Iraq opens bidding on oil contracts

By Mary Beth Sheridan

Published: October 14 2008 09:48 | Last updated: October 14 2008 09:48

Iraq opened bidding Monday on the first round of contracts to develop its oil fields since the fall of Saddam Hussein, in an effort to spur production in a sector crucial to the country’s rebuilding.

Iraq has the world’s third-largest oil reserves. But despite five years of efforts and $2.7 billion in U.S. reconstruction funds, Iraqi production is still well below the U.S. goal of 3 million barrels per day announced in 2004.

Oil fields have been looted and attacked by insurgents since the 2003 U.S.-led invasion, technical experts have fled abroad due to violence and the infrastructure is creaky after years of international sanctions and neglect. Iraq needs billions of dollars of investment to repair its equipment and increase production, experts say.

“It’s a huge step,” said Vera de Ladoucette, director of Middle East research for Cambridge Energy Research Associates, noting that the new bidding involves fields representing one-third of known Iraqi oil reserves.

Iraqi Oil Minister Hussein Al-Shahristani met Monday in London with representatives of three dozen international companies to outline requirements for bids on the 20-year contracts to develop six major oil and two natural gas fields.

Bids are due in six months and the government is expected to sign the contracts by July 2009, according to the Oil Ministry spokesman, Aasim Jihad. Oil analysts estimate the contracts will lead to increases in production by 2011 or 2012.

Iraqi authorities are expected to announce a second round of bidding soon on another group of fields.

Oil is critical to Iraq’s economy, producing over 90 percent of its revenues. But bringing in foreign companies has been a touchy subject in this country, which nationalized its oil industry in 1972. Politicians have voiced suspicions that the U.S.-led invasion in 2003 was aimed at giving Western companies access to this country’s oil.

A bill aimed at establishing a new framework for the oil industry has been bogged down in Parliament since last year. It would determine how revenues are shared between regions, and spell out the rights of foreign investors.

Shahristani has emphasized that the new contracts will be technical service deals, and not allow international firms to keep any of the oil from the fields they work.

Iraq is a rare prize for oil companies, with known reserves of 115 billion barrels, the third-largest in the world after Saudi Arabia and Iran. But the country also presents considerable risk.

With the new oil legislation stalled, the government is relying on a law from the Saddam era for the new contracts. And while violence has dropped from the terrifying levels of a year ago, Iraq is still plagued by car bombs, sniper attacks and kidnappings.

“You have a degree of uncertainty, both legal and security uncertainty,” said De Ladoucette. “But on the other hand, this window of opportunity might not present itself again, so companies are going.”

On the legal side, she said, there remains a contradiction between the country’s 2005 constitution, which give the country’s regions more say on oil deals, and the old legal framework, which favors Baghdad.

Security, she noted, is still far from perfect. “But the major uncertainty is whether Iraq’s government will be able to guarantee a minimum level of security on the day the coalition troops leave the country,.” she said.

The government for the autonomous Kurdish region in northern Iraq has already signed its own investment deals with international oil companies, o the annoyance of the central government.

The U.S. government has tried in numerous ways to help Iraq rebuild its oil industry, strengthening infrastructure and helping train a special corps of oil police who protect pipelines and other installations.

This past summer, Iraq’s oil production finally crawled back up to the levels prior to the 2003 U.S. invasion — about 2.5 million barrels per day.

But in recent months, it has slipped to about 2.3 million barrels, due to poor weather, maintenance, and problems in a southern oil field caused by incorrectly injecting water to force out more oil, U.S. officials say.

Shahristani’s goal is to increase Iraq’s production to 4.5 million barrels a day by 2012.

US officials believe foreign involvement in the industry is essential since most of the American money to rebuild Iraq’s oil industry has now been spent, and this country’s own investments in the sector have been slowed by a sclerotic bureaucracy, the violence, and a lack of know-how and legal guarantees.

Copyright The Financial Times Limited 2008

Iraq kicks off first oil bid round

By RAPHAEL G. SATTER

LONDON

Iraqi oil officials on Monday set the conditions under which foreign energy companies will be allowed to share in the country's enormous oil and gas wealth.

