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Iraq & Kurdistan: Oil sector faces tough
times
8.2.2006
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A new scandal foregrounds the problem of
corruption in the Iraqi industry -- but corruption
is but one of the industry's many problems.
PRAGUE, 7 Feb (RFE/RL) -- Iraq's struggling
oil sector is once again being rocked by scandal,
following an announcement on 5 February that the
Public Integrity Commission has filed criminal
charges against a member of parliament for allegedly
embezzling millions of dollars intended to improve
security of a key pipeline.
The scandal comes amid reports of growing tension
between the central government in Baghdad and the
Kurdistan Regional Government (KRG), which
administers one of Iraq's key oil-producing areas.
Control of Iraq's oil is a highly sensitive issue,
so the claim made by outgoing Deputy Prime Minister
Ahmad Chalabi on 31 January that the KRG had failed
to obtain approval from the central government for a
number of oil exploration projects in Kurdistan
could complicate talks to form a new government.
Among the most important oil exploration efforts is
in Zakho, a town on the Turkish border. Kurdish
officials said in late January that the exploration
there had already produced "very good results."
Kurdish officials maintain that the Oil Ministry was
aware of the drilling. Back in November, in an
interview with RFE/RL's Radio Free Iraq, the
governor of the oil-rich Dahuk region, Tamir
Ramadan, said "the Oil Ministry has helped and
expended great effort [on the project] so it was a
party in this project."
Under the new Iraqi constitution, ratified in
October, regional governments are supposed to work
closely with Baghdad to develop the oil sector. "The
federal government and the governments of the
producing regions and provinces together will draw
up the necessary strategic policies to develop oil
and gas wealth to bring the greatest benefit for the
Iraqi people," the constitution stipulates.
Chalabi, who briefly took control of the Oil
Ministry in December, said that no such agreement
between the KRG and Baghdad exists about oil
exploration, Dow Jones Newswires reported on 6
February.
That places Det Norske Oljeselskap (DNO), the
Norwegian oil exploration company drilling at Zakho,
in an uncertain legal position.
DNO maintains that it has "a legal valid agreement
in full compliance with the constitution."
Chalabi begs to differ, saying that "negotiations
have not started yet."
DNO "may have some deal with the Kurds," Chalabi
said in an interview with Reuters published on 1
February, "but they need to have a deal with Baghdad
to explore."
Chalabi believes "we need a law before we can get to
exploration and production."
He gave no indication, though, when such a law might
be passed and, in reality, at this point the central
government can do little to stop the drilling,
something Kurdish officials are acutely aware of.
Oil Ministry In Disarray
Corruption and the growing dispute with the KRG are
just two of the problems besetting the Oil Ministry.
The Oil Ministry itself has been in disarray since
the start of the year, after Oil Minister Ibrahim
Bahr al-Ulum tendered his resignation on 2 January.
The reason was the government's decision in December
to put him on leave after the minister openly
criticized a planned increase in fuel prices.
Bahr al-Ulum returned to his post one week later at
the behest of President Jalal Talabani and Shi'ite
leader Abd al-Aziz al-Hakim, but, at the minister's
urging, al-Ja'fari finally accepted his resignation
last week.
His replacement as acting oil minister -- Hashim al-Hashimi
-- has raised questions, with media reports saying
that the former tourism minister has no expertise in
the oil sector.
Chalabi told Reuters that, in his view, al-Hashimi's
lack of expertise is not an issue.
Insurgents Cripple An Already Decrepit
Infrastructure
A raft of news this year has only served to
underline that the oil sector, too, is in disarray.
Despite its wealth of oil, Iraq has had to rely
heavily on oil imports since the fall of the Hussein
regime in 2003. In January, its oil debt to Turkey
topped $1 billion, prompting 34 Turkish companies to
stop exporting to Iraq. The Iraqi government says
payments will begin shortly, but Turkish State
Minister Kursat Tuzmen said exports will remain
suspended until the debt is paid.
The situation worsened, rather than improved in
2005, with insurgent attacks on pipelines and
refineries crippling the country's oil industry. Oil
production fell by 8 percent in 2005, averaging
between 1.5 and 1.8 million barrels per day - one
million barrels fewer than it was producing before
Operation Iraqi Freedom began in 2003. For a country
that relies on oil revenues to finance more than 90
percent of its annual budget - and with foreign aid
expected to be cut drastically this year - the
impact could be disastrous for the incoming
government.
Leaving aside the additional damage that the
insurgency could wreak, Iraq needs billions of
dollars to modernize its oil production system. A
World Bank estimate says it would take $8 billion to
raise output to three million barrels per day.
Speaking at a gathering of members of the Oil
Petroleum Exporting Countries (OPEC) in Vienna on 31
January, Chalabi said that he expects $4 billion in
investment, but did not say from where it would
come.
But until insurgent attacks on oil infrastructure
are addressed, the industry will continue to suffer.
An increasing amount of information is emerging from
Oil Ministry insiders that points to massive
criminality, including indications that some
Ministry personnel are acting, for example, as paid
informants for insurgent networks and for
oil-smuggling mafias.
In January, a security guard working at the Bayji
complex in northern Iraq told the U.S. magazine
"Newsweek" that his colleagues were known to be paid
informants for insurgents.
Finance Minister Ali Allawi, quoted in a 5 February
report by the "New York Times," estimated that
between 40 and 50 percent of all profits from oil
smuggling go into the pockets of insurgents. He
added that members of the insurgency hold senior
management positions in the Bayji refinery, one of
the country's key oil installations.
The previous day, on 4 February, police arrested the
director of a Kirkuk processing plant, along with
police officials and other employees, for a 2
February attack that destroyed much of the plant.
The Al-Juburi Scandal
It is against this backdrop that the multi-million
dollar embezzlement scandal broke on 5 February.
Mish'an al-Juburi, who was nominated last year to
serve as the speaker of parliament, is charged with
graft after a government investigation revealed that
he and his son embezzled government funds intended
to pay for paramilitary forces to guard pipelines
that run from Bayji through the Salah Al-Din
Governorate to Baghdad. The paramilitary force
proved to be fictitious. Through a company formed by
one of his sons, he allegedly pocketed about
one-fifth of a $102,000-per-month contract to feed
the guards, who, according to a list provided by al-Juburi,
were supposed to number between 200 and 300.
Al-Juburi is also accused of colluding to steal
Kalashnikov rifles. The weapons were stolen from
civilian vehicles after Al-Juburi had ordered
soldiers not to transport the 200 rifles to his
battalion in military vehicles, which would be the
normal practice.
Al-Juburi, who once had strong relations with Saddam
Hussein's deceased son Uday, is now in Syria, his
son Yazin told RFE/RL's Radio Free Iraq on 6
February.
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