Iraq’s Electricity Minister Tries To Explain Continued Supply Problems

Iraq’s Electricity Minister gave a press conference on September 7, 2009 to try to explain Iraq’s long, hot summer. The Minister said Iraq is facing five problems with its electricity supply. First, the country does not have enough fuel to run some of its power plants. Second, the country’s budget problems are limiting the ministry’s spending power to boost and maintain production. The Electricity Ministry’s budget saw a huge 144% increase from $1.389 billion in 2008 to $3.39 billion in 2009, but almost all of that went to operational costs. In 2008 the Ministry received $89.1 million for its operational budget, which goes towards salaries, pensions, etc., and $1.3 billion for capital expenditures that paid for infrastructure, and other investments. In the 2009 budget, operational costs shot up 2492% to $2.31 billion, while the capital budget decreased 17% to $1.08 billion. Another issue is that the Ministry has barely been able to spend its money. In 2008 it only expended 12% of its budget. Third, the water shortages and drought are reducing hydroelectric power production. Fourth, the Minister said that his staff had taken serious personal losses, noting 1,000 had been wounded or killed. His last remark was that the huge increase in sandstorms this year is straining the ability of the Ministry to maintain and clean its equipment.

On the positive side, the Minister said that by the end of the year General Electric and Siemens AG should begin work on installing new generators, providing technical assistance and training, and providing spare parts as part of a $3 billion deal signed in December 2008. The Ministry didn’t have the money to pay the two companies at first, but the Finance Ministry has finally okayed the transfer of $2.4 billion to them. Together they are expected to add up to 10,300 megawatts.

As reported before, Iraq has consistently boosted its power production in recent years. According to the Special Inspector General for Iraq Reconstruction, the Electricity Ministry has increased electrical output for five straight quarters. From April to June 2009 average daily production stood at 124,713 megawatt hours. One factor in this increase is the boost in energy imports from countries like Iran. In the second quarter of 2009 Iraq imported an average of 16,237 megawatt hours per day, an 82% increase from the same period in 2008, and a 118% increase from the second quarter in 2007. The problem is that demand has consistently increased since the 2003 invasion above supply, and power delivery is inconsistent across the country. With improved security, the public is also demanding more services. Finally, Baghdad is trying to entice foreign companies to invest in Iraq, and officials are worried that the inconsistent electricity will keep them away. The question is whether Iraq will be able to add enough to its power grid to meet all of these different needs.

SOURCES

Aswat al-Iraq, “$2.4bn to pay for GE, Siemens contracts-minister,” 8/9/09

Al-Shalchi, Hadeel, “Power problems mean Iraq suffers hot summer, again,” Associated Press, 9/7/09

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 4/30/09
- “Quarterly Report and Semiannual Report to the United States Congress,” 7/30/09

Wasit Residents Protest Against Chinese Oil Company

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.

SOURCES

Asian Energy, “China Experts Start Work on Iraq’s Oilfield,” 1/4/09

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

Robertson, Campbell, “Iraq Poised to Revive Oil Contract With China,” New York Times, 8/20/08

Al-Rubai, Salah, “Angry farmers sabotage Chinese oil equipment in southern Iraq,” Azzaman, 5/5/09

Williams, Timothy, “China Oil Deal Is New Source of Strife Among Iraqis,” New York Times, 9/6/09

Yacoub, Sameer, “Official: Iraq, China finalize oil service deal to develop southern Iraqi field,” Associated Press, 11/11/08

Shell Natural Gas Deal Held Up By Iraqi Politics

At the beginning of September 2008 the Iraqi Oil Ministry signed a preliminary deal with Royal Dutch Shell to exploit natural gas in the Basra area. It was only the second agreement signed between Iraq and a foreign company to exploit its natural resources since the U.S. invasion in 2003. The Oil Ministry has been criticized by a variety of different groups within Iraq for this action, leading to inertia one year later. Now it’s been announced that Shell will have to wait even longer as officials say that nothing can be done until after the January 2010 Iraqi national elections.

The Deputy Oil Minister announced on September 5, 2009 that the Shell deal would have to wait for finalization until after the 2010 elections. He said that Iraqi politics would not allow any movement until afterward.