The rules, detailed at talks that involved executives from 34 international oil companies, stipulate that Iraqis will keep overall control of any future joint venture but underscored the need for boosting foreign investment.

"This is a very important milestone in the history of the Iraqi oil industry," said Natik al-Bayati, the director-general of Iraq's Petroleum Licensing Directorate and one of Iraq's top oil negotiators.

Foreign investment in Iraq's energy infrastructure is politically sensitive because of accusations that the 2003 U.S.-led invasion that toppled Saddam Hussein was fought in part to exploit Iraq's vast oil reserves.

While Iraq's oil industry badly needs outside help, Iraqi officials don't want to be seen as bowing to Western multinationals, some of whom are still resented for the stranglehold they once had on the country's oil industry.

"We are trying to balance our past experience with our present needs," al-Bayati said.

Under rules outlined Monday, energy companies could bid for 20-year contracts at the country's biggest oil and gas fields but only after satisfying several conditions.

The companies would have to form joint ventures with an Iraqi state-run partner, with Iraqis retaining a majority stake. Joint boards -- composed mostly of Iraqis -- would oversee the venture's progress, including the appointment of an external auditor, approval of subcontractors, health, safety and environmental issues.

It wasn't immediately clear how companies invited to meet with the Iraqis in London felt about the conditions -- the conference itself was closed to journalists and most representatives had left by the time the Iraqis addressed the media.

Earlier, some taking a break outside the conference expressed frustration over the lack of details being given.

Iraq's Oil Ministry has given the companies six months to submit their bids -- a deadline Oil Minister Hussain al-Shahristani acknowledged was short. But he said the energy companies "seem to happy and they promise to try their best to meet these deadlines. We don't think the country can afford any further delays."

Iraq plans to announce winners by the end of next June.

Successful bidders would have to employ a mostly Iraqi field staff, al-Bayati said, adding that while Iraq lacked skilled technicians and managers, he expected the venture's top tier to have a strong Iraqi component too.

"We don't need much supervisory staff," he said. "We are not going to fill our top posts with expats, (although) neither will we hide our heads in the sand and pretend we can do it all ourselves."

Payment agreements would be linked to how well the companies improved each oil or gas field. Al-Bayati said companies would have to prove they had done a minimum amount of work and spent a predetermined amount of money, although he did not say what would happen if they failed.

Foreign companies would be reimbursed "dollar for dollar" for their efforts, but only once production at the oil field in question had been upgraded to a level agreed to in advance.

Thereafter, al-Bayati said, the company would get revenue based on how well they had worked to increase production.

He said the foreign company's profits would be taxed at 35 percent.

Addressing Iraq's still-fragile security situation, al-Bayati said conditions were safe enough that his country would not accept it as an excuse for not starting work.

"We will not have a situation where a contractor pockets the contract and then claims force majeure," he said, referring to a clause in contracts which frees both parties from their liabilities in cases of war or other disaster.

The full details of the conditions imposed by the Iraqis were not immediately clear. Al-Shahristani said the sample contract drawn up for the conference would not be made publicly available until after further negotiations with the energy companies.

Even if Iraq's conditions are restrictive, oil industry experts say the size of its proven reserves -- 115 billion barrels of oil -- make it too hard to ignore. And companies may be hoping bids on service contracts could lead to more lucrative prizes down the line, according to Omar Al-Saadoon, a senior associate at the Iraq practice group of Dubai, United Arab Emirates-based law firm Al Tamimi & Company.

"It basically gives the companies a foot in the door at Iraq's Oil Ministry," Al-Saadoon said.

------

Associated Press Writer Sinan Salaheddin in Baghdad and Gregory Katz in London contributed to this story.

Iraq’s SOFA fight

Throughout the world, wherever American forces are located, the US negotiates a status of forces agreement (SOFA) with the host country. Right now, with the UN mandate allowing American action in Iraq running out, the Bush Administration is hurrying to negotiate an agreement that, the Administration hopes, will allow the next President to continue the Bush foreign policy in Iraq. This is a risky path.

