Iraq Offers Four Planned Oil Refineries For Foreign Investment

As the next phase in the development of Iraq’s petroleum industry, the Oil Ministry announced in June 2010 that it would be placing up for bid four planned refineries, and to renovate existing ones. The goal is to boost production of refined products so that the country not only becomes self-sufficient but an exporter, that the projects and new plants provide jobs for the vast number of unemployed and underemployed in the country, and that the facilities will also produce electricity to help out with Iraq’s power crunch.

Iraq’s Oil Ministry wants foreign companies to invest in four new refinery projects and refurbish old ones as well. The projects are in southern and northern Iraq. The largest planned facility is in Dhi Qar province. It will have a capacity of 300,000 barrels a day, and generate 600 megawatts of power. The Ministry also wants to construct refineries in Maysan and Tamim that will have a capacity of 150,000 barrels a day each, and produce 500 megawatts and 400 megawatts respectively. The last one will be in Karbala and produce 140,000 barrels a day and 400 megawatts. All together the estimated cost of the refineries is $23 billion over five years. Companies can either invest individually or create joint ventures with Iraq’s state-run oil corporations. The government is also offering incentives such as a 5% rebate on oil prices, compared to 1% in the rest of the Gulf, 40-50 year leases on land that can be renewed, and a streamlined licensing process. American and Italian engineering firms have already begun drawing up plans for each refinery, and the plants will hopefully be ready for offers by the end of the year.

The Oil Ministry is hoping these deals will have broad affects upon the Iraqi economy. First, Iraq wants to increase its refining capacity to 1.5 million barrels a day in five years. The country’s current capacity is 800,000 barrels a day, but refineries only operate at 50-60% of their potential. The result is that Iraq has to import many of its refined oil products from Kuwait and Iran. The Electricity Ministry for example needs 9 million liters of kerosene a day to run its power plants, but the Oil Ministry only supplies 4 million liters. With the new refinery program, the government is hoping to become self-sufficient, and hopefully an exporter in the future. Second, the Ministry is hoping that the plants will attract professionals back to the country to operate them. Iraq has had a massive brain drain since 2003, and lacks much of the know how to improve its economy. The government is hoping these new projects will be a draw for them to come back. Last, Baghdad wants the plants to boost the country’s revenue, which can then be re-invested in the rest of the economy.

A major hurdle to the Ministry’s plans is the volatile nature of the refinery business. Many are not big money makers because of high operating costs, and depending upon conditions can actually lose money sometimes. That makes it hard for countries to attract private investors. One oil analyst believed that the Oil Ministry should’ve included the existing refineries in the two rounds of foreign bidding on oil fields that occurred in 2009 to make them more attractive. These issues also mean its unlikely that the new refineries will add much revenue as the government hopes.

Iraq is trying to quickly move ahead with the renovation and development of its oil industry after being neglected and sanctioned for twenty years. They have signed 12 new oil deals, and now have plans to build four new refineries and revive the existing ones. The improvement in security has finally allowed the authorities to move ahead with these projects. How successful they will be is the big question. Iraq desperately needs to earn as much money as possible since it is lacking in so many necessities, and needs billions to repair its damaged infrastructure. The biggest hurdles are that these deals may not produce as much as hoped for, and that they will only offer a few job opportunities for a growing and younger workforce. At the same time, oil is the only part of the economy that has a real chance to grow, and so Baghdad must move ahead with these plans as quickly as possible to at least give it the chance to develop the rest of the country.

SOURCES

Daood, Mayada, “refining iraq’s economy,” Niqash, 7/1/10

Al Fathi, Saadallah, “Iraq refineries need incentives,” Gulf News, 6/21/10

Radio Free Europe/Radio Liberty, “Iraq Seeks Investors To Build $23 Billion In Refineries,” 6/26/10

Reuters, “Iraq invites oil firms to June 26 refining meeting,” 6/23/10