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Minister Hawrami's speech at London oil conference: KRG oil policies produce real benefits and opportunities for Iraq's citizens

THU, 20 JUN 2013 10:29 | KRG Cabinet

Keynote Address by Dr Ashti Hawrami
KRG Minister of Natural Resources
to CWC Iraq Petroleum Conference
London, 19 June 2013

Distinguished Guests, Ladies and Gentlemen

It is a pleasure to be invited once again to the Iraq Petroleum conference in London. Thank you to the organizers CWC.  We look forward to seeing you in Erbil at the Kurdistan-Iraq conference in December.

Ladies and gentlemen, since protests erupted across the Middle East in 2011, international attention has shifted from one scene of unrest to another.

Naturally, the impact of these turbulent developments has been felt in Iraq, which unfortunately has further added to our post-war insecurity as we continue to witness political instability and daily acts of violence.

This is why it is essential more than ever that Iraq’s current politicians continue to engage in constructive dialogue and to seek consensus as to the best ways to share the country’s power and wealth, demanded by the basic law of the land, namely the federal Constitution.

Iraq’s citizens have learned the tragic lessons about what happens when control of a country’s wealth and power rest in the hands of a few.

Given Iraq’s diverse religious and ethnic composition, we know that all attempts at enforcing majoritarian rule in such a diverse society often leads to bloodshed and always are doomed to failure.

The KRG remains committed to working with all other political blocs in Iraq to solve some of the more intractable problems, through dialogue, negotiation, and respect for the rule of law, namely the Constitution. 

In this respect, the recent initiative of KRG Prime Minister Nechirvan Barzani to visit Baghdad, and the return visit of the federal Prime Minister Nouri al Maliki to Erbil, reflect the seriousness with which Iraqis are trying to solve their own problems.

As HE Dr Rowsch Nuri Shaways, the Deputy Prime Minister of Iraq, confirmed yesterday, we have agreed to set up a number of joint committees with our colleagues in the federal government to try to move toward the passage of a federal hydrocarbons law, based on the Constitution to regulate the relationship between the federal authorities and the Regions and producing governorates on the management of oil and gas resources.

As most of you know, the KRG passed its own oil and gas law in 2007, which sets out the Region’s constitutional rights with respect to its oil and gas resources.

As important, if not more, to Iraq’s stability and unity is the passage of a federal revenue sharing law as set out in Article 112 of the Constitution.

Both the hydrocarbons law and the revenue sharing law are Constitutional requirements and will be the pillars of stability and unity in Iraq.

In this regard, I would like to highlight another important and decisive law which was passed in April by the Kurdistan parliament.

Law no 5 of 2013, “The Law of Identifying and Obtaining Financial Dues to the Kurdistan Region of Iraq from Federal Revenue.”

This was a necessary piece of legislation which, in light of Prime Minister Barzani’s recent visit to Baghdad, forms the legal basis for the settlement of all outstanding financial and budgetary issues between the KRG and Baghdad.

Essentially, the law outlines a mechanism for defining and then obtaining the outstanding revenues owed to the Kurdistan Region by the federal government since 2004.

It says that if the federal government continues to default on the outstanding KRG entitlements then the KRG is authorized to use all other legal means available to it to compensate for all the unpaid dues, including monetizing oil produced in the Region.

This will include items such as past budgetary amounts owed to the Region, costs related to the Regional Guards (Peshmerga), the supply shortfall of refined oil products, and the compensation mechanism required for damages done to the Region by the former regime.

The law sets out a pathway to implement Iraq’s Constitution.

We believe that by implementing the Constitutional requirements for power and wealth sharing, everyone in Iraq will benefit, citizens and investors alike.
 
Distinguished guests, thanks to its hydrocarbon resources, the Kurdistan Region is already in a process of rapid transition.

Yet it remains calm and focused, determined not to get dragged into other people’s quarrels and conflicts.

The need to maintain balanced and friendly relations with all of Iraq’s neighbours has enabled us to move forward.

Our desire for progress is one that I believe is shared by all citizens of Iraq.

As a result, the KRG’s contribution to Iraq’s export targets, through the country’s northern energy corridor to Turkey and beyond, will be significant at such a time of increased international tension.

With 45 billion barrels of reserves and 3-6 tcm of potential gas resources, the Kurdistan Region has been called one of the few remaining conventional oil and gas frontiers.

In recent years, Kurdistan has become one of the most actively explored hydrocarbon regions of the world, with over 25 rigs in 2012 and now close to 40 this year, compared to just 3 operating in 2008.

In the five-year period since the Region passed its oil and gas law, Kurdistan’s oil and gas have become part of the portfolio of an increasing number of international oil and gas exploration companies, with more than 50 stakeholders from more than 20 countries now present in the Region.

Already, four significant oil fields are in the production stage with six more expected to come on line by the end of the year.

Current production capacity lies at 300,000 barrels per day, rising to 400,000 by the end of the year.