If you listen to supporters of the war, you’d think the US had won it. They point to decreased violence, al Maliki’s agreements with various militias, and claim that Iraq is calm, with the US near achieving its goals. As I noted a couple weeks ago in Iraqi myths and realities, this is far from the truth (see also Iranian endgame in Iraq). For this story line to live on they need two things: a) violence must remain low the rest of the year, and b) they need to conclude a status of forces agreement to assure Iraqi approval of continued US presence in Iraq for the foreseeable future. Having both may be all but impossible.

Although most Americans don’t know what a SOFA or a Status of Forces Agreement is, they are often very controversial in other countries. American military personnel are given special status, and there have been many headline cases abroad about Americans accused of rape and molestation, but who are whisked away so that they do not have to face charges in the country where the crime took place. This has created ill will towards the US in places like Japan and Korea, and contributes to an especially high level of anti-Americanism in South Korea.

In Iraq, the US wants to establish 50 military bases, have immunity from Iraqi law for both US military personnel and private security forces, control Iraqi air space, and have the the right “to conduct autonomous military operations” within Iraq. In short, Iraq would surrender some basic aspects of its sovereignty for this agreement. The US would be above the law, could intervene in Iraqi matters with military force any time it wanted to, and have bases peppered across the country.

Iraqi citizens and clerics are none too happy about it, and have threatened an uprising should the Maliki government agree. Yet this is important to President Bush. When Maliki balked at some of the provisions, President Bush called him personally to tell him that the US would not violate Iraqi sovereignty, but wanted certain protections in the accord. The Iranians, however, warn that US presence in Iraq is the cause of instability and unrest, and hints that it will help undercut Iraqi stability if the US signals a permanent presence. Meanwhile, in response to leaked details of the SOFA, Moqtada al-Sadr has called for Friday protests, and Iraqi law makers have signed a letter demanding a time table for US departure.

So what’s going on? The Bush Administration recognizes that the stability in Iraq now is an illusion of success. They realize Iran has penetrated Iraq’s government, military and militias. They know that if the US leaves it will leave an Iraq very much influenced by and even allied with Iran. This not only hurts American efforts to marginalize Iran, but also threatens renewed sectarian violence in Iraq, as Sunnis fear Iranian influence. Also, Iraq has more proven oil reserves than any state in the region except Saudi Arabia, and the US does not want Iran, who already trades oil in Euros and has threatened to use oil as a weapon, to have an ally in Iraq.

So the only way to really win in Iraq is to keep a long term presence, and use military force if Iran seems to be expanding its influence. The Iranians, for their part, have been willing to rachet down the violence to allow the US a face saving exit — violence down, declare victory and leave. But the SOFA threatens that, and risks the US trying to establish Iraq as a permanent base. With Senator McCain talking about 100 years in Iraq and making comparisons to Japan and South Korea, this is met in Iran with alarm — and with determination to use all their leverage to prevent it from happening.

Prime Minister Nouri al Maliki runs a government known to be corrupt and fragmented. Lacking control over the Kurdish and Sunni areas of the state, and with only partial control over Shi’ite regions, Maliki sees the US as a potential insurance policy for Iraqi government power. With the US gone, parties more friendly to Iran may get more of the goodies of an oil rich corrupt economy. The US is helping assure that those in the current government benefit — hence support by many government insiders for a deal with the US.

Watch this fight closely — it’s as close and as exciting as was the Clinton-Obama battle. The US will pressure Maliki to sign without major revisions (though certainly some symbolic nods to Iraqi sovereignty). Iran will respond by putting pressure on the Iraqi government, and Iranian backed militias will work with Iraqi nationalists to threaten the government with unrest. They will demand a timetable for withdrawal, not approval of 50 bases. The Bush administration knows the time is tight — if the negotiations drag on into August, the election campaign will overwhelm the issue, and those opposed to the US will be able to threaten to increase unrest at a time that would undercut the McCain campaign by making Iraq a major issue. Bush is hoping McCain takes over and continues his policy, and knows that this is only likely if the violence in Iraq remains low.

