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Iraqi Kurdistan oil contracts and
Shahristani's intent
2.6.2011
By Shwan Zulal - ekurd.net |
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June
2, 2011
Iraq's Kurdistan Region has been in the spotlights
ever since the Saddam Regime was toppled from power
by the US led invasion. The Region mainly attracted
smaller oil exploration companies to tap in to the
largely unexplored oil rich region. Ever since the
exploration companies have arrived, many of them
have described the region as an oilman's dream.
KRG (Kurdistan Regional Government) has took it upon
itself to grant PSC contracts for oil and gas
exploration and now there are over 40 companies
operating in the region. Many companies like Gulf
Keystone and Norwegian DNO have had good fortune of
discovering large reserves of oil and some have not
been so lucky.
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Only this week Western
Zagros WZR has struck oil in Sargala 1 and secured a
new rig on site to carry out more exploration.
The disputes between the Iraqi central government
and KRG have turned away some investors meanwhile
many are undeterred and have invested billions of US
dollars looking for oil. The dispute has been over
the legality of the contracts and technical details.
Most contracts awarded to operators in Kurdistan
Region are PSC's with a levy for local
infrastructure. The Iraqi deputy Prime minister for
oil, Hussein Al Shahristani, believes that KRG
contract should be converted into service contracts
in order to comply with the Iraqi constitution and
the illusive oil and gas Legislation that is not yet
in force.
The infrastructure and development tax applied to
the oil contracts in Kurdistan Region varies from
zero to 40 per cent of profit. The local tax is the
main sticking point between Erbil and Baghdad,
because Iraqi government argues that the rest of
Iraq would not benefit from the extra taxes paid for
locally. Nevertheless, the Kurdish Authorities argue
that Kurdistan has been underdeveloped for decades
and it needs the extra investment to build-up its
basic infrastructure.
Comparing the difference between PSC and service
contracts if applied to Kurdistan, one cannot see a
very large difference in its profitability for the
government in the short or medium term. The
difficulties many operators facing in Kurdistan due
to lack of basic infrastructure and other
challenges,www.ekurd.netwould
surly offset the argument for converting the
contracts to Baghdad's liking, because the cost
involved in drilling for oil in Kurdistan and can be
claimed would be very high. If KRG contract with oil
explorers were converted to service and all parties
to the contract agree-which is very unlikely- the
gains for Iraq's coffers would be minimal and in
some cases, it may be more expensive.
Seeing the facts and observing the political
struggle between Baghdad and Erbil, it is becoming
clear that Shahristani's opposition to the Kurdish
oil contracts is not for getting the best deal for
Iraq as he claims, but in order to take full control
of oil and gas industry and leave KRG completely
dependent on Baghdad for its income. The policy
pursued by Shahristani is also designed to strip as
much power as he can from KRG and try to centralise
power in Baghdad.
Meanwhile, Kurdistan Region sees granting oil
contracts and controlling its natural resources as
its prerogative, therefore it would not easily give
up control to Baghdad. All matters considered, It is
very unlikely that KRG will back down and accept
Shahristani proposals, however a compromise must be
found otherwise the sorry state of Iraq would
continue while Iraqis and investors grow more
frustrated.
Shwan Zulal
is a Kurdish Blogger, a regular contributing writer
for ekurd.net, interested in political and legal
Reform in Kurdistan, KRG, Iraq and current Kurdish
affairs, including oil exploration companies and
relevant legislations. You may visit Zulal's website
at http://kurdishviews.blogspot.com/
Copyright © 2011 ekurd.net
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