The preliminary agreement is a three-way deal between Royal Dutch Shell, Japan’s Mitsubishi, and the Iraqi Oil Ministry. Because Iraq has no new hydrocarbons law, the Oil Ministry used an old Saddam era laws to work out the proposed contract with Shell. Originally, the state-owned South Oil Company was going to own 51% of a joint venture, and Shell would have the other 49%. In February 2009 Mitsubishi joined with Shell, and pledged to go in 5%. The deal could be worth between $3-$4 billion over five years, and involve 500-600 cubic feet of natural gas per day. Currently Iraq has the 10th largest natural gas reserves in the world, and produces 1.7 billion cubic feet a day, but wants to increase that to 5.1 billion by 2015. Most of the natural gas in Basra is burned off instead of captured because Iraq lacks the infrastructure to do so. Overall, Iraq claims it looses more than 60% of its natural gas at a cost of up to $40 million a day.

The initial deal received immediate approval by the cabinet, but has been criticized by a number of groups. First, was the former oil minister under Saddam who asked why the government offered no-bids on such a large project. Second, members of parliament criticized the negotiations as being non-transparent. Third, the Oil and Gas Committee in the legislature worried that Shell would be given a monopoly with a 25-year contract. The committee, as well as the Fadhila party that held the governorship of Basra at the time, also said that they should’ve be included in the negotiations. Members of the committee have also claimed the deal is unconstitutional since it did not include parliament. Finally, there are disputes about how much of the natural gas will go to domestic needs, and how much will be exported, as well as the area of operations Shell will be given, will it be just for Basra or all of southern Iraq?

Iraq’s natural gas is largely underdeveloped, but has huge potential. Like the country’s oil it is a highly contested resource. On the one hand the Oil Ministry believes that foreign companies are required to exploit it, and the Oil Minister believes he can make these deals with only cabinet approval. Iraq’s parliament objects to this, claiming that they should be included in the negotiations, and have any contract ratified by them. There are also nationalist factions, and those that mistrust foreign companies, that think that the gas, like Iraq’s petroleum, should only be developed by the state. All of these arguments have held up the Shell-Mitsubishi deal for one year now, and there’s no telling whether the 2010 parliamentary elections will allow any further movement. This is the price foreign companies have to pay for attempting to do business in Iraq right now since the government is largely incapable of making big decisions because it is so divided and dysfunctional. In the meantime Iraq will be wasting most of its gas until some kind of final deal is worked out.

SOURCES

Ciszuk, Samuel, “Iraq politics impact Shell gas deal,” Iraq Oil Report, 4/20/09

Crooks, Ed and Khalaf, Roula, “Shell in Iraqi gas deal worth up to $4bn,” Financial Times, 9/8/08

Dow Jones, “Shell, Iraq gas Deal Progressing, Cabinet To OK Study-Official,” 7/6/09

Graeber, Dan, “Iraq approves gas deal with Royal Dutch Shell,” Iraq Oil Report, 9/7/08

Iraq Oil Report, “Iraq opts for long term oil deals, ditches no-bids,” 9/9/08

Khadduri, Walid, “Oil in a Week – Iraqi Oil 2008-2009,” Al-Hayat, 1/12/09

Lando, Ben, “Shell-Iraq gas company is a monopoly, secret agreement shows,” UPI, 11/4/08

Lando, Ben and Majeed, Alaa, “Gas deal no monopoly, Shell and Iraq say,” UPI, 11/6/08

Macalister, Terry, “Iraq parliament promises to push Shell out of gas deal,” Guardian, 4/18/09
- “Iraqi government fuels ‘war for oil’ theories by putting reserves up for biggest ever sale,” Guardian, 10/13/08

Rasheed, Ahmed, “Iraq Lawmakers Say Will Challenge Shell Gas Deal,” Reuters, 11/26/08

Salahedin, Sinan, “Iraq-Shell gas deal likely to be delayed until after January elections, official says,” Associated Press, 9/5/09
- “Iraqi official: Mitsubishi to join Iraq gas deal,” Associated Press, 2/12/09

Yacoub, Sameer, “Iraq, Shell sign deal,” Associated Press, 9/22/08

Syria-Iraq Dispute Could Be Ending

On August 19, 2009 twin bombings occurred at Iraq’s Foreign and Finance Ministries. Three days later, the Baghdad Operations Command announced that it had arrested a suspect, and his taped confession was later played on television. He said he was a Baathist and former policeman who put together one of the truck bombs in the Muqdadiya district of Diyala under orders from two Baathist officials in Syria. On August 25, Iraq demanded that Syria turn over the two alleged masterminds, and withdrew its ambassador, with Damascus following suit. That was the beginning of a war of words between the two countries. Baghdad demanded that Syria turn over or expel all terrorists in the country, it showed another confession on television of an Al Qaeda member who said that he was trained and financed by Syrian intelligence, called for the United Nations to conduct a criminal investigation into the bombings, and sent troops and police to patrol the Syrian border. On September 9, however, at a meeting of the Arab League, it was announced that the Syrian and Iraqi Foreign Ministers had come to an agreement to ease tensions, stop the recriminations, return the ambassadors, and form a joint security committee.