So watch this issue! If the US gets a favorable SOFA and there is little or no effective opposition, this means less violence and a greater chance that the next President might choose not to leave Iraq quickly. On the other extreme, massive violence in Iraq could develop in protest to SOFA giving the US most of what the Bush Administration wants. This could also increase the risk things could escalate into a conflict with Iran. If no SOFA is signed and instead a short term agreement to allow troops there until a comprehensive agreement is reached, that’s a tacit victory for Iran, and will increase the pressure on the US to withdrawal. Finally, if an extremely watered down SOFA is signed which satisfies the Iraqi opposition, that likely is also a benefit for Iran, and would likely also signal a hastened US departure.

So even though the media is only obliquely reporting this issue, and it seems buried between stories of tornadoes and the Obama-McCain match up, it’s shaping up to be a very telling indicator on the future of US military action in Iraq. And a successful SOFA might help John McCain in the general election, while a breakdown of these negotiations may make it all but impossible for him to win. The Iraq SOFA fight is a big deal.

Explore posts in the same categories: Iran, Iraq, World Affairs

Hard times... please support us...

STOCKS SOAR! (IN BAGHDAD)

By JENNIFER FERMINO with Reuters

$URGE! Traders update soaring prices on Iraq's exchange, which has defied world trends to gain 40 percent.

Last updated: 9:47 am
October 10, 2008
Posted: 4:00 am
October 10, 2008

Now it's stock and awe in Baghdad!

As the Dow plummeted nearly 700 points yesterday to fall well below the 9,000 mark, the Iraqi stock exchange -

where this broker was merrily keeping up with her booming business - was flourishing, buoyed by four-year lows in

violence and hopes of a reconstruction windfall.

Last month, Iraq's general index went up nearly 40 percent, about the same percentage the Dow dropped over the past year. The jovial trading-floor mood is reminiscent of Wall Street's bygone "greed is good" era of the 1980s.

Wall Street Routing World Markets

The Middle Eastern "masters of the universe" use complicated hand signals to communicate, keep their phones glues to their ear, and track their deals on whiteboards.

Computers are scarce and electronic trading is nonexistent, but so are the problems that have plagued the markets in New York and Europe.

"The world banking crisis won't affect us. Our market is sealed off from the outside," investor Saad Jalil told Reuters.

He said the Baghdad bourse is busier than he's ever seen it, with hotels and banks the hottest picks.

"People know the hotel stocks are undervalued . . . They think that in the new year, companies will come to Iraq and the hotel business will flourish," he said.

On a day when the Dow fell for the seventh straight day in a row, Wall Street watchers welcomed any news that wasn't completely catastrophic.

"The financial world is in a place where any good news from anywhere is welcome," said Dick Vodra, a VP at Spire Investment Partners in Virginia.

"Everybody wants something good to come out of Iraq. If this is progress towards a peaceful country, then good for them."

The United States has poured more than $600 billion into the war-torn nation, and some experts believe the total cost could be in the $2 trillion range.

Vodra pointed out that Baghdad's buoyancy amid the world's bear markets is not necessarily a good indicator of Iraqi fiscal health.

"It does show that they are unconnected to the rest of the world," he said.

"They're not part of the financial network, which today is a good thing for them but in the long run won't be."

Gary Schatsky, president of New York-based ObjectiveAdvice.com, called Baghdad's success a "curiosity."

"Any slight movement can dramatically move a market like that," he said.

Indeed, while Iraq is largely shielded from the current crisis, they have problems of their own.

The Iraqi Central Bank charges a whopping 16 percent interest rate for loans, and their 2009 budge depends largely on oil staying above $80 a barrel.

But, for now, Iraqis seem to be enjoying playing Gordon Gekko.

"The American system is all on credit. Here, take a loan, here, take a loan," investor Adel al-Jawahiri said.

