring to the prime ministers for statements. Both sides appear reluctant to talk, with important differences remaining and the issue being so sensitive for so long. “We will not negotiate through media,” said Hawrami, when pressed for details. “It is an internal matter.”
This includes determining what funds Baghdad will send up north by assessing the amount owed to the companies, reconciled with the oil produced, refined and sold to the local market or exported via tanker truck. “This is a very serious issue,” Saidi said.
All of Iraq’s oil revenues are supposed to have been sent to the Development Fund for Iraq (DFI), a UN-mandated mechanism designed to ensure sound financial management during Iraq’s post-war reconstruction.
Karim, the Talabani ally, said the talks resolved “the issue of paying the oil companies that have contracted with the KRG, which in the past they have been reluctant to do.
“There is an understanding now between the Oil Ministry in Baghdad and the Ministry of Natural Resources in Kurdistan that that will be done,” he said, “that oil companies will be paid and once they get paid then oil will resume, the 100,000 bpd and there is a capacity to increase it and they will do that and produce as much as they can.”
The agreement, if enshrined solely in the budget deal, will have a one-year sunset. It also doesn’t appear to address Baghdad’s reluctance to endorse the many KRG oil deals signed after 2007, nor the question of whether the KRG will get a set amount or a flat percentage of oil revenues from KRG fields.

http://www.iraqoilreport.com/politics/oil-policy/krg-exports-to-restart-after-secret-agreement-5291/