Iraq Successfully Auctions Off Three Gas Fields

Representative of Kuwait Energy bids during Iraq’s gas auction
Source: Iraq Oil Report

Iraq’s Oil Ministry held its auction for three natural gas fields in Baghdad on October 20, 2010. The proceedings were presided over by Oil Minister Hussein Shahristani. The event didn’t garner as many foreign energy companies as Iraq was hoping for, and less than half of the participants placed bids, but at the end of the day all three fields were successfully auctioned off.

The natural gas fields involved in the auction were Akkas, Mansuriyah, and Siba. Akkas is in Anbar province, Mansuriyah in Diyala, and Siba in Basra. Together the three have an estimated reserve of 11.2 trillion cubic feet of gas, which is around 10% of the country’s total. 45 companies that took part in the two oil auctions last year were pre-qualified to participate in this event, but only 13 ended up paying the participation fees. Those were France’s Total, Italy’s Eni, Edison, Norway’s Statoil, Kazakhstan’s KazMunai Gas, Turkey’s TPAO, Japan’s Oil, Gas and Metals National Corporation, Itochu Corp., Mitsubishi, Kuwait Energy, India’s Oil and Natural Gas Corp., South Korea’s KOGAS, TNK-BP, and BP PLC’s Russian joint venture. Of those, only five made bids. The winners will be awarded 20-year service agreements where they will form a joint venture with an Oil Ministry controlled business, paid a flat fee until they reach their production mark, and then paid for extra output after that level is met.

A consortium of TPAO, Kuwait Energy and KOGAS won the Mansuriyah field. Mansuriyah has a reserve of 4.5 trillion cubic feet of gas, and the companies at first offered to produce 320 million cubic feet of gas per day, and asked for $10 per barrel equivalent in extra gas output. The Oil Ministry countered by offering $7 per barrel equivalent, which the consortium ended up accepting.

Kuwait Energy and TPAO also successfully bid on the Siba field in Basra. They promised to produce 100 million cubic feet of gas per day, and be paid $7.50 per barrel equivalent in extra production. They beat out Kazakhstan’s KazMunai Gas that offered to raise output to 60 million cubic feet per day and wanted $16 per extra barrel equivalent of gas production.

Finally, KOGAS and KazMunai beat out Total and TPAO for the Akkas field. KOGAS-KazMunai offered $5.50 per barrel equivalent with a production level of 400 million cubic feet. That was superior to Total-TPAO’s bid of $19 per barrel equivalent and 375 million cubic feet per day.

It appeared that the Oil Ministry’s last minute adjustments to their terms worked out in the end. In the last several weeks the Ministry made a series of concessions to try to get more interest in the auction. That included dropping requirements that companies find a partner for 50% of their exports, reducing signature bonuses, and cutting a fee that businesses would have to pay to train Iraqis in the industry.

Baghdad now has its real work cut out for itself. Iraq lacks any real natural gas network in the country, pipelines to export, or deals with foreign customers to sell to. The government’s first concern is to deliver the gas produced to power plants and other domestic industries. It has promised to build pipelines to accomplish that, but they’re not due to be finished until 2014. It will then need to negotiate with neighboring countries for export lines and long-term delivery contracts. Only when that’s accomplished can this auction really be labeled a success, and Iraq can be said to finally be developing this resource.

SOURCES

Aswat al-Iraq, “Turkish-led consortium wins third Iraq gas field,” 10/20/10

Salaheddin, Sinan, “Iraq gas auction fizzles despite hopes,” Associated Press, 10/20/10

Iraq Attempting To Privatize Its State-Run Businesses Once Again

At the end of September 2010 Iraq’s Industry Ministry offered up ten state-run factories for investment. Foreign companies were offered 15-year production sharing agreements mainly in cement, petrochemical, steel, and pharmaceutical businesses. The Industry Ministry owns 60 firms altogether that control 250 plants. It’s hoping to privatize all of them by 2020. That seems highly unlikely.

The Industry Ministry has tried to privatize before with few results. In March 2010 for example, the Ministry said that it was going to auction off all 250 plants it runs. That was at least the third time it had made such an announcement. So far, only five deals have been reported since 2003. In 2009 it signed a contract for the North Fertilizer Company in Baiji, Salahaddin with Japan’s Marubeni Corp. The Deputy Industry Ministry claims production has increased 30% since then. In April 2010 Baghdad also cut a deal with Larfarge SA, the world’s largest cement producer. Negotiations over other companies were started, but never finalized.

