Kurdistan oil deals, a price worth paying
By Shwan Zulal - ekurd.net
Discussions among politicians and investors over the
best type of oil contracts for Iraq are heating up,
but a lack of consensus continues. The Kurdistan
region has granted Production sharing Agreements (PSA)
and Production Sharing Contracts (PSC) to over 37
foreign oil exploration companies since the fall of
Saddam. Most companies have been successful and hit
oil. Austrian OMV Group and Canadian Westeren Zagros
(WZR) doing so in the last two weeks. However, the
Iraqi government is still refusing to accept the
validity of the contracts.
Oil policy in Iraq has been lead by the deputy prime
minister for energy, Hussian Shahristani. He has
been at the forefront of the political confrontation
with Kurdistan Regional government (KRG).
Shahristani believes that all oil contracts in Iraq
should be granted as Technical Service Contracts (TSC)
where the state keeps control of the oil and the
company gets payment for its services.
Oil in Iraqi Kurdistan.
It is true that service
contracts favor the state rather than the commercial
companies involved in the exploration of the oil.
Nevertheless, the Kurdish region has already signed
many PSCs, where the company is given the rights to
the oil, contrary to shahristani's wishes.
PSCs are not the best type of contracts for all
situations or countries and it is estimated than
less than 15 per cent of oil contracts worldwide
fall under this category. It is not possible to have
one type of contract to fit all sizes. Governments
and companies chose what contracts they enter
according to location, condition and above all the
politics in the case of Iraq. The US and UK as well
as other major oil players in Iraq have been pushing
the Iraqi government to adopt the PSA and PSC. This
type of contracts would be very lucrative for the
oil companies especially if they win a bid for one
of many Iraq's giant oil & gas fields. Iraqi
government is set to lose a substantial income if it
grants PSAs rather than TSCs; therefore, the
politics of this decision is playing out and
confrontation is inevitable.
Judging from the political fallout it is clear that
Iraq's public opinion is strongly oppose PSCs as
they see it as handing over the Iraqi oil to the
"invading" US forces and their European partners.
Many Iraqis see letting foreign companies in, as a
privatization of their oil and so far it has not
gone down very well with them. While this debate is
raging, the main issues has been ignored - which is
boosting production and investing in the future of
Kurdistan’s oil situation is different from the rest
of Iraq, as the region is not yet fully explored and
reserves are not proven. Although it has been said
that it is harder to find water than oil in
Kurdistan and indeed Iraq as a whole, accessibility
and infrastructure remains an issue for the oil
companies. Kurdistan Region is landlocked and it is
at the mercy of its neighbors if it wants to sell
oil to the international markets. Companies
operating in Kurdistan have been aware of the risks
and if it were not large rewards, many would have
not entered the contracts.
To date, the oil discoveries in Kurdistan Region has
been on the smaller side compared to other parts of
Iraq with the exception of couple of large
discoveries. If the trend continues and the oil and
gas are patchy, KRG would be proven right and the
PSC's granted would be deemed as a good judgment by
them. If the contrary were true, it would be a
monumental failure and large scale squandering of
the region's wealth.
Due to its complexities and being subject to
commercial confidentiality, PSC and PSA's are not
very transparent. The lack of transparency has been
the main issue for KRG and the companies involved.
Many Kurds, including senior ministers and
opposition leaders, do not have any idea about the
content of these oil and gas contracts, therefore
many see the deals as shady and opaque. Furthermore,
the constant allegations and rampant corruption
within KRG does not persuade the public to trust the
Kurdish politicians to work for their best interest.
It is hard to find accurate figures as to the
amount, which Kurdistan Region would lose by having
entered PCS's. However, estimates for Iraq are about
two to 10 times of countries annual income. This
makes it clear that PSA's are not a very attractive
option for the Iraqi government to adopt.
Shahristani and the Iraqi government have so far
resisted the temptation to rush into granting
contracts in favor of the oil companies. In the last
in the auctioning of Iraq's larger oil fields has
been somewhat subdued as the big players are waiting
for the Iraqi government to be persuaded to sign PSA
as an alternative to service contracts. Only
recently, many oil companies operating in Iraq have
complained that the return from such contracts is
less than two US dollars. In a U-turn recently, the
Iraqi oil minister admitted that government is
trying to find ways to encourage companies to boost
productions by possibly extending the TSC from the
current 20-year term.
It is becoming clear that the contracts awarded in
Kurdistan may not be the most financially rewarding.
But the rationale behind KRG's attempt to grant PSCs
and PSAs on more generous terms than of Iraqi
government was to lure as many foreign investors to
the region as possible. The Kurdish Region has been
very successful in doing so and by adopting this
policy the KRG has made sure that they have a big
role in Iraq's oil policy and have the possibly of
securing independent funding for the region in the
future. Moreover, Kurdistan Region has long-term
ambitions of becoming an independent state, and
controlling its energy sector would put it in good
stead. While the KRG is set to lose out by entering
PSCs, one can argue, it is a fair price to pay for
Kurdish sovereignty and an end to the long standing
label of being the largest nation in the world
without a state.
is a Kurdish Blogger, a regular contributing writer
for ekurd.net, interested in political and legal
Reform in Kurdistan, KRG, Iraq and current Kurdish
affairs, including oil exploration companies and
relevant legislations. You may visit Zulal's website
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