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Iraqi Kurdistan Government oil minister explains
oil deal breakdown
30.6.2008
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June
30, 2008
Erbil-Hewler, Kurdistan region "Iraq", — The
contracts have not been published, but Ashti Hawrami,
Iraq's Kurdistan Regional Government (KRG) natural
resources minister, insists everything needed to
know about what's in the dozens of contracts signed
between the KRG and international oil companies is
in the public domain.
In a recent interview with United Press
International from his office in Erbil, the capital
of Iraq's Kurdistan region, Hawrami explained the
breakdown of contract ownership by the companies and
how much control the government has in the contract.
He says the Kurdish government not only takes the
majority of the profit after the companies recoup
their costs,www.ekurd.net
has rights to enter into
the deal via the state companies or a private
company of the government's choosing.
Hawrami said the companies also are required to pay
a signing bonus to the government and commit
millions of dollars in local development projects. |
Dr Ashti Hawrami, Kurdistan Regional Government
minister of natural resources, in his office in
Erbil, , the capital of Iraq's Kurdistan region |
He said the details of
all this will be published in the coming months,
including an account held in an Erbil bank of all
the funds collected in the oil deals, to be turned
over to Baghdad once a revenue-sharing law is
signed.
Since 2004 the KRG has signed more than 20 contracts
to explore for and develop oil in the region, with
two contracts commercially producing oil already.
While the Iraqi Oil Ministry in Baghdad claims the
deals are illegal, it apparently can't stop the KRG,
which signed a handful again last week.
The KRG deals range from small international firms
to some of the largest state-owned and independents,
like Dallas-based Hunt Oil, India's Reliance, MOL
from Hungary, OMV of Austria and the Korea National
Oil Corp.
The production-sharing contracts were negotiated
outright, not up for bid, and the KRG has been
criticized for not being transparent.
While Hawrami refused to make the contracts public,
he told UPI "the government takes about 90 percent
or so through the public company and royalty and
profit oil, and the contractor's take is generally
about 10 percent."
Hawrami said much of the details are on the KRG Web
site, published when the deals were announced.
"The government takes 10 percent from the top, as a
royalty, that is 10 percent of the total oil
produced before the contractors get anything towards
their cost recovery. The contractor is then allowed,
typically, a maximum of 40 percent of the remaining
oil to offset its costs. And that is effectively net
36 percent, because it's 40 percent of the remaining
90 percent after royalty. And then what is left (54
percent) is profit oil. If the contractor doesn't
have any costs remaining, then 36 percent cost oil
will also be added to the profit oil, which makes
the whole 90 percent after royalty profit oil," he
said.
"While the contractor is in the cost recovery stage,
he starts with a slightly higher cut of the profit,
but ultimately that's only for a short window of
time, so it comes down to around 15 to 16 percent,
and the government gets the rest, effectively 85
percent. But then before that, the government has
taken 10 percent of the gross revenue as royalty.
So, that means that the government gets 85 percent
of the 90 percent (i.e., 76.5 percent) plus 10
percent as royalty, thus 86.5 percent overall cut,"
he said.
"Also in the contract, on the contractor's side, one
of the partners is the Kurdistan National Oil Co. or
the Kurdistan Exploration and Production Co., either
as an option to be exercised or it is named upfront.
There's the option for a government to exercise an
interest option through a government company.
"And typically that is 20 percent. In some contracts
this is 25 percent," he said. "When you subtract
that 20 percent to 25 percent from the contractor's
share, the foreign contractor's net share becomes
really about 11 percent, this is because KEPCO will
be taking 20 percent or so from the contractor's
share of its profit. Also,www.ekurd.net
we still typically have
about 15 to 20 percent more in these contracts
reserved for the government to exercise that option
in favor of a new contractor (a third party). We are
doing that to allow us to broaden the consortium to
include an additional party, either bringing a
friendly company from another friendly country or to
increase the government stake via KNOC or KEPCO, or
to bring in a domestic private sector company, if it
can demonstrate adequate resources."
Copyright, respective author or news agency,
UPI
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