Iraq seeks investment but nixes reserves privatization

Feb. 28, 2005
Iraqi Oil Minister Thamir al-Ghadban claims that his country can boost its oil production level from its current 2.1 million b/d to 6 million b/d, aided by Iraqi, Arab, and foreign investments. But he ruled out any privatization of the "extraction sector," saying it was out of the question at the moment.

Iraqi Oil Minister Thamir al-Ghadban claims that his country can boost its oil production level from its current 2.1 million b/d to 6 million b/d, aided by Iraqi, Arab, and foreign investments. But he ruled out any privatization of the "extraction sector," saying it was out of the question at the moment.

"In past decades, Iraq was plagued with wars, sieges, and the misuse of its oil wealth," al-Ghadban said in the Arabic Asharq al-Awsat newspaper published on Feb. 15.

"We, the people concerned with oil affairs, have many dreams, which are well-studied plans based on rigorous scientific foundations. Now we hope to implement these plans, because the war era has passed," he said.

"Iraqi oil policy aims at consolidating the oil reserves and at increasing the production and export capacity of crude oil and gas, a fact that would increase the country's revenue and financial resources," he said.

"There are axes for developing the oil sector. The first axis could be summarized in drawing up an integrated, comprehensive plan that proceeds in the direction of expanding the volume of oil and gas explorations in Iraq," said al-Ghadban. "Iraq is one of the oldest oil countries in the region, but it is the least explored country. The western desert, as a mere example, constitutes one third of the area of Iraq. The studies prepared by Iraqi and foreign companies during the 1990s show that this is a promising area and could be rich with light crude oil," he said.

"Furthermore, the Al-Jazirah region, between the Tigris and the Euphrates [rivers] in western Iraq, next to the Iraqi-Syrian border, is also a very promising region," he said, adding, "As for the basin of the Tigris and the Euphrates, there is major exploration work that will be carried out, and this will increase the oil and gas reserves."

Al-Ghadban said that production of as much as 6 million b/d of oil "is a strategic aim that we will work to fulfill within 5-6 years from the moment we start."

Oil policy focus

In this sector, he said, the general features of the oil policy will focus on two directions.

"The first is that the Oil Ministry, and perhaps in the future the Iraqi National Oil Co., will increase the currently available production capacity to 3.5 million b/d," he said, adding, "This will be achieved by relying on the ministry's effort and finances and by utilizing foreign expertise through regular 'engineering and executive' contracts, while the qualified Iraqi personnel continue to manage 100% of this process."

Al-Ghadban said, "As for the second direction, it should proceed in parallel with the first one, and Iraqi, Arab, and foreign investments will be utilized to develop the explored oil fields, which number more than 30. Some of these fields are classified as ultragiant fields, and they will be developed to add production capacity of more than 2.5 million b/d of new oil."

The Iraqi minister added that, "There are various formulas of cooperation. They could be used individually or in groups, but choosing one formula over another should be made through the new interim government and the elected National Assembly."

The minister saw no problem with Iraq's intention to sign contracts with foreign and international companies well known in oil investment or with the privatization of some oil projects.

"There is nothing wrong with the private sector playing a wide and extensive role in the oil industry," he said. "We believe it is neither important, nor necessary for the Oil Ministry to manage the petrol or liquid oil stations.

"Therefore, we are completely agreeable to opening the field to the private sector to build storage depots, refineries, or gas laboratories according to various techniques that are scientifically known as 'BOT' or building and ownership techniques, and then at the end of the period hand over the installation to the ministry."

In such cases, he said, "the role of the ministry will be to plan, to specify the projects, and to sign the long-term contracts with the investors to provide the raw material, the oil or gas. The investor will manage the project for a period of time or build and manage without the condition of handing over the building.

Reserves off limits

"As for the extraction sector, that is, dealing with the oil and gas reserves, which are 'assets,' privatization is completely out of question at the moment," he said.

The minister explained that the Iraqi, Arab, and foreign private sectors could develop the fields with the agreement of the Oil Ministry, and according to mechanisms to be agreed, namely "service contracts, repurchase contracts, production-sharing contracts."

However, these mechanisms would have to be agreed by the coming government and the elected National Assembly because of the importance of the extraction sector to the natural wealth, being the property of the people and because of its importance to the Iraqi economy.

Al-Ghadban observed that the private sector could play other roles, for example, offering various oil services, such as drilling wells, civil engineering, and the services needed for the drilling operations.