"You can't have a totally free market. You have to have rules. From what I understand of why the credit crisis happened, I can only describe their administration as stupid."

jennifer.fermino@nypost.com

PHOTOS: Iraqi National Police patrol Hayy Aamel to disrupt, destroy enemy

By Staff Sgt. Brent Williams

1st BCT PAO, 4th Inf. Div., MND-B

FORWARD OPERATING BASE FALCON, Iraq - 1st Lt. Allaa, an Iraqi National Police platoon leader assigned to 2nd Battalion, 5th Brigade, 2nd National Police Division, meets with local Iraqi business owners outside their shops lining a market street in Hayy Aamel located in the Rashid district of southern Baghdad. The Iraqi NPs went door-to-door and through streets and alleyways during a combined patrol with Soldiers of the 1st Battalion, 22nd Infantry Regiment, 1st Brigade Combat Team, 4th Infantry Division, Multi-National Division - Baghdad.




FORWARD OPERATING BASE FALCON, Iraq - Iraqi National Policemen from the 2nd Battalion, 5th Brigade, 2nd National Police Division, search through the trunk of a car during a random house search in the Hayy Aamel community of the Rashid district in southern Baghdad. The NPs conduct daily combined patrols with Soldiers of the 1st Battalion, 22nd Infantry Regiment, 1st Brigade Combat Team, 4th Infantry Division, Multi-National Division - Baghdad, to reinforce ongoing security efforts in the neighborhoods and communities in Baghdad.




FORWARD OPERATING BASE FALCON, Iraq - An Iraqi family from the Aamel community of the Rashid district in southern Baghdad, makes Jouraak bread from Tawlyats, or trays of dough, in a family-owned Ferin, or bakery. The Iraqis make the bread in Hajary ovens, which are clay ovens that fire use fire and stone to make the biscuit-like cookies that are often covered in cheese, sugar or spice.




FORWARD OPERATING BASE FALCON, Iraq - Iraqi National Police of the 2nd Battalion, 5th Brigade, 2nd National Police Division, buy Jouraak, cookie-like biscuits covered in cheese, sugar or spice, from a local Iraqi Ferin, or bakery in the Aamel community of the Rashid district in southern Baghdad. The Iraqi National Policemen visit local business places, shops and restaurants to check on the local Iraqi entrepreneurs in their communities. They often purchase form the local vendors, who offer the food for free, but the NPs of the 2nd Bn., 5th Bde., 2nd NP Div., insist on paying dinar for the services.




FORWARD OPERATING BASE FALCON, Iraq - An Iraqi National Policeman from the 2nd Battalion, 5th Brigade, 2nd National Police Division, searches the roof of an Iraqi residence in the Hayy Aamel community of the Rashid district in southern Baghdad during a combined patrol with Soldiers of the 1st Brigade Combat Team, 4th Infantry Division, Multi-National Division - Baghdad.




FORWARD OPERATING BASE FALCON, Iraq - An Iraqi National Policeman from the 2nd Battalion, 5th Brigade, 2nd National Police Division, mans an Iraqi Security Forces check point in the Aamel community of the Rashid district in southern Baghdad. The ISF traffic control points are spread throughout Baghdad neighborhoods and communities to help reinforce continuing gains in peace and stability.




FORWARD OPERATING BASE FALCON, Iraq - Soldiers of Company D, 2nd Battalion, 4th Infantry Regiment, attached to the 1st Bn., 22nd Inf. Regt., 1st Brigade Combat Team, 4th Infantry Division, Multi-National Division - Baghdad, provide security for Iraqi National Police conducting a dismounted patrol to disrupt and destroy enemy activity in the Aamel community of the Rashid district. The Soldiers of the "Raider" Brigade conduct daily combined security operations to help the Iraqi Security Forces transition into a lead role throughout southern Baghdad.

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Copyright © 2008, NewsBlaze, Daily News

Sewage network on the way in Karbala

08 October 2008
KARBALA: Work has begun on a project to establish a sewage network in two Karbala neighborhoods at a total cost of over 3 billion Iraqi dinars, the chairman of the reconstruction committee in Karbala's provincial council said on Wednesday.

"Karbala's sewage department has launched a sewage network project in the two southern neighborhoods of al-Orouba and al-Ghadeer at a cost of 3.696 billion Iraqi dinars (1 U.S. dinar= 1,118 Iraqi dinars)," Fallah Hassan Atiya told Aswat al-Iraq.