Investing in Iraq’s state-run businesses faces a series of major challenges. One is that they employ thousands of unnecessary workers to keep the unemployment rate down in the country. A consultant to the Central Bank of Iraq for example, told Azzaman in September that 90% of the public employees didn’t deserve their jobs. The government is unwilling to let many of these workers go however, out of fear that they might join militant groups or lead to social unrest. At the same time keeping all those workers makes the companies highly unproductive and expensive to run. Baghdad has even offered subsidies in some cases to keep people working at factories that were up for privatization. Iraq also has very few tariffs to protect their domestic industries at a time when the country is being flooded with cheap imports, the investment laws are obtuse, contradictory, and hard to decipher, and corruption adds extra costs. Finally, the government has arbitrarily taxed and attempted to change deals with foreign companies in the past. 

Today, Baghdad wants foreign investment, but is afraid of some of the consequences of privatization. Probably only the most attractive firms the Industry Ministry owns will attract foreign interest. The rest can be kept open as a costly, and inefficient jobs program, or they can be closed, which will increase unemployment, and could lead to instability. That makes deciding the fate of the state-run businesses a difficult one for the government. There are already some pressures from within the Maliki administration against the excessive number of public employees. Still, with billions of extra dollars expected to flow into Baghdad’s coffers with the recently signed oil deals, officials may just take the easy route and keep many of these businesses running rather than suffer the consequences of shutting them down. Which way Baghdad goes will be decided by the next regime, and could be a telling event as to whether Iraq is heading towards a more market oriented economy, or will maintain its state-run system.

SOURCES

Chaudhry, Serena, “U.S. firms say Iraqi regulation a challenge to trade,” Reuters, 10/5/10

Department of Defense, “Measuring Stability and Security in Iraq June 2010,” 9/7/10

Razzouk, Nayla, “Iraq to Offer Tenders to Revamp 250 State Industrial Plants, Official Says,” Bloomberg, 9/28/10

Sadr’s Decision To Support Maliki And Its Effects Within And Without Iraq

England’s Guardian newspaper had two stories on October 17, 2010 that tried to explain why Moqtada al-Sadr suddenly changed course and decided to support Nouri al-Maliki for a second term as prime minister. At first, the Sadrists were one of the greatest opponents to Maliki’s return. Sadr called the premier a liar and said he could not be trusted. Then suddenly on October 1, the Sadrists announced that they would back Maliki. The Guardian claimed this happened due to a concerted lobbying effort orchestrated by Iran, Maliki, Shiite clerics, Lebanon’s Hezbollah, and Syria.

The effort to change Sadr’s mind about Maliki started in September 2010. First, Ayatollah Kadem al-Hussein al-Haeri, Sadr’s mentor who lives in Iran, called on him to reconsider his position on the premiership. Next, Maliki sent a delegation to Qom, Iran made up of one of his top advisers Tariq Najm Abdullah and his chief of staff Abdul Halim al-Zuhairi to meet with Sadr. Also present were Iranian Revolutionary Guards Qods Force commander General Qassim Suleimani, who has long been in charge of Tehran’s Iraq policy, and the head of Hezbollah’s politburo Mohammed Kawatharani. Later in the month Iranian President Mahmoud Ahmadenijad stopped in Syria on his way to give a speech at the United Nations to talk with President Bashar al-Assad. Assad had come out for Iyad Allawi and his Iraqi National Movement during the 2010 Iraqi elections, and even organized a meeting between Allawi and Sadr in Damascus in July. Ahmadenijad held a two-hour meeting trying to convince Assad of Maliki’s case, to get another voice to lobby Sadr. Moqtada was still not convinced however, and demanded consultations with Iran’s supreme leader Ayatollah Ali Khamenei and Hezbollah’s chief Hassan Nasrallah. The latter demanded that Maliki promise to not let the U.S. military stay in Iraq after 2011, the deadline set in the Status of Forces Agreement (SOFA) signed between Washington and Baghdad at the end of the Bush administration. Maliki allegedly conceded to not renew the SOFA in 2011. Both religious figures then advised Sadr to switch his support to Maliki. The Iraqi premier then sent chief of staff Zuhairi to Damascus to meet with President Assad at the Damascus airport to finally cement his backing. Finally, Maliki traveled to Syria on October 13 to meet with President Assad, and then headed off to Iran on October 18 where he met with President Ahmadenijad, Ayatollah Khamenei, Iranian Foreign Minister Manushaher Mottaki, and Vice President Rida Rahimi, along with Sadr in Qom, the first time the two had met face to face in five years. If the Guardian is right, it took this conglomeration of clerics and leaders to win over Sadr, and begin a regional movement in support of Maliki. That coalition now rivals Allawi’s foreign supporters in Saudi Arabia and Turkey, and swayed Syria away from aligning with them.