This dramatic escalation of tensions between Iraq and Syria covered over the fact that Baghdad issued two contradictory stories about the bombings. On August 29, the Interior Ministry reported that it had arrested 14 Al Qaeda members in Baghdad who it said was responsible for the August 19 attack. Al Qaeda’s Islamic State of Iraq also claimed they carried out the bombing four days earlier on a website. The government has never reconciled these two versions of events.

The Arab and Iraqi press however, were full of ideas about why Prime Minister Nouri al-Maliki chose to confront Syria. What seems most likely is that Maliki wanted to defer blame for the bombings on a believable target, Baathists in Syria. First, the Baath Party and insurgents openly operate in Syria. For example, in 2008 Baath members and insurgent groups held a televised conference in Damascus, and in July 2009, militants held a summit in Syria. That made Damascus an easy target for Maliki. The Prime Minister is also running on law and order again for the 2010 elections, so he needed to blame someone other than himself for the attack. Another possible reason is that Maliki has been upset that the United States has held off and on negotiations with Baathists in Syria. It was reported that Baghdad demanded that Syria deport over 200 Baath members, which would’ve disrupted any deals with Washington as well as gotten rid of some of the most militant opponents of the Iraqi government.

If the Arab League announcement is followed through with, then this whole episode may be wrapping up. Maliki will have achieved his goal of distracting public attention away from his rule and the Iraqi security forces, to Syria and the Baathists. With all the fury and announcements, people will also probably forget that the government came out with two contradictory stories of who was responsible for the August 19 bombings. Maliki will then be able to return to the campaign trail claiming that he stood up for Iraq against the terrorists, even if he probably accused the wrong ones.

SOURCES

Alsumaria, “Qaeda militant says trained in Syria for Iraq attack,” 8/31/09

Aswat al-Iraq, “90% of terrorists came to Iraq through Syria – PM,” 8/31/09
- “Cabinet urges Syria to hand over suspected bombers,” 8/25/09
- “Footage of “confessions” by Wednesday bombings’ prime suspect broadcast,” 8/23/09
- “URGENT/Syria rejects Iraq’s remarks, recalls ambassador,” 8/25/09
- “Wednesday attackers Baathists – BOC,” 8/22/09

Dagher, Sam, “2 Blasts Expose Security Flaws in Heart of Iraq,” New York Times, 8/19/09
- “Iraq Presses U.S. on Pact With Sunnis in Turkey,” New York Times, 7/24/09

Iraq The Model, “Iraq has satellite imagery of Syria training camps,” 9/7/09
- “Iraq postpones census until October 2010,” 8/31/09

Lynch, Marc, “The Syrian-Iraqi spat,” Foreign Policy, 9/1/09

Raphaeli, Dr. Nimrod, “Al-Maliki Turns His Back on Iran, Embraces Iraqi Nationalism,” Middle East Media Research Institute, 9/2/09

Sands, Phil, “A safe haven in Damascus,” The National, 8/29/09

Santora, Marc, “Iraqis Demand Syria Turn Over Suspects,” New York Times, 8/25/09

Sly, Liz, “Al Qaeda-linked group claims two recent Baghdad bombings that killed 95,” Los Angeles Times, 8/26/09

Xinhua, “Iraq, Syria agree to stop media campaigns, speed up returning ambassadors,” 9/9/09

U.S. Holds Talks Between Al-Hadbaa And Kurds In Ninewa

Iraq The Model recently reported on a story from al-Sharq al-Awsat on U.S. sponsored talks between the ruling al-Hadbaa party in Ninewa and the Kurdish Ninewa Fraternal List. The meeting included two members of al-Hadbaa who hold 19 of the 37 provincial seats, two members of the Fraternal List who have twelve seats, a member of the Iraqi Islamic Party who have three seats, and several American officials. The U.S. was said to be working on these negotiations since at least August 2009. The Kurdish emissaries were quoted as saying that they welcomed the discussions.