The project will be implemented in two stages, with an overall completion period of nearly 20 months, Atiya noted.

Karbala, with an estimated population of 572,300 people in 2003, is the capital of the province and is considered to be one of Shiite Muslims' holiest cities.

The city, 110 km south of Baghdad, is one of Iraq's wealthiest, profiting both from religious visitors and agricultural produce, especially dates.

It is made up of two districts, "Old Karbala," the religious centre, and "New Karbala," the residential district containing Islamic schools and government buildings.

At the centre of the old city is Masjid al-Hussein, the tomb of Hussein Ibn Ali, grandsone of the Prophet Muhammad by his daughter Fatima al-Zahraa and Ali Ibn Abi Taleb.

Imam Hussien's tomb is a place of pilgrimage for many Shiite Muslims, especially on the anniversary of the battle, the Day of Ashuraa. Many elderly pilgrims travel there to await death, as they believe the tomb to be one of the gates to paradise. On April 14, 2007, a car bomb exploded about 600 ft (200 m) from the shrine, killing 47 and wounding over 150.

© Aswat Aliraq 2008

Iraq ready to replace US troops in Baghdad

08/10/2008 13:38 BAGHDAD, Oct 8 (AFP)

Iraq said on Wednesday it was ready to take over security responsibilities from US security forces in Baghdad as both countries say they are nearing a deal on a contested military pact.

Interior ministry spokesman Major General Abdel Karim Khalaf said Iraqi police are capable of handling security duties across the capital, a responsibility now held by US troops.

"We have the ability to take over the internal security responsibility in Baghdad if American forces pull out of the city," he said in a statement. "The interior ministry is able to take responsibility for protecting Baghdad."

His remarks came a day after Foreign Minister Hoshyar Zebari said Washington and Baghdad are now "very close" to an agreement on the presence of American troops in the country beyond this year.

"There have been new ideas and new language that could be acceptable, but no final decision has been made. This needs some bold political decisions now," Zebari said on Tuesday.

Zebari was speaking at a press conference with visiting US Deputy Secretary of State John Negroponte shortly after two bombs went off just outside the Green Zone, leaving at least seven people, including an Iraqi soldier, injured.

At a press conference in the Iraqi capital, Baghdad commander General Jeffery Hammond, who commands 28,700 US-led foreign troops said the improvement in security in the city of six million was dramatic but dangers remained.

"Security has improved, let there be no doubt," said Hammond, noting that Baghdad is now averaging four attacks a day, which according to US statistics compares to about 200 last year and 800 in 2006.

"We have been successful in creating the conditions for sustainable security for the eventual transfer to Iraq security forces but let there be no doubt that challenges remain."

The interior ministry said there had been an increase in the number of car bombs and roadside blasts in Baghdad since the start of the Muslim fasting month of Ramadan but said this did not mean a breakdown of security.

"An increase in car bomb attacks and IED (improvised explosive device) attacks, particularly since Ramadan (last month) does not mean that security forces failed," the statement said.

Khalaf said Iraqi security services lacked explosive detectors to prevent car bombs but otherwise had been effective in reducing the overall level of violence in the country, which is said to be at a four-year low.

The ministry "is seeking (financial help) with some provincial councils to import such devices and technologies to cover all areas of Baghdad and other provinces," he said.

The US military has handed over security responsibility in 11 of the 18 provinces in Iraq since June 2006. The process started with the Shiite southern province of Muthanna, which borders Saudi Arabia.

Much of Iraq's improved security has been credited to the recruitment of Sunni tribesmen and former rebels by the US military to fight against al-Qaeda.

Some 54,000 are deployed in Baghdad out of a force of 100,000 across the country.

Hammond highlighted the importance of the Iraqi government ensuring that the Sons of Iraq fighters, as the Americans refer to them, are properly integrated into the mainstream security forces in the city.

"The Iraqi government has committed to accepting responsibility for the Sons of Iraq. We are going to be there to assist the transfer. I'm confident this is going to go well," he said.

"We will not abandon the Sons of Iraq."