A poster of Sadr on a checkpoint leading to the Iraqi parliament building
Source: New York Times

In return for his change of heart, Sadr is making some haughty demands. It’s been reported that they are asking for seven ministries, the secretary general of the cabinet, and deputy ministers in all the security agencies. They have also allegedly demanded 100,000 government jobs, and the release of all Sadrist prisoners. One movement leader even said that they deserved 25% of the staffing in each ministry. The movement is also acting so presumptious that it has turned the tide in forming a new ruling coalition, that it has begun posting flyers and banners of Sadr and his assassinated father Ayatollah Mohammed Sadiq al-Sadr in and around parliament. 

Sadr’s decision has also set off counter moves by the White House. U.S. Ambassador to Iraq James Jeffrey told the press that if Sadr had a leading role in a new government that might jeopardize Washington-Baghdad ties. The Americans have also reportedly told the Kurds that they should withhold their support for Maliki to block Sadr’s ascendancy. Iraq’s politicians don’t need any encouragement to drag out negotiations. On the other hand, the Kurds are now in a very advantageous position as they are the largest uncommitted bloc left, and can largely determine who will be the next premier. Using that leverage may be more important than listening to the U.S. right now.

Maliki is also trying to capitalize upon the turn of events. Besides his trips to Syria and Iran, he also went to Jordan. There are also plans to go to Egypt and Turkey next. If he can’t convince them to back his drive for power directly, he’s likely asking them to talk with Allawi to give up his desire to return to power, and throw his list behind Maliki’s instead. He wants Tehran to sway the Supreme Islamic Iraqi Council (SIIC) to his side as well. The SIIC is making a last desperate attempt to remain relevant despite losing most of their popular support since the 2005 election, and have nominated current Vice President Adel Abdul Madhi for the premier as a result. Maliki feels that the tide has turned in his favor since Sadr came out for him. Like Tehran, the premier is now working on the regional front to solidify his position.

Iraq is still probably weeks and even months away from forming a new government. Sadr’s decision to come out for Maliki was one of the first major changes in the stalemate that has been going on since the March 2010 election. Tehran had a leading role in Sadr’s choice organizing Syria, Hezbollah, and Ayatollah Haeri to all lobby him. That shows Iran’s ability to shape events in the country. This set off a chain reaction both within and without Iraq. The U.S. is now alarmed that the anti-American Sadr will have a leading role in any new government, while Maliki is on a regional tour to drum up support. That just increases Sadr’s influence, since he can rightly believe that all this activity is due to his actions. He’s likely to get most of what he wants in a new government, since not only did he drag out talks with other parties to maximize his position, he also has a political movement and a militia that can exert his will after all the talks are over. It’s just the latest example of Sadr being a political survivor after many had discounted him when his movement fractured, Maliki went after his followers in 2008, he disbanded the Mahdi Army, and then his candidates didn’t fare as well as expected in the 2009 provincial vote. At the same time, he was in almost the exact same spot in 2006 when he put Maliki into office the first time. That relationship didn’t last, so it’s wrong to think that Moqtada has suddenly reached a new apex. Iraq’s politics are like a soap opera with drawn out relationships, backstabbing, and plenty of drama, so what’s happening now, can always change dramatically in the future.

