Iraq’s first post-invasion oil deal was with the state-run China National Petroleum Corporation (CNPC) to work on the Ahdab oil field in Wasit province. In August 2008, the Iraqi Oil Ministry re-worked a 1997 contract with the company from the Saddam era, and made it a Technical Services Agreement (TSA), the only one so far finalized in Iraq. TSAs pay companies a set fee for their work, plus a dollar amount for each extra barrel of oil produced. In this case, the Chinese company is to be paid $3 billion, plus $3 per extra barrel. The Oil Ministry expects 25,000 barrels a day to be produced within three years, and 110,000 barrels later. The company isn’t allowed to sell the oil either, as it will go to fuel local power stations. CNPC accepted the deal because they wanted to get their foot in the door to Iraq’s vast oil resources. So far, the company is only in the exploration phase, and doesn’t expect oil production for another 2 ½ years.
As soon as the Chinese company arrived in Wasit, they began running into problems with the locals. First, farmers were afraid that the government would appropriate their land and give it to CNPC for oil work. The farmers responded by destroying generators, cutting power lines, and demanding compensation for damages they claimed the company had inflicted on their fields. One report claimed up to $1 million in damages had been caused by July 2009. Residents were also expecting jobs, as Wasit is one of the poorest areas in Iraq, but so far only 450 Iraqis have been hired. This led to protests by the provincial council, and a demand that $1 from every barrel produced from the field go to services in the province. The Oil and Gas Committee in parliament also took up Wasit’s complaints. As a result, the company ceased work for a time in May 2009, before Baghdad deployed extra security.
Today CNPC is back at work at the Ahdab field, but tensions are still high. Locals are still upset that they are not benefiting from the oil deal, and CNPC plans on bringing in hundreds of Chinese workers soon to work on a facility, which could make things worse. Baghdad is trying to gloss over the matter, claiming everything is fine. CNPC’s operations in Wasit could be a sign of things to come as Iraq is trying to entice foreign companies to invest in its oil sector. New corporations could face the same kinds of protests by locals, provincial governments, and parliament. That would only cause further problems for Iraq’s oil plans, which have largely gone unfulfilled.
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Chon, Gina, “China faces unexpected problem drilling for oil in Iraq,” Wall Street Journal, 5/22/09
Graeber, Dan, “New details emerge in Iraqi oil deal with China,” Iraq Oil Report, 9/4/08
Lando, Ben, “A Chinese Lesson in Iraqi Oil Exploration,” Time, 6/26/09
Latif, Nizar and Lando, Ben, “Big, careful steps,” Iraq Oil Report, 7/14/09
Latif, Nizar and Sands, Phil, “Oil company on shaky ground,” The National, 7/5/09
Radio Free Europe/Radio Liberty, “Chinese Company Launches $3 Billion Oil Project In Iraq,” 3/13/09
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Yacoub, Sameer, “Official: Iraq, China finalize oil service deal to develop southern Iraqi field,” Associated Press, 11/11/08
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