Currently the Fraternal List is boycotting the provincial council since they got no positions after the 2009 elections, and 16 administrative units controlled by the Kurds in Ninewa are refusing to follow the directives of al-Hadbaa. The war of words between the two sides has only gotten worse in recent weeks. The dispute is also giving the insurgents room to operate as they are playing up Arab fears of the Kurds, and the lack of cooperation between al-Hadbaa and the Fraternal List is creating security holes, which militants have been able to exploit with attacks. The question now is how much of an effort will the Americans put into these talks, and whether al-Hadbaa and the Fraternal List are willing to compromise. So far, several Iraqi parties have tried to mediate, but to no avail. It seems for now the two sides are willing to talk, but little else.

SOURCES

Aswat al-Iraq, “Mosul parties’ intransigence encumbered IIP initiative – spokesman,” 8/16/09
- “Sadrist delegation in Mosul to defuse crisis,” 6/13/09

Al-Badrani, Jamal, “Qaeda stronger as blasts feed Iraqi Kurd-Arab feud,” Reuters, 8/16/09

Dagher, Sam, “Minorities Trapped in Northern Iraq’s Maelstrom,” New York Times, 8/16/09

Iraq The Model, “U.S. sponsored talks between Nineveh’s Arabs and Kurds,” 9/7/09

Mohsen, Amer, “Iraq Papers Wed: A Wounded Country,” IraqSlogger.com, 6/23/09

Salahaddin’s Governor Dismissed

On September 3, 2009 on a vote of 17 for, 7 against, and 3 abstaining, Salahaddin’s provincial council dismissed Governor Mutashar al-Aliwi. The council said that the governor refused to appear before them for questioning. No other reasons were provided. The governor and council have only been in office since April 2009.

The next several days saw demonstrations for and against the council’s decision. On September 4, people gathered in Samarra, and the next day in Tirkrit to let the governor know that he should step down. On September 7, the Iraqi Islamic Party organized a counter demonstration in the city of Dalouiya, and another march was held in the Ishaqi district on September 9. The Governor has said the council’s ruling is illegal, and he is going to the courts to make his case.

Aliwi is a member of the Iraqi Accordance Front, which is led by the Islamic Party. The Accordance Front tied for first place in the 2009 provincial elections. Former Prime Minister Iyad Allawi’s Iraqi National List was the other first place winner, and they, along with other smaller parties, formed a ruling coalition with the Accordance Front. Some member of that group had to vote for Aliwi’s removal for it to be successful.

SOURCES

Aswat al-Iraq, “Demonstration in Salah el-Din against dismissal of governor,” 9/9/09
- “Demonstration in Samarra against sacking Salah el-Din’s governor,” 9/4/09
- “Demonstrators in Tikrit want governor out,” 9/5/09
- “Salah al-Din residents protest removal of governor,” 9/7/09

Oil Companies Exporting From Kurdistan May Not Be Paid For Years

An executive from Talisman Energy of Canada said that companies exporting oil from Kurdistan might not be paid for years. In May 2009 it was announced that the two fields that were producing oil in Kurdistan, Tawke, operated by Norway’s DNO, and Taq Taq run by Turkey’s Genel Enerji and Canada’s Addax, could export their products. The Kurdistan Regional Government (KRG) agreed to deposit all of the profits with the central government in return for the right to sell its petroleum internationally. This was seen as a major breakthrough between Baghdad and the KRG who have been arguing over who has the right to explore, produce, and export oil for several years now. There continues to be one main sticking point however, Baghdad refuses to pay the companies, and the Kurds have not paid them either. The Talisman executive, whose company has begun exploration work in Kurdistan, told Reuters that at the earliest, Iraq could work out a payment deal after the January 2010 parliamentary elections. At the latest, he warned that it could take years. This could have a severe impact on the Kurds’ plan of creating their own independent petroleum policy. Unless the companies get paid, they will only agree to small-scale exploration and drilling work, because any larger investment will not be compensated. In the meantime, Baghdad is benefiting because the extra revenue is going into its coffers at no cost.


SOURCES

Bergin, Tom, “UPDATE 1-Iraq may not pay for Kurdish oil for years-exec,” Reuters, 9/8/09

Ciszuk, Samuel, “No clarity on Iraq-KRG oil export flap,” Iraq Oil Report, 5/13/09

Ibrahim, Waleed, “UPDATE 4-Kurds say will launch oil exports, Iraq denies,” Reuters, 5/8/09