SOURCES

AK News, “Sadr bloc staggers govt. formation in Iraq: source,” 4/21/10

Alsumaria, “Al Maliki meets Al Sadr in Iran,” 10/19/10

Aswat al-Iraq, “Iraqi PM arrives in Damascus,” 10/13/10

Chulov, Martin, “How Iran brokered a secret deal to put its ally in power in Iraq,” Guardian, 10/17/10
- “Iran brokers behind-the-scenes deal for pro-Tehran government in Iraq,” Guardian, 10/17/10

Dagher, Sam, “U.S. Envoy to Iraq Warns About Sadr’s Role,” Wall Street Journal, 10/5/10

England, Andrew, “Iraq PM attempts to woo rival’s backers,” Financial Times, 10/14/10

Erdbrink, Thomas and Fadel, Leila, “Maliki meets with Iranian leaders in Tehran,” Washington Post, 10/18/10

Hanna, Michael Wahid, “Iran Has Less Power in Iraq Than We Think,” Atlantic, 10/14/10

Leland, John, “Moktada, Moktada, Moktada,” At War, New York Times, 10/19/10

Myers, Steven Lee, “Sadr Calls for New Iraqi Government,” New York Times, 7/19/10

Sands, Phil, “Syria helps to break deadlock in Baghdad,” The National, 8/24/10

Sinaiee, Maryam and Theodoulou, Michael, “Iran trip bolsters Malikis credentials,” The National, 10/18/10

Sly, Liz, “U.S. now urges Iraqis to take their time in forming government,” Los Angeles Times, 10/18/10

Xinhua, “Neighbors wrestle for sway over Iraq following U.S. pullout,” 8/17/10

Anbar Holds Protest Over Akkas Gas Auction

On October 20, 2010 the Akkas natural gas field in Anbar province was successfully bid on. The winner was a consortium of South Korea’s KOGAS and Kazakhstan’s KazMunai Gas. As reported before, Anbar’s governor and provincial council objected to the auction, claiming that the field should be under local rather than federal control. Anbar’s politicians organized a demonstration in Ramadi, the provincial capital, the day of the auction. Protestors demanded that the foreign companies hire workers from the province as well. 

SOURCE 

Reuters, “Residents chant slogans of Baghdad,” 10/20/10

Salaheddin, Sinan, “Iraq gas auction fizzles despite hopes,” Associated Press, 10/20/10

AL-WATAN CARTOON: Maliki Gives Green Light To Iranian Interference In Iraq

 

Source: Al-Watan, Saudi Arabia, Oct. 20, 2010

Iraq To Hold Natural Gas Auction Today

Today, October 20, 2010, Iraq’s Oil Ministry will auction off three natural gas fields. They have a combined estimated reserve of 11.2 trillion cubic feet of gas, 10% of Iraq’s total. There are major questions about whether this will be a successful process or not.

The three fields involved in the auction are Akkas, Siba, and Mansuriyah. Akkas is in Anbar by Syria with a reserve of 5.6 trillion cubic feet. Mansuriyah is in Diyala near the Iranian border with a reserve of 5.6 trillion cubic feet. Finally, Siba is in Basra with a reserve of 1.1 trillion cubic feet.

The Oil Ministry has been worried about the level of interest international energy firms have expressed in the auction. The event was first set for September 1, then pushed back to October 1, and then finally October 24. Each time the Ministry said that it was trying to get more companies involved. Iraq has also lessened its terms. It dropped a requirement that businesses find an export partner for half of the gas they produced, it cut the large signature bonuses corporations will have to pay, and reduced fees to train Iraqis in the industry that were going to run $1-$5 million per year. To sweeten the deals even more, Baghdad said that it will pay the companies whether the gas they produced is used or not, and will revise the money the government will pay for added production at each field. One energy analyst said Iraq might have to offer even more, like equity that will allow firms to count the reserves in each field on their own books. Overall, the gas deals are similar to the oil ones offered in 2009. Companies will be offered 20-year service contracts where they will be paid a flat fee for their service, and then an additional amount once they reach a set production level.