Most of the crude production will be destined for export, currently by trucking, then soon via pipelines. Around 30,000 barrels per day is being exported by truck from the Kurdistan Region to market via Turkey.

The KRG takes its share of this trade as allowed for under the production sharing contract to purchase, or barter for, refined products such as diesel and kerosene.

The Kurdistan Region continues to spend considerable sums of money each year on imports of diesel, benzene, kerosene etc to fuel power plants and factories and domestic heating.

Around 100,000 barrels per day of KRG crude production soon will be earmarked for domestic consumption via the Region’s refineries, which is expected to increase to 200,000 barrels per day in the coming one to two years.

Under a formula agreed with the federal government, the Kurdistan Region is entitled to 17% of Iraq’s total refined products, plus 17% of the crude oil that is used by Iraq to supply power stations.

Export targets, once the new pipeline network becomes available, are 1 million barrels per day by the end of 2015 and 2 million by 2019.

The revenue from these oil sales will mean a boost of billions of dollars to Iraq’s treasury.

Our success in the KRG will also be Iraq’s success.

Export of oil and gas is not a monopoly of any single entity to be decided in Baghdad, indeed, it is our duty as Iraqis under the federal Constitution to pursue export routes for oil and gas to secure our future.

And as we all know, nowhere in the world does one million barrels of oil remain stranded, and so I am confident that Kurdistan exports via pipeline will become a reality very soon.

We are constructing additional export infrastructure for Iraq from within the Region. I refer you to the relevant maps in the new issues of the Oil and Gas Year Book that was distributed here.

The new export infrastructure will be a cost effective and secure solution which will enable more of Iraq’s oil and gas to reach the international market and which will enable all citizens of Iraq to benefit from increased revenues.

The first stage of a pipeline from our first oil field at Taq Taq to Khurmala field has already been completed and is currently being tested.

From Khurmala, the pipeline runs north to Duhok. This was originally intended to carry gas to the power station in Duhok, but because the pipeline was completed ahead of sufficient gas availability, hence it has been converted to transport oil. Therefore from Duhok the pipeline will now run north to the Turkish border at Fishkhabur.

This stage is scheduled for completion by the end of September, and we expect to see around 200,000 barrels per day in the first phase flowing through the pipeline from Taqtaq-Khurmala, which added to the production from Tawke will see an initial capacity of 300,000 barrels per day.

With the planned installation of pumping stations along the pipeline route, the carrying capacity of the pipeline will exceed one million barrels per day.

The Duhok power plant will now take gas from the nearby Sumeil field, being run by DNO and Genel.

Ladies and gentlemen, the Kurdistan Regional Government is pursuing policies that will help to increase economic development in the Region and also of neighbouring provinces in Iraq’s north. Its wise and prudent use of natural resources is producing real benefits and creating opportunities for Iraq’s citizens.

This is the only way to build stability and maintain unity in Iraq. By staying focused on results, by adopting a modern, progressive and transparent approach to the oil and gas industry and creating a positive atmosphere for investment, the logic of success becomes difficult to beat.

With respect to transparency, I refer you again to the Oil and Gas Year which contains information on production, revenues, company donations to social programs, refining and trade.

The KRG also remains committed to the criteria and goals of the Extractive Industries Transparency Initiative and last year submitted a full report on production and revenues.

Regrettably the EITI report was censored in Baghdad and the chapter on Kurdistan was removed at the time of its launch. This damaged the reputation of EITI as an independent revenue tracking organization.

Nevertheless, the KRG will remain committed to report transparently on all its oil and gas related activities.

On Monday, I attended the Iraq Power conference, and it was striking to see how speaker after speaker listed the key obstacles to power generation and distribution in Iraq as the lack of the rule of law, unnecessary bureaucratic bottlenecks and widespread inefficiency.

Sadly, 29 trillion dinars later, Iraq has only solved a few of its electricity problems. The Kurdistan Region, however, has spent less than 1 trillion Iraqi dinars and enjoys near round-the clock power.

So it is not just about throwing money at a problem. It is about creating the right conditions for a long-term partnership between the state as a regulator and the private sector.

Ladies and gentlemen, this week here I have also heard many speakers saying that Iraq is at a crossroads. But it has been at this crossroads for too long and is stagnating, or even worse.

Ten years after liberation from the former regime, some in Baghdad still rely on the use of old laws and old ways of thinking instead of focusing on how best to build for the future.

Nevertheless, we look forward to doubling our efforts with our colleagues in the federal government to resolve all our differences and to create a united and prosperous Iraq based on the implementation of its permanent Constitution and the fundamental obligations contained therein to legislate to share the country’s power and wealth.

Finally, to sum up, we say that post-war Iraq has to be governed according to its new Constitution. As Article 1 reminds us, the Constitution is the guarantor of Iraq’s unity. Its non-implementation therefore is the biggest threat to a peaceful, prosperous and united Iraq.

Thank you.