There are many reasons why Iraq has had problems with this auction. The Oil Ministry said it wants to use the gas for domestic use first. The Ministry has estimated that the nation’s power stations and businesses need an average of 1.05 billion cubic feet of gas per day, and that would increase to 5 billion by 2018. Right now they only receive 670 million cubic feet per day. Iraq lacks storage facilities or pipelines to handle any new production however. The government said it would construct this network, but it would not be ready until 2014. The lack of infrastructure also includes exports. Akkas and Siba for example, are just along the Syrian and Kuwaiti borders respectively, but there’s no way to sell any gas there as there are no lines connecting the countries. As reported before, the Anbar provincial government also came out against the auction of the Akkas field and any foreign sales from there. Mansuriyah is near Iran, but foreign corporations are probably unwilling to sell there because of international sanctions. Gas is also harder to sell then oil. Right now there is a surplus of the commodity on the world market, and there are other countries that offer better deals and more safety than Iraq. Analysts have said that the sale of gas requires long-term agreements, but none exist. Next, the companies will be selling gas to the Oil Ministry, and they have not set a price. That may determine whether any profits are made. Finally, there have been reports that Baghdad has no plans for who or how the gas will be used. It wants to develop the industry, attract foreign investment, and power their factories, but without a strategy these endeavors may prove fruitless for both Iraq and the companies.

Because of these issues, only 13 of 45 pre-qualified corporations have registered and paid fees to participate in today’s auction. Those are France’s Total, Italy’s Eni, Edison, Norway’s Statoil, Kazakhstan’s KazMunai Gas, Turkey’s TPAO, Japan’s Oil, Gas and Metals National Corporation, Itochu Corp., Mitsubishi, Kuwait Energy, India’s Oil and Natural Gas Corp., South Korea’s KOGAS, TNK-BP, and BP PLC’s Russian joint venture. Back in 2009 the Akkas and Mansuriyah fields were unsuccessfully offered as part of the first oil bidding round, but only Akkas got any interest. A consortium of Edison, Malaysia’s Petronas, China’s CNPC, Turkey’s TPAO, and Korea’s KOGAS offered $38 for each additional amount of gas produced after production levels were reached, while the Oil Ministry countered with $8.50. Today will see whether Iraq does any better.

SOURCES

El Gamal, Rania, “PREVIEW-Iraq to auction gas fields despite uncertainties,” Reuters, 10/19/10

Hoyos, Carola, Warrell, Helen, and Bernard, Steve, “Crude Competition,” Financial Times, 6/30/09

Salaheddin, Sinan, “Iraq gas auction draws limited participation,” Associated Press, 10/19/10

Anbar Objects To Iraq’s October Natural Gas Auction

Map of the 3 natural gas fields to be auctioned off Oct. 20, 2010
Source: Energy-Pedia News

On October 20, 2010 Iraq’s Oil Ministry will hold an auction for three natural gas fields. One of them is Akkas in Anbar province. There the governor and provincial council are demanding that they, and not Baghdad be in charge of developing the field.

Anbar’s governor and the head of the provincial council both talked with Reuters recently to voice their objections to the Oil Ministry’s plans. Governor Qasim Abdi Muhammad Hammadi al Fahadawi said he was against any government deal for Akkas. He claimed the field should be under local control instead. He warned that the province would not provide any security for Akkas if it was auctioned off. The head of the provincial council also said that Baghdad had ignored Anbar’s natural resources, and that the Oil Ministry should start exploring for gas and oil there.

Akkas has an estimated 5.6 trillion cubic feet of gas reserves. It, along with Mansuriya in Diyala, and Siba in Basra, are going to be bid on by thirteen international companies tomorrow. Originally, the auction was supposed to occur on September 1, but was then delayed until October 1 to try to draw up more interest. It was set back again until October 24 because the Ministry claimed several companies had asked for additional information on the process. Some of the businesses that have paid fees to participate are Italy’s Edison, France’s Total, South Korea’s KOGAS, and Russia’s TNK-BP.

Anbar’s objections are just the latest example of a province calling for greater control over its resources. The Oil Ministry however, clams that it has the ultimate authority over developing the country’s petroleum and gas, and has done little to appease local concerns. That could lead to problems between the central and provincial governments if Akkas is successfully bid on. At the same time, the Oil Ministry doesn’t rely upon the governorates to manage and export resources so Anbar is limited in what it can do about the gas auction.

SOURCES

Rasheed, Ahmed, “Iraqi province wants more say over energy riches,” Reuters, 10/18/10